How ESG strategies can help boost income

"The former, which invest primarily in wind and solar electricity generation assets in the UK and overseas are currently yielding in excess of 5.5 per cent in many cases, with some inflation-proofing built in.

"The latter are targeting yields of around 5 per cent once fully invested, also with some inflation protection.  Additionally we are seeing the growth of the climate bond and green bond market, with income returns in keeping with those of traditional investments but with clear environmental impact."

For this reason, he believes investments such as these could be a useful component of an ethical portfolio.

Sustainable companies and dividend growth

Looking at the likelihood of sustainable companies delivering dividend growth, Ms Ground takes the view that a company which operates according to sustainable principles is already on that path, because they have longevity in mind.

She says: “Sustainable companies have healthy relationships with stakeholders, treat their employees well and have resilient business models – this all means they are more able to deliver dividend growth.”

We have seen a number of new income opportunities emerge in the ethical investment space over recent years, notably renewable energy infrastructure funds and social housing investment trusts. John David

Mr Smith agrees that if a business is already well-run, to high standards, there will also be a correlation with dividend growth, stating: “There is a strong link between quality and ESG principles. High-quality companies which manage risk and identify opportunities well are better placed to survive and pay dividends.” 

Mr Appleby is of a similar opinion, as he explains: “Looking at companies through an ESG lens can be helpful for making decisions. For instance, assessing how a company manages ESG gives you an insight into the quality of the management team.

"Generally speaking, the more comfortable they are with talking about ESG, the better-quality management team they tend to be.”

Louise Dudley, portfolio manager at Hermes Investment Management takes a similar view: “Integrating ESG factors is part of making better investment decisions.

"Businesses doing ESG well are thinking about the broader impact of their business and returns to society and all their stakeholders – managing their needs leads to lower operating costs.”

She also explains how the industry is looking to the future: “We are currently focusing on newer social metrics such as staff turnover and impact on employees within a company’s supply chain.

"Another factor that is important to bear in mind is that all businesses need to plan against breaches of data privacy. If they are well positioned  to manage cyber security, they are more likely to do well.”