ESG

As the world sits up and slowly starts to move to a circular economy terms such as ESG Investing are becoming more commonplace in advice discussions.

ESG stands for Environmental , Social and Governance as a style of investing that falls under the wider banner of Responsible Investing.

As an industry we have introduced what might be seen as confusing jargon in the world of Responsible Investing including terms such as Ethical Investing ,  Sustainable Investing and Impact Investing as the main ones to join ESG.

There are also even more sub themes which are not aimed to confuse to but offer choice and nuance in a
sophisticated investment world and we will help to explain which style could be good for you based on your personal understanding and requirements.

Ethical Investing – The first of these funds launched in 1984 and these funds are values based with a focus on
excluding certain sectors such as investments in Tobacco , Pornography , Armaments , Gambling, Alcohol, Animal, Welfare and Fossil Fuels.

ESG Investing – This is predominantly a risk framework examining how companies might be exposed to environmental, social and governance factors and how they have deployed specific strategies to mitigate these factors (or not).

Sustainable Investing – Sustainable fund managers generally look for positive investment opportunities that are useful and “sustainable” for both society and the environment. The investment brochure may have pictures of  Windfarms but sustainable funds can invest in Renewable energy, Transport , Agriculture , Education , Health , Medicine , Water supply and many more themes with the United Nations Sustainable Investment Goals providing the focushttps://sdgs.un.org/goals.

A Fund may have the word “Sustainable” in the name but may have a certain focus on certain themes so for example one fund may be focused on climate whereas another may have a more general spread across different sustainable sectors.

Impact Investing – This is the new kid on the block in the investment world and looks to generate measurable positive impact on society and the environment in addition to delivering attractive financial returns.

Impact investing may include the ESG risk framework as part of the investment process but an Impact investment should adhere to the following conditions:‐
Intentionality – A company specifically sets out to deliver a particular impact with that goal being part of the company’s mission statement , strategy and day to day operations ( so accidental impact does not count).

Additionality – How the world might be different if tat company did not exist.
Materiality – What is actually being accomplished and what is its magnitude?
Measurability – Quality of date and measurement of intangible elements are challenges here as they funds aim to show the impact and avoid being dragged into the “Greenwashing” debate.

So in summary there are 4 main styles of investing and some of these styles can overlap and be blended or have focus in particular sub sectors such as agriculture which has all evolved in order to provide choice and opportunity.