ESG Investing
Of note is the growing interest in environmental, social and governance (ESG) investments.
Also known as “impact investing”, this is the purchasing of stocks and shares that have some kind of positive impact on society and the environment.
ESG investments span many different types of asset.
It could be, for example, shares in a company with particularly reputable governance; alternatively, it involves investing directly into a business, product or service that directly improves the environment or state of society.
Interest in this kind of investment is already mushrooming; EY predicts that almost a fifth of investments now under management worldwide are in the sustainable sector.
Indeed, there are now ESG ratings sites that reveal how respective large companies compare on environmental and social responsibility.
They are also popular among millennials.
According to BML’s research, 60 per cent of millennials have become more socially and environmentally conscious about their investment decisions.
Cynics might argue that much like the generations that preceded them, millennials’ idealism will ebb over time.
One need only look back to the “flower power”, “free love” generation of the 1960s and 1970s to see how even the most free-thinking cohorts tend toward the status quo as they age.
Of course, there will be a mixture of those who stick to their beliefs and those who don’t, but Deloitte suggests that millennials could follow through more than most: two thirds of them feel “obliged” to change the world for the better, whilst three quarters want to be considered authentic and avoid compromising their values.
ESG investments have their own risks and benefits
As with all investments, there are risks with ESG assets.
A recent trend termed “greenwashing” is the practice of exploiting the unregulated ESG definitions and rebranding normal investments as sustainable, even though they might be materially very similar.
Upon launching two new ESG funds in 2018, Vanguard was forced to drop more than 30 stocks from the portfolio after reports they were not actually ESG compliant.
The Financial Conduct Authority recently warned that this could then undermine confidence in the green sector, result in unsatisfied demand and ultimately reduce investment in the transition to net zero emissions.
There are many different strains of impact investments that need to be made available to millennials investors - according to EY, in 2014, there were more than 900 sustainable investment funds, compared to just 200 ten years before.
For those who simply want to support good causes, this added complexity is potentially frustrating; reform might be needed to ensure impacting investing can be done with confidence so that potential investors are not deterred.
Nonetheless, ESG investments also have many strengths.
For example, some analysts hold the view that investing in sustainable assets provides higher profitability over the long-term, as they are inherently designed to perform well in the future.
