ESG investments – What do you need to know?

The financial landscape in the UK, like the rest of the world, is constantly changing. A new paradigm is on the horizon, and it is all about Environmental, Social and Governance (ESG) investments.

The global concern about climate change, social justice and governance accountability is reshaping the way businesses operate and the investment community is no exception.

Investors across the world are increasingly adopting ESG principles, moving away from a pure profit-driven investment strategy towards a more sustainable one.

They are committing to invest in companies that are not just financially sound but also make a positive impact on the environment and society.

Understanding ESG investments

ESG investments consider the environmental, social and governance aspects of a business.

The environmental factors assess the business’s impact on the environment, like energy use, waste, pollution, natural resource conservation and more.

The social element considers how a business manages relationships with internal and external stakeholders and local communities.

The governance component evaluates a business’s leadership, executive pay, transparent accounting methods and shareholder rights.

ESG and meeting net zero targets

In 2019, the UK became the first major economy to pass a net zero emissions law, committing to bring all greenhouse gas emissions to net zero by 2050.

This has important implications for the investment sector. ESG investments can be instrumental in meeting these targets as they favour businesses that are proactive in reducing their carbon footprint.

Financial regulators in the UK, like the Financial Conduct Authority (FCA) and the Bank of England, are introducing stricter disclosure requirements around climate-related risks.

This is encouraging financial institutions to be more transparent about their exposure to such risks and to invest more in businesses with strong environmental practices.

ESG investments and Plastic Free July

Another pressing issue that ESG investments can address is plastic pollution.

Each July, the world celebrates Plastic Free July, a global movement that encourages individuals and businesses to reduce their plastic waste.

Businesses that actively reduce their plastic waste and adopt more sustainable packaging options are likely to score higher on the environmental component of the ESG criteria.

For instance, businesses that switch to recyclable or compostable packaging or promote refillable options for their products contribute positively towards reducing plastic waste.

By investing in these businesses, investors can support the driver towards a less plastic-dependent society.

ESG investing is more than just a trend, it is a new approach that aligns financial returns with sustainability goals. That being said, one of the main drivers for people investing in this manner is the sense that they are helping work towards a more sustainable planet, more than the financial returns that can be limited due to restrictions on the allowable investments. The feeling of knowing they are helping work towards a sustainable future often outweigh any financial benefit.

Through ESG investing, individuals and institutions can support businesses that not only offer potential financial growth but also contribute positively to society and the environment.

If you are looking to make an ESG investment with sustainability as a core factor, then get in touch with our expert team of Independent Financial Advisers for more information.

Posted in Blog, Financial Services.