In the dim and distant past, people could be “confused” when it came to expressing the investment requirements for their hard-earned capital, with high returns coupled with low risk to their capital being a popular request. Nowadays however, they are not only interested in the financial outcomes of their investments, but also the impact their assets can have in promoting global issues such as climate change.
“half of those surveyed are more likely to turn down a product or service from a company which is perceived to be socially or environmentally irresponsible”
We are of course users as well as investors and consumer habit analysis show that more trust is being placed in a Company’s products when it has a reputation for being socially and environmentally responsible and that half of those surveyed are more likely to turn down a product or service from a company which is perceived to be socially or environmentally irresponsible.
For investors in particular, this created the ultimate dilemma, until quite recently when major investment houses started to marry their consciences with the desire to make profits for their investors and the term ESG was coined.
What does ESG mean?
Environmental, Social and Governance , also known as sustainable investing, is a term for investments that seek sound financial returns, as well as creating a long-term positive impact on society, environment and the performance of the supporting business. This is no short-term trend as there have been a series of ecological events in recent times that have made consumers and investors alike, more aware of the environmental challenges we face and therefore investing responsibly has become a force for the good, as well as the investment account.
Why do ESG investments work?
A successful ESG money manager typically identifies a set of investments, based on his traditional investment selection criteria, to which will be applied an ESG focus to this criteria. This will then be subject to a scalable and profitable impact analysis. In other words, for an ESG fund to work, it has to have profitable potential and green credentials and for them not to be mutually exclusive. A Tesla car must deliver on both performance, cost, and social feel- good factors.
ESG Asset Mix and Performance
This is where consumer demand and green credentials are fully tested, with Wind Technology, Semi-Conductors, Lithium and Cobalt mining and Silicon Carbide technology, being examples of the assets that can be accessed by a discerning private investor, with a balance to be struck between quick short term and steady long-term growth. There are funds that specialize in the Clean Energy sector that created an unexpected demand growth in 2020, with some funds almost doubling their value over a short time period, but which are now after a brief sell off, producing steady and less volatile returns for the longer time period, that investors and their advisers find much more agreeable.
How Big is the ESG Market?
From a regional perspective, big enough for the Monetary Authority of Singapore (MAS) to recently announce the channelling of $1.8bn to five asset managers who will be required to invest in equities and securities focusing on climate change and the environment, having first established a regional sustainability hub in the island State. So regionally big but globally it is huge!
Access to ESG Funds as part of an Investment Strategy
The most popular route is from a selected range of Mutual or Exchange Trade Funds (ETFs) which can be managed most cost effectively using a trading platform. This enables a wide range of asset classes to be brought together, including ESG funds, to create an agreed risk adjusted actively managed portfolio.
HOW CAN NEBA HELP YOU?
Knowing how much to invest, in what sectors, in which currency and at what time to suit personal requirements (ignoring the ongoing management) can be
disconcerting which can then lead to lost opportunities. How much to invest in ESG funds and how much in Infrastructure, for example? We have all been there, so our job is to help overcome the mysteries, simplify the understanding and take the strain out of the process of managing some of your money.
Contact NEBA Wealth Management today to take advantage of risk-controlled investment strategies.
