ESG investment comes into its own
A principled approach to investing doesn’t mean sacrificing returns.
When buying and selling shares, funds analysing a range of environmental, social and governance (ESG) factors, alongside traditional financial metrics, appear to have performed better than traditional funds during this period of recent stock market turbulence.
Unlike some ethical funds, ESG funds don’t automatically avoid whole sectors. Instead they assess how, for example, a company’s environmental policies – or lack of them – might impact its future share price.
It is worth remembering that like any other investment decision, these judgements may not always prove correct in retrospect, but ESG funds generally have weathered the recent market storms well. Research from Morningstar shows that in the first quarter of 2020, 70% of ESG funds were ranked in the top halves of their investment categories, which include the performance of funds investing in similar geographic regions or assets. By contrast, just 11% were in the bottom quartile.
Of course, this data is over a very short time frame, and there is no guarantee that ESG funds will continue to outperform. While much of the focus around ESG is often on environmental issues, it’s important to remember that the selection process these funds use also considers how well a company is run and its corporate polices on issues such as executive pay, gender equality, and transparent supply chains.
Over the longer term it remains to be seen whether ESG fund managers will identify the companies that will prosper in future, but with many more people thinking carefully about where to invest their savings, ESG investment is no longer a fringe area. As with all investment decisions, you should take expert advice.
The value of your investments and the 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.
Investing in shares should be regarded as a long-term investment and should fit with your overall attitude to risk and financial circumstances.
The information in this article does not constitute advice and should be used for informational purposes only. This content has been provided to Helm Godfrey by Taxbriefs.