by Andrew Dines
Director & Chartered Financial Planner
In a world where ethical consumption and environmental sustainability have become part of our everyday language, it’s only natural that the finance industry is making big moves to adopt a more responsible form of investing.
But ten years ago, if you’d wanted your investments to support good causes and facilitate change for the better, you would have had to make some compromises with your returns. Profitability was limited. Risk was higher. And investment diversification was sparse.
How the world has changed
Businesses who strive to make the world a better place now operate on a more level playing field where investors no longer have to make that torrid tussle between their morals and their capitalistic endeavours. This means you can now blend profit with philanthropy in your portfolio.
The term used in the investment industry is Environmental, social and Governance investing (ESG) and it’s a strategy that involves investing your money in companies that are striving to overcome many of the challenges that the world faces today.
Adopting the ESG approach is relatively straightforward, especially if you work with AAB Wealth: we can help you to make your portfolio reflect the type of world you want to live in. This approach to investing can create a more sustainable and ethical world for generations to come.
Clients of AAB Wealth can create a diversified portfolio that’s aligned closely to their values while maintaining long-term financial performance.
What is ESG investing?
ESG investing is investing in companies who score highly on their commitments towards environmental and societal responsibility. These are as decided by research groups or independent companies who provide a handy metric to compare different investments.
AAB Wealth will offer portfolios that highlight the score of each ESG company, allowing you to fund businesses whose support for initiatives are closest to your heart.
Here are the three components used to evaluate companies for ESG investing:
- Environmental: What impact does the business have on the environment? A number of important factors are taken into account, such as carbon footprint, fossil fuels, toxic chemicals and much more.
- Social: This addresses the social impact the business has both internally and in the broader community. Social factors include everything from gender equality and employee treatment to racial diversity through ethical supply chain sourcing.
- Governance: The corporate governance component refers to how the board of directors are driving positive change. This encompasses many internal issues regarding equal pay, diversity and how the leaders of the company interact with shareholders.
Does ESG investing have the potential to drive significant change?
In short, yes. Earlier this year it became a mandatory requirement for all advice firms to present clients with a palette of ESG investment options. Being part of this collective move to become more responsible investors is bound to help facilitate change.
We are keen to embrace this drive and so on the 3rd of March, AAB Wealth will introduce the Dimensional Global Sustainability Core Equity Fund to provide clients with the opportunity to create a more sustainable world.
This well-diversified and cost-effective investment framework enables investors to pursue their financial goals without having to accept lower returns or making concessions on their investment principles.
The fund aims to omit or reduce the exposure to a number of sustainability inhibitors, including many of the following:
- Greenhouse emissions intensity
- Potential emissions from reserves
- Land use and biodiversity
- Toxic spills and releases
- Operational waste
- Water management
- Factory farming
- Child labour
However, as we say in our headline, these are only small, careful steps. We don’t claim that we have this all sorted – far from it!
You’ll probably know yourself how hard it can be to do the right thing. On the one hand, most of us can make small changes to our daily lives, such as recycling and buying locally, but then we’ll jump in our diesel cars – or on a plane (in normal times). It’s not an easy balance to get right.
Moving to a more sustainable approach to investing is a journey to be taken in small, careful steps. Over time, corporate ESG data should improve, and this will enable us to measure the impact more insightfully. New investment options are developing all the time.
It is an exciting time for investors who want to make a difference. It may be a long road, but we believe the destination will be worth it. Contact us for a no obligation chat.