ESG Comes into its Own
Three letters, ESG, have become a major driving force in investment decisions.
Three letters, ESG, have become a major driving force in investment decisions.
ESG – environmental, social and governance – considerations are playing an ever-increasing role in investment decisions. What used to be classed as ethical investment, socially responsible investment (SRI) and green investment have now to some extent merged under the ESG banner. The table below gives a taste of the broad range of ESG investment considerations.
|
Environmental |
Social |
Governance |
|
Carbon emissions Forest destruction Pollution Waste management Resource use |
Employee treatment Child labour Slave labour Human rights Workplace health & safety |
Workforce diversity Board diversity Executive remuneration Political influencing Tax policy |
In 2020, the popularity of ESG funds among the UK investing public grew dramatically, perhaps at least in part a response to the pandemic. The Investment Association’s (IA) ‘Responsible Investments’ category saw net retail sales more than treble to £10bn, almost a third of all 2020 sales and equal to the 2019 total for net retail sales. The IA 2020 statistics also show that over the year the value of funds in the category increased by two thirds, to £45.7 billion.
The latest figures from the IA show that were ESG funds to be classed as a fund sector, they would represent the eighth largest of the IA’s 38 fund sectors. However, they are not a unique sector as there are ESG funds to be found covering nearly all investment areas.
Across these areas, ESG funds also take different routes to implement the ESG approach. It is common for fund managers to rely on external ESG rating bodies, which do not always agree with each other. As is always the case with investing in funds, it is best to take advice on what is under the bonnet rather than relying on the marketing badge outside.
If you’d like more information around ESG investment, please get in touch.
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