22nd April is World Earth Day, a global call for individuals and businesses to champion environmental sustainability. With increasing numbers of investors switching to ESG investments we take a look at whether prioritising ‘green’ investments really can make a difference in the ongoing fight to mitigate climate change.
What is ESG investing?
It’s impossible to ignore the havoc being wreaked on our planet due to climate change. With Dubai currently underwater, Asia in the grip of an extreme heatwave and northern Spain suffering the worst drought in its history, today’s headlines clearly highlight an urgent need to address climate change.
Environmentally aware investors are increasingly turning to Environmental, Social, and Governance (ESG) investments as a means of aligning their portfolios with their values.
Investors who prioritise environmental factors invest in companies that have a track record of managing their impact on nature. These businesses are ahead of the game when it comes to tackling the global challenges related to climate change and resource scarcity. That could be through introducing environmentally friendly practices throughout their supply chains, minimising waste generation, and/or prioritising conservation efforts.
ESG investing can also involve screening out companies with poor environmental practices, notably fossil-fuel companies.
But does switching to ESG investments truly make a difference in the ongoing battle to mitigate climate change?
By allocating capital to these companies, can investors balance the need to generate financial returns with driving positive change in the world?
Does ESG investing really make a difference?
Make My Money Matter, a people-powered campaign fighting for greener pensions certainly believes so. Research by the organisation has revealed that redirecting your pension wealth could have 21 times the impact on your carbon emissions than going vegetarian, giving up flying, or switching energy providers.
David Hayman, Make My Money Matter’s campaign director believes that ‘People should see money, not as scary static investment in a Swiss bank vault, but a hidden superpower to build a better world.’
One of the key arguments in favour of ESG investing is its potential to influence corporate behaviour. By directing capital towards these companies, investors can incentivise others to follow suit, creating a ripple effect throughout the economy.
In addition, ESG investments offer the opportunity to capitalise on emerging trends and technologies aimed at combating climate change. From renewable energy to sustainable agriculture, companies at the forefront of addressing environmental issues are poised for long-term growth as the world transitions to a more sustainable future. By investing in these sectors, investors not only support innovation but also position themselves to benefit from the potential financial returns.
On the other hand, critics of ESG investing argue that the impact may be limited, particularly in the absence of stringent regulations and standardised reporting frameworks. Without clear guidelines, companies may engage in ‘greenwashing’, where they overstate their environmental credentials to attract investors. This is certainly something investors need to be aware of.
Additionally, some sceptics question whether ESG investments sacrifice financial returns in pursuit of social or environmental goals which begs the question…
Can I make money with green investments?
While in the past, going green tended to mean sacrificing return, that is no longer the case.
Morgan Stanley’s 2023 Sustainable Reality report revealed that sustainable funds outperformed traditional funds in the first half of 2023 with a median return of 6.9% compared to 3.8%.
Overall, green investing has the potential to make a real difference for the environment and your portfolio. However, you need to do your research to find performing investments that align with your values and goals. And, as ever, diversification is key.
How can I invest sustainably?
Talk to us! If you are looking to drive positive change while generating competitive financial returns, our advisers can help you select appropriate investments.
Evelyn, our investment management partner, is well ahead of the game in this domain having won the Best ESG Investment Strategy Award at the London Wealth Management Awards in 2021.
Here at Infinity, we believe that how you choose to invest your money really can make a difference and we are perfectly placed to ensure that you don’t have to sacrifice return if you choose to go green!
Do your bit for the planet this World Earth Day. Contact us to find out how you can switch to a more sustainable portfolio.
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