As consumers, we are continuously faced with decisions which reflect our lifestyle choices and personal values. We only need to walk into a supermarket to be faced with decisions such as buying free-range eggs, Fairtrade fruit or organic meat.
Ethical investing is no different, as it allows you to focus on organisations that make a difference in the areas that are important to you.
In the early days, Ethical investing was principally about avoiding companies considered to be unacceptable, such as those involved in tobacco or arms, or those involved in the abuse of the environment and human rights.
Increasingly, investors have realised that they have the potential to have a positive impact on the way in which companies operate, by using share ownership to engage with company management to improve the way they
treat their employees, suppliers and the environment. It is this latter, more positively focused approach, which is commonly referred to as Socially Responsible Investing (SRI).
Whilst this is great news for all of us, companies do not make these changes out of the goodness of their hearts. A business that considers its impact on stakeholders can also reduce legal and regulatory costs and even improve a company’s brand. Products that offer sustainable solutions to issues such as climate change, can also prove incredibly valuable.
Perhaps the most common of these solutions is the integration of ESG (Environmental, Social Responsibility and Corporate Governance), used as a measuring tool for the impacts of sustainability and society on a business, company or investment. The three pivots are determined to better future financial return and risk on investments.
The threat of climate change and the dramatic changes to our planet’s eco-systems has been and still is a fundamental issue in today’s world. The efforts of an ESG centric company, business or investment seeks to monitor energy usage, wastage, pollution, plus the conservation and treatment of animals and natural resources. Increasingly, nowadays, companies are putting more of a focus on reducing their carbon footprint with a ‘green’ policy.
When considering social factors, it is all about who you know and how you treat them. From a business perspective it is identifying a company’s values and whether they align with the values of its suppliers, stakeholders and partners. A company’s regard for its employees’ care, safety and working environment also plays heavily, generally offering investors portfolios that are a safer, longer term investment.
Oftentimes investors want to understand accounting methods of a company to ensure they are accurate and transparent. They want to know that stockholders have a say and that they are assured companies are not behaving in ways that might entertain any conflicts of interest or illegal practices.
In the past, ESG has been frowned upon by investors for the potential limits in earning it put on them, and where non-ESG stock prices were highest. Nowadays however, following the principles of ESG can identify companies with greater risk factor associated, potentially limiting catastrophic losses. Case in point being the Deepwater Horizon oil spill in 2010, where BT was forced to pay the largest corporate settlement in history, saw stocks fall by 34% and lost $96 billion to legal fees and fines.
Evermore so over the last few years, the variety of ESG-centric portfolios springing up in the financial world has been voluminous and investors are fast-changing tactics to incorporate them. Sustainable products and services growth has been steady up to now, but the global climate situation applies pressures that could make for further, stronger returns in the not-too-distant future.
At Seabrook Clark, we have put a great effort into building and measuring the performance of our Ethical ESG portfolio. To learn more about it and our approach to our ESG products and services, you can visit our website here, or please do get in touch via firstname.lastname@example.org.