ESG funds – 2 powerful reasons they could be good for your wealth and the planet

Scientists are warning that it’s “now or never” if the world is serious about tackling climate change, the BBC reports.

The broadcaster reveals that the UN’s Intergovernmental Panel on Climate Change (IPCC) has said deep and immediate cuts in carbon dioxide emissions are needed to limit the causes of dangerous climate change.

While this makes for alarming reading, you may be able to use your wealth to help tackle rising global temperatures.

According to a report in PensionAge, investing in sustainable funds could be 21 times more effective in tackling climate change than stopping flying, and 40 times more powerful than switching to a renewable energy provider.

That said, research by Morningstar makes for interesting reading. It found that out of 1,000 investors questioned, many felt sustainable investing was important. Yet 29% of those who said this had not invested in sustainable funds.

Read on to discover two powerful reasons investing in sustainable funds could be good for your wealth as well as the planet. Before you do, let’s look at what sustainable funds are.

Sustainable investments are known as “ESG” funds

Nowadays, “sustainable investments” are known as “Environmental, Social and Governance (ESG)” funds. This is because they refer to the main three criteria that are used to determine a business’s impact on the planet and society.

The following is a summary of each of the criteria:

  • Environmental – this looks at how the company’s operations affect the environment, which could include energy use and whether it manages waste responsibly.
  • Social – this considers how the company treats its workers and whether it works with its supply chain to ensure the ethical treatment of suppliers and their staff.
  • Governance – this criteria looks at how a business is run. This might include the transparency of its accounting methods, its tax strategy and whether shareholders are allowed to vote on key issues.

Now that we have established what ESG funds are, let’s look at why they might be good for your wealth and the environment.

1. Investing in ESG funds may provide better growth potential

Not so long ago, while investing in ESG funds would have been seen as noble, it was generally seen as something that could cost you potential growth. Increasingly though, evidence seems to suggest that this may no longer be the case.

A recent report by the European Securities and Markets Authority suggests that ESG funds in the EU provided better returns for investors than conventional funds in the decade leading up to 2020.  Furthermore, the report also reveals that ESG funds were cheaper overall.

This dovetails into a report by Morningstar from February 2022. It claims that in the previous five years, ESG funds had performed on a par with, or better than, conventional funds.

Little surprise perhaps, that an article by Reuters suggests investments into ESG funds seem to be growing. It reveals that in November 2021, a record £498 billion was invested in ESG funds globally.

2. ESG investments could make a difference

According to the Reuters article, if you want to use your money to tackle climate change and other social justice issues, investing in ESG funds could be a wise move.

This is because companies are now keen to attract the growing number of ethical investors, and so are making changes that could benefit society and the planet. One example of this is the support for social and environmental proposals at the shareholder meetings of American companies.

The article reports that proposals rose to 32% in 2021, up from 27% in 2020 and 21% in 2017.

Beware of “greenwashed” funds

The increased demand for ESG funds has raised a less positive issue: greenwashing. In October 2021, Money Age reported that 26% of consumers would not invest in ethical funds as they questioned their validity.

“Greenwashing” is where unsubstantiated or misleading claims are made about the sustainable credentials of an investment. It would be wrong, though, to suggest that all ESG funds are greenwashed, as many bona fide ones exist.

Working with a financial planner can help you avoid greenwashed funds, as they have the expertise to understand what to look for to ensure their validity.

Get in touch

In November 2021, we were named one of the top 100 financial advice companies in the UK by New Model Adviser. One reason for this was our use of sustainable and ethical funds, which represented three-quarters of investment portfolios we recommended in the year leading up to November 2021.

This provides you with the peace of mind that any sustainable funds we recommend will be bona fide ESG funds, and right for you. Furthermore, in March 2022 we were also named a VouchedFor Top Rated Advice Firm.

This means whether you want to discuss ESG funds, your pension, investments or your general wealth strategy, you’ll receive excellent advice and a first-class service.

If you would like to know more, contact us on hello@ardentuk.com or call 01904 655 330.

Please note

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

 

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