Investors are becoming increasingly conscious of the social, ethical, and environmental impacts of their financial decisions.
As a consequence, they are seeking ways to align their portfolios with their values and beliefs.
So how can responsible investing help give some assurances that investors like you could achieve potential profit while keeping to your principles?
Also known as ESG (Environmental, Social, and Governance) investing or sustainable investing, it tends to place sustainability, positive social impact, and good governance highly when it comes to conducting due diligence.
Essential for any responsible investor is a need to understand its values.
For example, an environmentally conscious investor may prioritise investing in clean energy or conserving natural resources, while the more socially or governance motivated may invest in companies implementing fair labour practices or promoting diversity and inclusion.
Outdoor clothing company Patagonia is widely recognised for its commitment to environmental conservation and sustainable business practices, donating a percentage of its profits to environmental organisations while vocally advocating for climate action. Investing in such companies can align your portfolio with a commitment to environmental stewardship.
Microsoft, one of the world’s largest tech companies, also demonstrated a commitment to social responsibility through initiatives such as its pledge to be carbon negative by 2030, while its strong governance practices, board diversity and executive pay linked to ESG targets have made it enticing for those seeking to ethically invest.
The good news for those wanting to invest in such a manner is that it has the potential to deliver social, ethical and environmentally impactful result. .
Even during the pandemic, many ESG funds outperformed their non-ESG counterparts. Morningstar reported that 72% of all sustainable funds ranked in the top half of their category during the COVID-19-induced market downturn.
As investors increasingly recognise the power they hold to drive social and environmental change, the appeal of responsible investing has the potential to grow.
Whether you’re a seasoned investor or just starting your investment journey, responsible investing can form a key part in achieving potential financial returns whilst possibly positively impacting the world.
Never rely solely on marketing materials, as they could potentially be exaggerated and place a disproportionate emphasis on ESG criteria. A more comprehensive picture of the investment can usually be found in the company’s SEC EDGAR filings. Reading the fine print can help avoid situations where the marketing or promotional materials for an investment might not tell the whole story.
ESG funds my take more work for fund managers to construct and manage and, consequently, can cost more than a passive fund that tracks a broad-based market index. Research how much any investment you’re considering will cost you over time, paying attention to the annual expense ratio for an ESG fund. If you are using an investment professional, ask about any fees associated with an investment, such as sales charges, ongoing fund expenses, how much it costs to buy or sell the security, or assets-under-management fees.
Crowdfunded securities are generally offered by early stage companies and investors should be prepared to lose some or all of their investment. Investors should read all of the risks and disclosures prior to making any investment decisions.
IMPORTANT NOTICE
Investors should recognize and accept the risks associated with investing.
Certain investments may require you to keep your holding for periods of many years with limited or no ability to resell unless there is a strongly regulated secondary market.
You may also have limited access to periodic reporting, see your holdings decrease and increase in value, or even lose your entire investment.
Investors should decide for themselves whether to make any investment, basing this on their own independent evaluation after consulting with financial, tax and investment advisors.
Never rely solely on marketing materials, as they could potentially be exaggerated and place a disproportionate emphasis on ESG criteria. A more comprehensive picture of the investment can usually be found in the company’s SEC EDGAR filings.
Reading the fine print can help avoid situations where the marketing or promotional materials for an investment might not tell the whole story.
ESG funds my take more work for fund managers to construct and manage and, consequently, can cost more than a passive fund that tracks a broad-based market index. Research how much any investment you’re considering will cost you over time, paying attention to the annual expense ratio for an ESG fund.
If you are using an investment professional, ask about any fees associated with an investment, such as sales charges, ongoing fund expenses, how much it costs to buy or sell the security, or assets-under-management fees.