ESG – Sustainable and Responsible Investing

In a world becoming more environmentally and socially conscious, many individuals take it upon themselves to take small steps to contribute to the greater good. For some, it’s volunteering at an animal shelter, others install solar panels in their home. For many investors, it is important to them where their money is going – and for environmentally and socially-conscious investors, this goes beyond their risk profile and potential returns. They want to know that they are investing in companies that align with their own values.

As the demand for “responsible investing” increases, let’s look at exactly what that means, how it impacts your portfolio, and how you can bring your portfolio in line.

Defining “Responsible Investing”

Responsible Investing is well-defined by Russell Investments – “a strategy and practice to incorporate environmental, social and governance (ESG) considerations into investment decisions and active ownership”. Basically, ensuring your money is invested into companies that meet the standards of the relevant investment management team, as they relate to ESG metrics. Investors who take this approach are motivated to do so because these companies have demonstrated that they are taking proactive steps to improve (or reduce their impact upon) the environment; consider people & relationships; and operate their company ethically and in a sustainable manner. Key factors for each are as follows.

  • Environmental: Climate change & carbon footprint; energy efficiency; waste management; air pollution, water management, emergency preparedness, recycling processes.
  • Social: Customer satisfaction; data protection and privacy; diversity and inclusion; employee benefits; impact on local communities; labour standards.
  • Governance: Ethical standards; stakeholder engagement; Board composition; Audit committee structure; bribery and corruption history (or lack thereof); executive compensation; political contributions; whistle-blower schemes.

For the purposes of investing client funds, investment managers take the above factors into account, among others, to determine whether a particular share falls into their definition of “Responsible”.

Responsible Investing in Your Portfolio

The investors of yesteryear were arguably focussed on one primary metric of investment success – returns. The main goal was to have their money invested according to their tolerance for risk (their “risk profile”) to turn a profit. However, more and more investors are concerned with exactly where their money is going, leading to increased demand for Responsible Investing practices and portfolio options.

Of course, there are no guarantees that any one share, portfolio or investment strategy will pay off, but it is noteworthy that the shift in focus towards ethical investment options often means that “responsible” shares have been very well researched. This is both in terms of their financial viability and their satisfaction of the investment manager’s definition of “responsible”. The end goal of responsible ESG options is still to give investors a return on investment and achieve their financial goals, but also adds an extra layer of consideration.

Getting on Board with Responsible Investing

A number of managed funds offer Responsible Investing in their portfolio options. However, not all are developed with the highest level of detail and expertise, so it is important to ensure that you consult with a financial adviser, who can assist you in understanding your risk profile and present you with options that meet your financial situation, goals, and investment preferences.

What Now?

Armed with more information about Responsible Investing and how it might fit into your investment strategy and portfolio, you may be interested to know if it is right for you. A P+P Wealth Adviser is your first port of call, as they will consider your overall financial plan and risk profile, evaluate your options as they relate to your unique needs and goals, and present you with advice. You should always engage a financial adviser before taking on any investment product. If you’d like to speak with our team, feel free to reach out via our website, or call us on +61 2 9093 1311.

General advice warning: The advice provided is general advice only as, in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.

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