Climate change often feels like a looming presence in our lives and its effects are being felt all over the world, from rising sea levels, drought, floods and severe heat warnings becoming “normal”.
As an individual, you can only do so much. As we as consumers diligently limit our plastic consumption, check all packaging for the recycling triangle, and choose eco delivery options, what are the corporations doing? And how can we reward the ones that are actually making an impact?
Investing is a great way to start giving your hard-earned money a voice and have an impact on the things you care about - like the environment, social issues and equality in the workplace.
ESG (environmental, social, governance) investing has many names: sustainable investing, ethical investing, impact investing, socially responsible investing, values-based investing. Whatever you call it, it’s a place where you can help your money grow whilst ensuring your personal values aren’t compromised.
So, how is ESG investing different from just simply investing? Well, technically it’s not any different. You still analyse risks and consider financial returns, but you also consider a company’s impact when choosing stocks or funds to invest in.
So rather than just looking at a stock's potential return, you’ll consider how positive an impact it will have on the planet and society.
Sounds simple, right? Well, it can be complicated.
There are three things to consider; let’s start with the good news.
Corporations and companies are realising that they have a responsibility to the environment. Gone is the 80’s attitude of sacrificing the world for bigger and bigger profits.
The pressure is on for companies to change and show that they to can be a force for good - it’s no longer just on the shoulders of the consumers. And they are listening and changing.
But there are two more things to consider.
Across the world, we each have different views on what is ethical or sustainable.
Some people may have a blanket ban on, say, mining - it scars the earth and takes valuable local resources away from poorer countries.
Whilst others may agree, they also consider that the mining company has actually brought prosperity to a region, is educating its staff and their children.
Want to learn more about this kind of quandary? Read our article Between a mine and a school.
Because everyone has a different take and ethical investing is a relatively new phenomenon, we are all still fighting over the global standards. What reporting metrics are the right metrics?
More often than not, ESG data is self-published and reported voluntarily. The data is also often slow to update and is not forwards looking, instead just focused on what has been done in the past.
Also, bigger companies with deeper pockets can seem cleaner and greener than they actually are by offsetting emissions or even greenwashing.
Well, it means that you’ll have to use your own judgement alongside multiple sources of data to make your pick of the companies or funds to invest in.
Take a huge oil field service company - which on the surface would seem like a poor choice to add to your sustainable investment basket due to the nature of its work, however, if you look at the data is rated very highly for not only environmental factors and leadership.
What would you do? Well, only you can decide.