What is an ESG investment?

Investing in sustainable, green and planet-friendly products is defined by the finance industry as an 'ESG' investment - meaning the investment product adheres to accepted Environmental, Social and Governance guidelines shown in the graphics above-

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These investment guidelines also adhere to the United Nations Principles for Responsible Investment https://unglobalcompact.org/take-action/action/responsible-investment and the investment guidelines set out in the Paris Accord at COP21 in 2015.  Taken together, they form the backbone of an ESG investment strategy which has different objectives from a pure legacy non-ESG investment product.

 

Are the returns on ESG products as good as traditional legacy investments?

Whilst there used to be a trade-off between pure investment performance and investing in ESG products in the past, this exclusivity no longer exists meaning there are plenty of ESG investment products with performances that rival legacy products.  At JEM we are financial advisers first and foremost, so our main goal is to help increase our clients' wealth within certain risk guidelines.  Since we are totally independent, we can therefore find and recommend the best performing ESG products that fit your degree of ESG beliefs whilst offering access to the best risk-adjusted returns available on the market.

 

What are 'green' investments and what is 'greenwashing'?

A looser description of investing in ESG products could be using the term 'green investing'.  However, people's ESG beliefs can be very complex, and whilst 2 people can agree on the broad concepts, their granular beliefs may differ from each other when it comes to putting their pension money behind their beliefs.  This creates a spectrum of 'green-ness' underlining their investment choices - it is all green but some may be greener than others!  Therefore, our job is to try to quantify your green-ness in order to match an appropriate investment product to your green level; and all taken in the context of the kind of returns you also expect from your investment.  

 

This doesn't mean just excluding the so-called 'sin stocks' from your portfolio (tobacco, casinos, alcohol, energy, armaments, sex-industry, high carbon footprint etc) which is referred to as 'negative-screening'.  It should also involve 'positive-screening' i.e. including stocks that benefit mankind according to ESG guidelines.  Strict adherence to ESG guidelines therefore avoids the accusation of 'greenwashing' where an investment can make claims to certain ESG credentials to attract ESG investment, but in fact they simply run a legacy product which has been rebranded as a 'green investment' (for example they have simply removed tobacco stocks).  Again, this is our job to avoid and remove any greenwashed products from our recommendations.

 

What is 'stewardship'?

One of the most important ESG concepts is that investment providers become stewards for your money - this means that a fund manager that has a significant shareholding of a company can hold the company's board to task using their shareholder rights.  ESG stewardship has evolved into fund managers tracking and monitoring company's executives and governance to ensure good practice in areas like gender pay equality, diversity and corruption.  If they own the shares, they can make their voices heard.  As an investor in a fund that offers ESG stewardship, you would be playing a small part in this conversation simply by investing your pension, ISA or general portfolio according to an ESG strategy.

 

How do I move my investments into an ESG strategy?

The first step is to find out exactly where you are invested at the moment - who is your pension/ISA provider, which funds/products are they invested in and are these responsible/sustainable/ethical ESG products.  The next step is to pinpoint where you lie on the green spectrum so that the appropriate ESG product can be found to better fit your beliefs.  The final step is to make a decision on transferring from where you are (which might not fit your beliefs) to where you want to be, so your hard-earned investment money in your pension or ISA can be far better aligned with your ESG beliefs.