Ethical investing – does your portfolio reflect your values?
Environmental, social and corporate governance (ESG), impact, sustainable, ethical or responsible investing. It goes by many names and for years has simmered under the surface of the mainstream investment consciousness. But as investors respond to rising global awareness of climate change, inequality and social injustice, ethical investing is moving beyond niche.
A rising tide, and we don’t just mean sea levels
The appetite for sustainable investing is growing. According to MorningStar, sustainable open-end and exchange-traded funds had a record-breaking year in 2020, with almost double the net inflows of 2019. “In the fourth quarter alone, sustainable funds pulled close to €100 billion in net new money, taking 45% of overall European funds flows.” MorningStar explains that investors have realised that ESG funds offer similar, and sometimes even better, performance compared with other funds.
Proof in the performance
Recent research by Moneyfacts has found that ethical funds have consistently achieved better levels of growth than their non-ethical equivalents. Looking at 140 unit trusts, researchers found the ethical funds had grown by just over 4% in the 12 months leading up to 1 July 2020, compared with non-ethical funds shrinking by nearly 1.5% in the same period. Over five years, ethical investments achieved 41% growth and others only 32%.
But it’s not really all about returns. Investors want to make investment choices that don’t damage society or the environment.
Investment for a better world
Founded by filmmaker Richard Curtis, the “Make my money matter” campaign aims to make people aware of how they may be unknowingly investing in questionable practices via their pension schemes. This is just one wave in the rising tide of awareness, reflecting people’s desire to use their investments to make a positive social or environmental impact.
As awareness grows about ethical and sustainable practices, is it time to make some changes to your portfolio?