Interest in environmental, social and governance (ESG) investments has grown considerably in recent years.
In fact, according to data published by FTAdviser, investors placed more than ÂŁ100 million a week into sustainable funds in 2022.
ESG refers to a set of aspects of a company’s behaviour that ethically minded investors take into consideration, alongside traditional financial metrics, when choosing between potential investments.
As the new year rapidly approaches, now is a great time to review your investment portfolio and start planning ahead. So, read on to find out why you might want to consider ESG investing in 2024.
1. Make a positive impact on the planet and promote social responsibility
Investing in ESG funds could allow you to support positive change in the world while simultaneously benefiting your portfolio.
Companies that prioritise ESG help to promote socially responsible and sustainable business practices. Common environmental strategies include carbon pricing, which aims to reduce carbon emissions by charging organisations for each ton of CO2 they emit, and investing in green bonds which fund projects with eco-friendly goals. While policies that protect employee welfare and shareholder rights help to deliver social and governance benefits.
By implementing and reporting on such ESG strategies, companies can be held accountable for their actions and contribute to global sustainability goals.
A healthy environment and workforce are essential for continued business growth, personal health and wellbeing, and the longevity of our planet. So, by adding ESG funds to your portfolio, you could help to drive positive change.
2. Improve the performance of your portfolio
According to a report by Morgan Stanley, sustainable funds beat traditional funds in the first half of 2023.
There are a number of potential reasons why ESG investments might outperform non-ESG investments in the long term, including:
- Enhanced operational efficiency
- Increased cost savings
- Lower employee turnover
- Ability to retain talent
- Lower compliance costs.
All of these factors might contribute to an increase in shareholder value.
Furthermore, companies that promote sustainability may be better placed to meet long-term investment goals. This is because they are typically more prepared for ESG-related changes in regulations, social expectations and market demand.
By integrating ESG funds with your existing portfolio, you could potentially improve its mid- to long-term performance overall.
3. Balance the risk in your portfolio
Balancing risk is an essential element of investing.
Companies that prioritise ESG are often more resilient and better able to withstand the short-term fluctuations that may occur in a volatile market than those that don’t.
As a result, ESG funds often have different risk profiles than traditional funds. This can make understanding the potential impact of adding them to your portfolio a challenge.
Speaking with a financial planner could help you identify your financial goals, assess your attitude to risk and select ESG funds that align with your values. They can also ensure that the overall level of risk in your portfolio is appropriate to meet your long-term financial goals.
4. Benefit from an increasing choice of ESG funds
Growing awareness of ESG issues is driving an increasing demand for sustainable investment options. According to research published in Money Marketing, nearly 3 in 4 advisers have noticed an increase in demand for ESG and sustainable investments.
This is likely to result in a greater choice of ESG funds in 2024 and beyond.
Furthermore, with an increasing number of ESG policies and regulations, such as the UK Advertising Standards Authority (ASA), which came into force in June 2023, investors may feel more confident about companies’ ESG reporting. The new rules aim to reduce “greenwashing” whereby companies selectively or inaccurately report their sustainability-related activities.
So, identifying ESG funds that align with your values and benefit the performance of your investment portfolio could potentially become easier.
With the future looking greener than ever, now may be a good time to work with a financial planner to integrate ESG investments into your plans. They will help you assess and choose ESG funds and understand how they could impact your portfolio.
Get in touch
If you’d like to learn more about ESG funds and how to add sustainable investment strategies to your portfolio, we’d love to hear from you.
Please email us at mail@delaunaywealth.com or call 0345 505 3500.
Please note
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
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