Intergenerational appeal of ESG investing
Renewed interest since the outbreak of Covid-19 in more responsible and sustainable investment products has seen a significant increase in the amount flowing into funds that explicitly take account of environmental, social and governance (ESG) criteria, alongside conventional financial metrics.
This trend has been on the back of a relatively strong performance from the ESG sector when compared with more traditional non-ESG funds. This shift of ESG factors into mainstream investing is set to be supported by legislative changes. Financial advisers will soon be required to ask clients about their attitudes towards ESG when advising on suitable investments.
Younger investors are often seen as driving demand for ’greener’ products. But these changes will mean investors of all ages will be asked to consider how their money is invested, and whether they want to bring ESG factors into the investment mix.
Across families, older investors may want to revisit their portfolios and consider what kind of legacy their investment history may leave the next generations. Grandparents are increasingly asking whether it makes sense to invest successfully for profit if the environment suffers in the long term.
Oil companies, mining giants and airlines, for example, may have delivered good profits for their investors in previous decades. The question for maintaining a healthy portfolio, however, is whether their business models remain as profitable as the world transitions to a low carbon economy, or are there new growth opportunities for companies devising, for example, renewable energy solutions?
ESG funds also consider ‘social’ issues as well as environmental factors, which might include a company’s track record on executive pay, boardroom diversity, tax policies and transparent supply chains. They don’t, however, automatically exclude certain sectors or companies, unlike some ‘ethical’ funds. ESG analysis is designed to identify potential risks and opportunities, although like all investment judgements, these may not always turn out to be correct in retrospect.
The value of your investments and the 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.
Investing in shares should be regarded as a long-term investment and should fit with your overall attitude to risk and financial circumstances.