If you would prefer to invest in companies and organisations that reflect your socially responsible values, you are not alone. More and more people are looking to do the same around the world and at home. Here’s a brief snapshot of the options.
Responsible investment, or Environmental, Social and Governance (ESG) integration, allows investors, both retail and institutional, to make a choice about where and how their money is invested, beyond traditional investment.
Many options to choose
The spectrum of responsible investment is quite broad and has evolved over time. It began with “norms based” investing, also known as negative screening. This is when the investment manager will invest in a wide range of assets but may look to exclude companies that are involved in unethical business practices. It’s been around for over a hundred years and got started with faith-based organisations that excluded alcohol, tobacco and pornography. It’s evolved to the positive application of ESG factors (choosing performing stocks with regards to these scores) and is becoming more widespread. The ESG integration is where fund managers consider environmental, social and governance factors and how they relate to a company. These scores then form part of their investment process and how they put securities into their portfolios.
Taking an active approach
Good responsible investment also includes being an active owner and working with management or company boards to influence decisions around environmental, social and governance issues. For example, a manager may engage with an oil company as to how they will transition their business strategy towards lower carbon emissions, in line with the Paris accord of 2016 and CO2 emissions not being greater than 1.5 degrees Celsius.
Thematic investing and impact investing
This is the latest stage of the evolution of Responsible Investment. Thematic investment is where investments are targeting specific themes, e.g. green bonds and renewable energy. Impact investing is where investments are targeting clear and measurable social and environmental outcomes, as well as delivering a market return. Some investors are also happy to do impact investing to get an environmental and social return that may not even deliver a financial return. In this case, the cause may be so aligned to their values that they are simply happy with just doing good.
Research and company engagement
AMP Capital has a deep and broad global Sustainable Investment Team who research companies in particular industries in order to understand how their value might be impacted by ESG factors. This research provides a solid foundation for the large amount of active engagement that it does on behalf of its clients. The research considers how likely that the value of the company in this sector will be:
- influenced by how well they perform as a steward of the natural environment
- impacted by how a company manages relationships with its employees, suppliers, customers and the communities where it operates
- impacted by the quality of its leaders, the fairness of pay structures, audits and internal controls, and finally the rights of shareholders.
You can find out more on these and other issues here in AMP Capital’s recent Top 10 global ESG issues for 2019.
More to investing than simply dollars and cents
We can also make our own decisions about how we would like our money invested to bring about a greater positive change in the world. At AdviceFirst, we have access to two fund managers with responsible investment funds: Vanguard Investments with their Select Exclusions range and AMP Capital with their Responsible Investment Leaders range, both of which are available on our WealthView platform. Please talk with your Adviser if you would like to know more about these options.