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What is ESG (environmental, social and governance) investing?

22 May 2023 in ESG investing, Investing

ESG (environmental, social and governance) investing, put simply, is about buying shares in companies that differentiate themselves from others in the way they think about the following three factors:

  • Environmental criteria look at how a company performs in relation to the natural environment - for example, it might be evaluated according to it's energy use, sustainability policies, carbon emissions or resource conservation. 
  • Social criteria examine a company's relationships with its employees and the communities in which it operates – does it care about employee welfare and workplace safety? Does it make a positive contribution to the community?
  • Governance factors concern a company’s leadership, executive pay, audits, internal controls, independence, shareholder rights and transparency.

Is ESG an attractive approach for investors?

Ultimately, ESG provides a way of responsible investment without compromising on returns, as high-scoring ESG companies which behave well in all these areas are more likely to be successful, sustainable businesses over the long term. In fact, there is a lot of evidence that companies that meet high ESG standards tend to outperform those that don’t, by a significant margin. In fact, there is a lot of evidence that companies that meet high ESG standards tend to outperform those that don’t, by a significant margin. We’ve certainly seen the opposite for companies with low ESG standards over the years – for example, businesses that have caused significant environmental damage, dealt in chemical weapons or cheated on emissions tests have all seen their share prices fall.

How can investors make sure they really are investing responsibly via ESG?

ESG categorisations can be interpreted in various ways which can make it difficult for investors with specific ethical requirements. For example, you could end up investing in a sugary drinks manufacturer that happens to have a good policy on recycling its products, which means it scores highly on the ‘E’ – but are sugary drinks necessarily good for society? Of course, the area of responsible investing can be very subjective – what matters to one individual may be less important to another.

And while there’s been a big movement around ESG which is very positive, it’s also sadly brought opportunists along who market themselves as ESG businesses or funds but aren’t. This is often referred to as ‘greenwashing’, and is something any responsible investor would want to avoid.

How can ESG investors avoid greenwashing?

The key is to look for businesses with products or services that are truly addressing the world’s global problems – rather than, for instance, companies that might be doing something completely unrelated to the environment that have good environmental policies.

This is where ‘impact investing’ comes into play. Impact investing means:

  • Choosing companies that aim to have a demonstrable impact for good on the planet and the people within it
  • Engaging in positive inclusion, which naturally excludes exposure to undesired sectors
  • Investing where there is potential for a positive contribution.

By looking for companies that are actively working to make a difference, you can have more confidence that your investments are being put to use in a way that will actually have a positive impact, rather than on companies that ‘stick on’ an ESG label but are not truly working towards making the world a better place.

Putting ESG investing into practice

With all these different criteria in play, expertise is vital when crafting an ESG portfolio. With our specialist ESG Portfolio Service, we will aim to do all the investigating and research to find suitable ESG funds, and then monitor them continually on your behalf.

In order to pick the best funds for our ESG Portfolio Service, we have identified specific sustainable themes that we believe will have a long-term positive impact on both planet and people. By choosing funds that align to these themes, we can identify investment opportunities that both have a positive impact and are likely to provide long-term investment returns, as sustainable practices become more and more integral to daily life – and business performance. Find out more about our thematic approach.

We believe that responsible investing isn’t just good for the community and environment – it can also be profitable for you. If you would like more information about investments to reflect your personal values, or if you represent a charity with restrictions affecting the companies you can invest in, visit the ESG Portfolio Service page

Found this interesting? Read more on ESG:

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Investment involves risk. The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested. Past performance is not a reliable indicator of future performance. This is not a recommendation to invest or disinvest in any of the themes or sectors mentioned. They are included for illustrative purposes only.

This video is for information purposes only and is not to be construed as a solicitation or an offer to purchase or sell investments or related financial instruments.

The information provided is not to be treated as specific advice. It has no regard for the specific investment objectives, financial situation or needs of any specific person or entity.

The information contained herein is based on materials and sources that we believe to be reliable, however, Canaccord Genuity Wealth Management makes no representation or warranty, either expressed or implied, in relation to the accuracy, completeness or reliability of the information contained herein. All opinions and estimates included in this document are subject to change without notice and Canaccord Genuity Wealth Management is under no obligation to update the information contained herein.

Photo of Patrick Thomas

Patrick Thomas

Head of ESG Portfolio Management

Patrick set up and is responsible for our range of environmental, social and governance (ESG) portfolios. Patrick chairs the ESG Committee. He also sits on the firm’s Portfolio Construction Committee, Fund Selection Committee and Alternatives Committee. He specialises in managing investment portfolios for intermediaries, trusts, charities and pension funds, specialising in discretionary mandates.

Patrick is a chartered Wealth Manager and a Chartered Fellow of the CISI. 

020 7523 4988

Investment involves risk and you may not get back what you invest. It’s not suitable for everyone.

Investment involves risk and is not suitable for everyone.