ESG Investing

Within the next six years it is estimated the ocean will contain one tonne of plastic for every three tonnes of fish and that by 2050 it could contain more plastic, by weight, than fish. These figures are shocking and rather frightening but, whilst we all care about the environment, what exactly does this have to do with investing?

 

In these times, quite a lot. While it may seem obvious that better investment returns are made from better companies; what constitutes ‘better’ now involves external elements that go beyond balance sheets and profitability. Instead environmental, social and governance issues (ESG) have become the backdrop against which companies are analysed and assessed. In a recent study, companies that adhere to high ESG standards were shown to be more profitable and have higher dividend yields. Such companies were also considered better at managing risks than those without these standards. It is clear to see that sustainable investing is becoming mainstream.

 

The rationale behind ESG investing is multi-faceted. Recognition of ESG issues, driven by interest in much discussed topics like global warming and gender diversity, has led to a major shift in investor attitudes around the globe. In some cases it involves screening out companies that fail to meet basic standards, for example workers’ rights and the environment. In others the aim is to exert positive influence by engaging with companies and encouraging best practice. In recent weeks the Climate Crisis movement spearheaded by Greta Thunberg has gained ever increasing momentum, and with it, the stark realisation that change needs to come sooner rather than later. The reality, as stated by Thunberg, is that “change is coming” and at Seabrook Clark we intend not to be left behind.

 

Today, thanks to growing investor and consumer interest in environmental matters, companies are more aware of the benefits of presenting their products or services as green or sustainable. Whether a company really practices what it preaches often requires in-depth knowledge and extensive research. At Seabrook Clark we carry out due diligence on funds which claim to be ESG, taking time to look beyond the greenwashing some firms undertake. The number of ESG funds is growing exponentially and we are sure in ten years, people will look back and say “I can’t believe there was ever a debate over whether ESG investing would go mainstream.”

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