Skip to main content
  • Register
  • Help
  • Contact us
  • Log out of your HL account
  • A A A
  • Responsible investing – separating fact from fiction

    Myths surrounding responsible investing could be holding investors back from profiting from their principles.

    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

    A better understanding of the effect our actions have on society and the environment has prompted many of us to change the way we live our lives.

    I’m not alone in trying to cut down my use of single-use plastic after seeing the plight of the pilot whale on Blue Planet II. In fact, 63% of our clients who watched David Attenborough's documentary changed their lifestyle as a result.

    For most of us recycling is now second nature and we happily reuse shopping bags but what about our money? Is there a way to become a more responsible investor? And what impact will this have on our wealth?

    More than a quarter of money managed around the world is invested with environmental, social and governance (ESG) factors in mind. That includes some of the world’s biggest investment funds like Japan’s Government Pension Investment Fund (GPIF) and the Dutch pension fund (ABP).

    Responsible investing has entered the mainstream but many investors continue to overlook it. Some believe it involves sacrificing returns, or that it's just a passing trend only relevant for environmentalists. Below we take a closer look at what responsible investing really entails.

    FACT 1: ESG investing could improve your returns

    Investors often believe they face a choice between principles and profit. This simply isn’t true. An increasing number of studies have shown companies that take environmental, social and governance risks seriously can perform better than their peers, though remember past performance isn’t a guide to the future.

    It’s not hard to imagine a scenario where solid principles benefit the bottom line. For example, if a company has robust health and safety policies in place, it shouldn’t face costly legal cases from something going wrong. And companies that take measures to avoid waste or pollution are less likely to suffer reputational damage.

    FACT 2: Pollution and poor governance aren’t rewarded

    Companies that fail to meet certain environmental, social and governance standards are increasingly being recognised as an investment risk by fund managers.

    Governance concerns aren't a new phenomenon. Enron, Volkswagen and Carillion all saw their share prices tank following governance issues. Poor governance can have a distinctly negative impact on shareholder returns.

    Social issues are no less important. How a company treats its suppliers, staff and customers can have a big impact on its success. It's particularly important in today's world where one social media post can leave a company's reputation in tatters.

    How companies deal with environmental risks has come under the microscope in recent years too. Increasing public concern about climate change and plastic-filled oceans increases the chances that polluters will face restrictions and be forced to pick up the tab for the problems they help create.

    FACT 3: It's not a fad

    It's not just professional investment managers getting behind responsible investing. The government is increasingly recognising the financial risks from issues like climate change, poor treatment of the workforce and poor behaviour of company executives. They’re encouraging pension fund trustees to consider these issues, viewing them as too important to ignore.

    There's a demographic tailwind too. Millennials are more interested in sustainability than any generation before them and they have enormous buying power. They have the potential to reward sustainable companies while punishing those that fall short of what's expected.

    Good Money Week is a great time to check if your portfolio is ready to weather the environmental, social and governance challenges facing us in the decades ahead.

    In this microsite, you'll find a number of ideas for investors who want to try and grow their money in a way that reflects their views. That’s not to say they aren’t chosen for their potential, we think all our picks are great investments in their own right. Investing responsibly doesn’t come at a price, you can have profits and principles. Remember investments fall as well as rise in value so you could get back less than you put in.

    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

    Daily market update emails

    • FTSE 100 riser and faller updates
    • Breaking market news, plus the latest share research, tips and broker comments
    Register

    Related articles

    Category: Funds

    What do you need to do about ESG?

    The case for ESG investing is solid. Better performance and better for the planet so what’s the next step for investors?

    Dominic Rowles, Investment Analyst

    10 Oct 2019 2 min read

    Category: Essentials

    What is ESG investing?

    Emma Wall explains how environmental, social and governance concerns are factored into stock selection.

    Emma Wall, Head of Investment Analysis

    09 Oct 2019 4 min read

    Category: Shares

    Three companies with ‘good’ business sense

    Nick Hyett highlights three businesses with an ethical and sustainable stance – plus the potential to deliver for investors.

    Nicholas Hyett, Equity Analyst

    09 Oct 2019 6 min read

    Category: Funds

    First State Asia Focus – responsible stewardship in a fast-growing region

    The team behind First State Asia Focus has considered ESG factors in their investment approach for many years. In their search for sustainable growth, they view themselves as long-term owners of a business.

    Kate Marshall, Senior Investment Analyst

    08 Oct 2019 2 min read