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Should you include ESG investments in your portfolio?

InvestorEducation / Learning to Invest Sep 30, 2021 - 08:14 PM GMT

By: Sumeet_Manhas

InvestorEducation

The coronavirus pandemic has undeniably altered society in many immeasurable ways. It’s even had an impact on the world of investment. Indeed, it proved to be a major turning point for ESG investing as the pandemic not only altered the way we interact with one another but societal values too.

The experts at Saunderson House recently ran a study on financial well-being and put a greater focus on responsible investment. Their results reveal that, from a moral perspective, there is a major  appetite right now for ESG or responsible investing. But what is ESG and why should you include them in your investment portfolio?



 
What is ESG

ESG investing refers to (environmental, social and governance) is a set of criteria that company’s or individuals look for when choosing where to invest. In many ways, ESG investing is very similar to ethical investing, though investors might be choosing to invest not only on moral grounds but because there is less risk of a fallout as a result of operating practices. Any businesses that consider their impact on the environment, social factors or the company’s leadership structure could be considered ESG investments.
 
Investing in sustainability

More than half of all wealth managers are planning ESGH integration according to a survey by bfinance. It’s easy to see why. In a post-COVID world, investors are warier about where they put their money because the pandemic proved beyond a shadow of a doubt that things can fall apart in a split second.

People are also starting to realise just how important sustainability is, with responsible investments up dramatically in recent years. This is particularly true in younger investors, with 83% of those between the ages of 18 and 34 interested in the sector. This is perhaps due not only to COVID but the racial injustice that was exposed in 2020, leading to a greater overall focus on societal challenges.


 
Sustainable investments are smart investments

Data from global research agency Morningstar reveals that, whereas ESG investments were once seen as something of a fringe concern, it’s now becoming mainstream. Vanguard is one of the largest fund managers in the world and it launched two ethical index funds last year. The data from Morningstar also found that the majority of sustainable funds actually beat returns on all non-sustainable investments, often over multiple times.

Indeed, the average return for an ESG investment is around 6.9% a year, which is 0.6% higher than conventional investment funds. By their very nature, sustainable funds also last longer than their peers so it’s an investment that should continue to offer rewards for many years in the future. So, ESG investments might not only be more ethical but better investments overall!

By Sumeet Manhas

© 2021 Copyright Sumeet Manhas - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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