ESG Investing (What is it and what is the hype?)
75% of all investors are interested in ESG investing and over the past year there have been huge inflows into ESG funds, but what does ESG mean?
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Funds that have listed as ESG have become increasingly popular over the last few years. This is a result of many things including people becoming more aware of their place in the world. Up to 75% of investors are interested in ESG investing which shows how important it is. But knowing what ESG stands for and what it means when someone is investing your money is very important.
ESG stands for Environment, Social, Governance.
Environment - This isn’t just climate change but looks at the use of water, pollution in general and recycling.
Social - This is how a company looks out for the rights of people in society. Starting with their employees - pay, perks and the diversity of the company but also includes the company’s public stance on social issues.
Governance - Is how the company is run, which includes the make up of the board of directors, how many women and ethnic minorities are represented on the board and executive pay.
Each of these areas are important as we know that burning fossil fuels and giving CEOs huge bonuses that are much bigger than normal employees pay is not a sustainable way to run a company.
As a result there have been huge inflows into ESG funds and this is a good thing for the world. It is also a good thing for investors as funds that invest into high ESG companies tend to outperform funds that are not ESG focussed.
All of this sounds great, but as with anything in life it can sound too good to be true. Firstly there is no clear ESG rating which means that although funds are labelled ESG they may not fit exactly what we think should be included, such as fossil fuels. Also ESG funds are not perfect, whilst they may include companies that score highly in the environment impact they may have poor workers conditions meaning they have a low social score.
Overall ESG has a good message but it cannot be relied upon to mean that every company that is in an ESG fund is “good”. More regulation from governments will help with this in the long run but as investors we need to make sure that we are doing our research.
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Nutmeg link - https://nutmeg.mention-me.com/m/ol/op...
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Big love,
Anthony
Links
75% of investors interested in ESG investing - https://www.fidelity.co.uk/markets-in...
Inflows into ESG funds - https://citywire.co.uk/wealth-manager...
ESG funds outperform traditional funds - https://www.ft.com/content/733ee6ff-4...
ESG funds include oil and gas companies - https://www.ft.com/content/cd819461-1...
Amazon Climate Pledge - https://sustainability.aboutamazon.co...
Amazon - Workers rights - https://www.theguardian.com/technolog...
More regulation in the ESG classification - https://www.investmentbank.barclays.c...
*None of this is meant to be construed as investment advice, it's for entertainment purposes only. Links above include affiliate commission or referrals. I'm part of an affiliate network and I receive compensation from partnering websites. The video is accurate as of the posting date but may not be accurate in the future.