You may have seen in media reports that HSBC suspended its head of responsible investing after he expressed cynicism over climate change and ESG investing.
The suspension raises an interesting question: how can you be sure that the fund manager looking after your money is as committed to responsible investing as you are?
Furthermore, how good will they be in ensuring your environmentally responsible investments do not include “greenwashed” companies? These are businesses who make themselves look more environmentally responsible than they really are.
One way could be to work with a financial planner who is experienced in environmentally and socially responsible investing, and who is committed to its core principles. Read on to find out how a planner could ensure your money goes into the right investment funds.
Before you do though, let’s look at what responsible investing is.
Sustainable investments are known as Environmental, Social and Governance (ESG) funds
Nowadays, “green” and “responsible investments” are known as Environmental, Social and Governance (ESG) funds. This is because these headings best describe the three main criteria that determines a company’s impact on society and the planet.
Below is a summary of each heading’s criteria:
- Environmental – how the company’s operations affect the environment, including its energy use and how it manages its waste.
- Social – how the company treats its workers and suppliers, and whether it works with firms within its supply chain to ensure the ethical treatment of staff.
- Governance – how a business is run and managed, including whether shareholders can vote on key issues and how transparent the company is around accounting.
ESG funds could be an effective way to tackle climate change
As you can see, the criteria for ESG funds cover a wide range of issues that could significantly reduce the negative effects of a business on the environment and society.
According to Pensions Age, placing your investments into ESG funds could be 40 times more effective in tackling climate change than switching to a renewable energy provider, and 20 times more effective than driving an electric car.
Furthermore, doing the right thing need not be at the expense of performance. In February 2022, Morningstar revealed that in the previous five years, ESG funds had performed on a par with, or better than, conventional funds.
So, all good news then? Well, not necessarily, as research shows that many investors remain concerned about placing money into ESG funds. The reason for this is “greenwashing”, something we will look at next.
Many investors worry about the validity of ESG funds
According to Morningstar research, 29% of investors believe that ESG funds are important, yet have not invested in them.
One reason for this might relate to research published by Money Age, which reveals that 26% of consumers would not invest in ESG funds because of fears that many investments claiming to consider environmental and social impact are not truly ethical.
If you’re one of them, there may be a way to ensure the validity of ESG funds, which is to work with a financial planner.
That said, care should be taken. While 35% of consumers expect their adviser to be an expert in ESG investing, the reality could be very different, Money Age reveals. This is because not all advisers have the experience needed to guide you through this complex area of investing.
As a result, they may not recognise a fund that has been greenwashed, nor have access to an ESG fund manager to establish how committed they are to responsible investing. There is good news though, as there are planners who are highly experienced in ESG funds, meaning they will ensure your money goes into funds that are genuine.
A financial planner with a background in ESG funds can provide peace of mind
At Ardent, we have extensive experience in ESG funds, which is one of the reasons we were named a top 100 UK financial firm by New Model Adviser in 2021. It noted that in the previous year, three-quarters of the investment portfolios we recommended were ESG funds.
This level of commitment to responsible investments means we are extremely diligent about the ones we use. That’s why, for example, we often work with London-based fund manager, EQ Investors, which has focused on sustainable investing since 2008.
Having worked directly with the fund managers for some time, we can ensure their beliefs, ethics and investment ethos are in line with what clients expect. It’s also why our clients were able to meet and talk to EQ Investor’s head of impact investing, Damien Lardoux, at an event we held in June.
Clients heard Damien discuss how EQ Investors vetted companies to sidestep greenwashed businesses. He also explained how he and his colleagues work to ensure that clients’ money is invested in a way that delivers measurable social and environmental benefits while also looking to maximise potential returns.
Get in touch
If you are interested in investing in ESG funds and want to find out more about how we work, please contact us on hello@ardentuk.com or call 01904 655 330.
As we are an award-winning financial advice company that was a 2022 VouchedFor Top Rated firm, you can have peace of mind that you will receive excellent advice and the highest quality service.
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.
The value of your investments (and any income from them) 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. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
