Would you work for a company that poured a chemical soup into your local river, killing fish and harming local people? Would you buy from a company that you know uses slave labour? Do you invest in companies that do just that?
Ever since she started paying into her first pension, Julia has chosen socially responsible investment funds. She felt that the stock market was fundamentally bad and encouraged a short-term focus on profit rather than a long-term focus on serving communities. Choosing funds that avoided investments in certain sectors felt like the best way to reduce the harm caused by the need to invest in her future.
Now, however, she sees ESG investing (Environmental, Social and Governance) more as an opportunity to do something positive.
‘The funds that Mike and I choose are actively promoting behaviours that we would like to see more of, whether that’s developing renewable energy infrastructure, employing more women in senior positions or preparing for an ageing society.
Since I have realised that we can effect positive change with our investments, I have started to enjoy the whole process.
Now, when I see our investments growing, it feels fantastic – not because we’re investing in our future, but because we’re investing in everyone’s future.
In the last year, our portfolio has grown by 12% more than the benchmark. This tells me that we are not sacrificing financial performance to meet our ethical standards.’
Swiss Sustainable Finance’s Swiss Sustainable Investment Market Study 2021 indicates that Julia is not alone. Sustainable investment funds now make up over half of the Swiss fund market.
As a financial planner, Keren is finding that an increasing number of her customers want to invest in funds that contribute to environmental protection and other causes close to their hearts. She has also decided that 2022 is the year that she will review her own portfolio and join the ESG revolution.
‘I have only a small proportion of my investments in ESG funds. A few months ago I decided that my new year resolution for 2022 would be to focus on ESG investments.
As my investments have grown considerably over the years, I have decided to appoint a discretionary fund manager. This is what I recommend to my high net worth clients, to actively manage their portfolios. I have stated that my focus is on ESG investing. I will still be actively involved in the process, however, I feel more comfortable knowing that two heads are better than one.
I feel excited about 2022, knowing that I will be part of a growing community that is investing in companies that are actively making the world a better place and that align with my values.’
How do I choose ESG investments?
For ESG investing, the first thing to remember is that you need to look at everything that you usually would – fund performance, risk profile, geographic spread, variety of assets held, fees, etc. If you are not happy with those factors, then it doesn’t matter what the fund is investing in!
Then, consider the main causes and concerns that matter to you. ESG investing is about benefitting society as a whole by promoting health, children’s welfare, gender equality and other forms of social, environmental and financial justice.
Is the fund actively investing in sectors you want to support? Are they avoiding sectors that you don’t want to invest in? Do they consider ethical issues that matter to you? Does their idea of ESG align with yours? Not everyone has the same ideas about what is right and wrong. So, if you want to be sure, read carefully.
After that, take a look at the top investments held by the fund. These will change over time, but doing this provides a bit of a sense-check. If there are companies in there that you would not want to invest in, perhaps this is not the right fund for you.
At the end of the day, the important thing is to align your investments with your values. Once you are confident that your investments are doing good at the same time as providing you with the level of return that you need, then you will enjoy the whole process of investing far more. We know that women want to take action and do something about today’s issues. ESG investing is a powerful way to accomplish that.
This is one of a series of blogs about financial planning for women. Keren-Jo Thomas, a qualified and regulated financial planner, is providing the technical detail and Julia Goodfellow-Smith is responsible for polishing the writing.
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I hope to be able to do this in the future too, as I am right at the beginning of my financial planning journey it's not possible yet but absolutely something to be aware of and encourage in others too! thanks for the insights!