ESG – ‘Impact Investing’ where the primary intention is to invest capital to generate social or environmental benefit, alongside financial returns is what ESG is addressing now. This will even affect the way we make ethical choices for good investing and shopping. Environmental Social and Governance advisor Nikki Williamson tells us more.
Sustainable economics
After years of humanitarian work, trying to make some kind of difference in neglected communities around the world, I returned to London a few years ago to work in financial services. A leap, some would say, with a fair amount of ethical ground between. But in fact, I find myself amongst a swelling momentum for ‘responsible investment’, where decisions of big influential investment houses are taking environmental and social matters into account.
What this means is that the owners (predominantly institutional shareholders – like pension funds) of large companies listed on the stock exchange are asking for a different set of results from those businesses. They are no longer single minded about financial returns, but demanding reporting on non-financial outputs and management, such as carbon emissions, labour rights, waste management and board diversity. These are just a handful of hundreds of indicators increasingly considered to show a company is operating sustainably. It’s collectively becoming known as ESG – or Environmental, Social and Governance – long considered the pillars of sustainable economics.
Catching up
Indeed, since at least the 1970’s, economists such as Dr E.F. Schumacher in his work Small is Beautiful, and organisations like Greenpeace have called for attention to the impact of the modern economic system, it’s use of resources and impact on how we live. This has largely stayed in academic or development agency arena. In 1994, John Elkington a world authority on corporate responsibility, first coined the term ‘Triple Bottom Line’ helpfully putting forward a practical approach for the private sector to consider People, Planet and Profit together, essentially using accounting principles.
Then, in 2005, after decades spearheading human development (UNDP) and environment programmes (UNEP), the United Nations supported a new initiative providing guiding Principles for Responsible Investment (UNPRI). Today, voluntary signatories to this collective represent around a mind-boggling US$120 trillion now committed to incorporating ESG factors into investment decisions, reporting transparently and collaborating on doing so with increasing effectiveness – resolutely setting this positive course.
Positive changes for companies
Some more good news here is, motivation to join the trend is not only ‘a good show’. There is rapidly growing evidence, that this approach to investing does not have to compromise financial gains. Taking this sustainable, long-term view and being an active owner of company shares is the key to achieving the long-term stability. In many cases, this means engaging in long-term relationships with companies, creating a very direct forum for positive change. In this way, a company also has a better chance for long-term success and ultimately returns that are required for investment professionals to meet the needs and objectives of their clients.
So many of us are changing our consumer behaviours and making ethical choices for our shopping basket. We might also therefore want to pay some attention to this new aspect of our pensions, ISAs and investments. No longer does simply having a pension have to imply that you are ultimately a part of activities that are damaging to the environment or conducted in poor working conditions. And there are a good number of investment options out there to consider.
Ask about Impact Investing
Typically, language used when it comes to naming funds is not particularly relatable. If you do want to look at your own pensions and investments, look out for key terms like ‘ESG’ or ‘sustainable’ in your statements. But not all funds will be labelled this way. Your pension may well be incorporating ESG factors without that being a core objective. So if you can, speak to your advisor about investing ethically or sustainably, and which of the many products in the market might be suitable for you.
The number of customers even enquiring in this way grows the demand for these product. You could consider asking about ‘Impact Investing’ where the primary intention is to invest capital to generate social or environmental benefit, alongside financial returns. With these you can even focus on specific themes such as climate or healthcare and have your money working for a positive future. Happy shopping!
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