If you’re a business owner looking to invest more in 2024 while also doing your bit to help fight the climate crisis, environmental, social, and governance (ESG) investing might be for you.
ESG investing can be a helpful way to grow your wealth while also helping to protect the planet. FTAdviser reports that over half of investors are planning to increase the proportion of ESG investments that they hold in 2024. This demonstrates a mindset shift among investors that can be mutually beneficial for the investor and the planet.
Before you move any of your wealth into a new type of fund, though, it’s important to ensure you’re making the most sensible decision for your personal circumstances and goals. Not all ESG funds may be appropriate for you.
We asked our Financial Services team to consider the topic of ESG investing and what it means. In this post they look at the key considerations and those that could influence your decision to invest in 2024.
ESG investing can align your portfolio with your personal values
ESG investing enables you to be selective about the companies and sectors you put your money into so that your portfolio reflects your personal morals and values.
Companies are considered based on the positive impact they are having on the world around them, split into three categories: environmental, social, and governance factors.
• Environmental factors might include carbon emissions, water usage, and green energy initiatives.
• Social factors might include community relations, diversity and inclusion, and supply chain transparency.
• Governance factors might include political contributions, diversity of the board members and company policies.
While there isn’t yet a standardised definition of what constitutes an ESG organisation, these factors offer a guideline for assessing whether a company is having a positive impact on the wider world.
You might choose to exclude companies from your portfolio that don’t meet certain baseline criteria. Alternatively, you could take things a step further by only selecting companies that you feel are actively making a positive difference in the world.
These 4 key ESG investing considerations could help you to make the most sensible choice for you…
As with any investments you make, there are some important factors to consider if you’re to make the most appropriate choice for your money. Below are four such considerations that could help you to make the most of the opportunities that ESG investing offers.
1. Make sure your portfolio is appropriately diversified
A well-diversified portfolio is one of the key principles of investing, as this can mitigate the impact of market volatility on your wealth. By diversifying effectively, if one sector or asset class underperforms, returns from another could offset any potential losses you experience.
This can be more complex if you are investing in ESG funds, as they exclude companies and sectors that don’t meet qualifying criteria. For example, companies that produce or manufacture the following may not be considered sustainable:
• Fossil fuels
• Firearms
• Tobacco
• Nuclear energy
By excluding certain sectors, you reduce the opportunity to diversify, potentially putting your wealth at a higher level of risk than you might otherwise have done.
That said, if you are investing in ESG funds as part of a more “traditional” portfolio, these funds can help to diversify your investments. However, to avoid adding unnecessary risk to your portfolio, it is important to choose your ESG investments carefully – which is where we can help.
2. Check that the investments reflect your values
The Financial Conduct Authority is currently developing stricter guidelines to help individuals understand the ESG credentials they are investing in, but there’s still work to be done in standardising what counts as ESG.
In some cases, companies or funds have even been accused of “greenwashing” – overstating or deliberately misleading investors about their practices so that they seem more ESG-friendly than they really are.
So, before you invest, do some research to be sure you’re investing your money in a way that aligns with your own personal values. You might wish to prioritise companies that are making a difference to the environment, or whose policies are helping to address inequalities in society.
3. Remember your investing goals and priorities
While making investments that align with your personal values is important, you must also keep in mind the goals you have for your money. This might include:
• What you want your investments to help you achieve
• The time frame over which you wish to invest
• How much you are able to contribute to your investments each month.
Each of these details can influence the type of investments that are most suitable for you.
With so many options available on the market, there are lots of ways you can invest your money successfully without compromising on your values. Just be sure to keep in mind the end goal as well as your preferences for how you want to achieve it when building your portfolio.
4. Take specialist advice to ensure you make the most sensible choices for you
As you can see, there are lots of things to consider when investing in ESG funds. It can be quite a balancing act to build an effective portfolio that helps you to progress towards your long-term goals while also aligning with your values.
This is why we strongly recommend consulting a financial planner to help you make the most sensible choice for you. They can help you to navigate the changing waters of ESG investing as you grow your wealth and work towards your long-term goals.
Get in touch
If you’re a business owner looking to invest in ESG funds this year, we can help. Here at RPGCC Financial Services Limited, we have incorporated ESG investing into our work for three years now and consider ourselves very experienced in the current developing environment. To arrange an initial meeting with no obligation, please contact us at hello@rpgcc.co.uk or call 0203 697 7147 to speak to us. Or you can visit our web chat in the bottom right corner, which we respond to personally during office hours or you can leave a message out of hours.
The RPGCC team is always just a click or call away.
Please note
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
