Investing expert suggests an ‘extremely beneficial way to invest money’ | Personal Finance | Finance
ESG investing has gained popularity in recent years as societal issues such as climate change warrant a larger reaction and more people begin to take interest in the ethical values of companies before purchasing from them. These investments have inched their way into almost every investor strategy and industries have begun to shift in favour of those that are tackling problems in the real world.
When it comes to ethical investing, many are eager to assume that buying shares or stocks won’t make a true difference in the real world, but Galina Stavskaya, Investment Director at Claro, says otherwise: “An increasing number of investors are now looking at ESG investing as their go-to method because of its proven effectiveness.”
ESG investments have now made their way into even the most traditional investors’ practices, as the industry now recognises that companies that are tackling some of the world’s biggest problems, like climate change, are the ones that are more likely to be successful.
Ms Stavskaya shared five of her most useful tips when it comes to ESG investing:
Be confident in your decision
It’s suggested that investors take the time to research all available options when it comes to companies, sectors and strategies. ESG investing in its core is based off the values and societal actions of an investment so ensuring the company’s values align with your own are paramount.
Ms Stavskaya said: “Whilst it can be difficult to decide which companies are best for you to invest in, you have plenty of time to master this decision-making process as you can be sure ESG investing is here to stay.“Even if it does take a little more time to research than traditional investments, it can be an extremely beneficial way to invest your money with the potential of good returns and a clear conscience.
“It’s a positive way to put into action your ethical and environmental concerns. It can turn your thoughts and beliefs into a tangible impact as you can reinforce the importance of, and support businesses that prioritise these matters,” commented Ms Stavskaya.
Decide if ESG investing is for you
“ESG investing simply measures how sustainable and socially impactful an investment in a company will be. Planning your investments using an ESG strategy is a way to gain a financial return as well as driving social and environmental change.
“At Claro, we like to think that most of us want companies to do more to protect the environment, care for their employees or ensure that their business practices are ethical. If you agree, then ESG investing is definitely something to consider.”
Understand the ESG categories
ESG is made up of three categories – Environmental, Social and Governance – and Ms Stavskaya explained what they mean.
Environmental – “This category focuses on the methods a company uses to sustain and help the environment with a focus on waste, pollution and climate change initiatives,” she said.
Social – “This gauges the company’s interaction with its people, community and clientele, including employee representation, relations and working conditions.”
Governance – “Focused on the corporate side of business, this category considers management, policies, regulations and executive behaviour of a company.”
Some companies may fall into all three ESG categories, whilst others only classify under one or two and many factors influencing these categories will overlap.
“Consider which values you feel most strongly about when considering an investment,” said Ms Stavskaya.
Understand ESG scoring systems
Understanding if a company is truly ethical means reviewing industry scores that account for the three ESG categories.
Ms Stavskaya noted: “An ESG score tells you how well a company is performing against the environmental, social and governance standards used to analyse and rank it – this is also known as an ESG ranking.
“However, be warned: rating and scoring systems aren’t universal. Some investment agencies use a one to five method whilst others use a letter method, and there is yet to be a universal way to define and measure ESG impact.
“Furthermore, there is no regulator that verifies ESG information in the same way there is for verifying financial information.
“The ESG score of a company is measured through the lens of SDG, also known as Sustainable Development Goals. These goals are targets established by the United Nations, set to be achieved by 2030, that are designed to create a more equal and sustainable future for all.
“Considering how your spending and investing contributes to SDG is a great way to make more ethical financial choices,” she commented.
Be aware of ‘Green Washing’
A company that appears ethical could just be hiding behind a smoke-screen of good marketing and fine print confessions. The true burden of labour when researching an ESG investment is finding out whether a company is truthfully ethical.
“Companies spend large amounts of money on marketing, using buzz words like ‘sustainable’ and ‘organic’ in order to make themselves seem eco-friendly, when in reality their efforts may be largely superficial, with their manufacturing and employment processes contradicting such claims. Concerningly, some companies have been revealed to be untruthful about certain areas like carbon emissions.”
Ms Stavskaya added: “Make sure to dig a little deeper into a company’s green policies, looking at third party articles written about them and not just what’s on the sustainability page of their website. Alternatively, look for professionally managed investment funds with a credible process for identifying ESG investments.”