Life & Living
We’re all becoming increasingly aware of the impact our actions have on our world. S&P Senior Investment Manager, Matthew Keay, looks at how you can be planet-friendly with your investment portfolio.
Investing ethically has become mainstream. There was a time when choosing investments from companies and countries with a good environmental and social record was a luxury, with a compromise to be made in terms of performance. However, this is no longer the case. Ethical investments are producing returns and performance that can rival and often exceed their less earth-friendly counterparts.
Ethical investing can mean a lot of things, screening out ‘bad’ areas or investing in positives. One of the most common ethical investing themes is ESG investments. ESG refers to the standard of environmental, social and governance risks and opportunities within an investment.
Environmentally responsible companies will have high standards in respect of anything that might contribute to climate change, so striving to limit pollution, water usage and their carbon footprint. They may also be directly positive for the environments –companies which limit water wastage or recycling, for example.
Companies with a good social record will have good health and safety standards for their workforce, a positive attitude to human rights and will engage with the communities in which they operate.
An analysis of a company’s governance will explore how well they are managed, the record of their Board in terms of financial reporting and their transparency in terms of policies for diversity and inclusion.
We are seeing ever greater interest in ESG investing. They have the potential to match or even exceed the performance of more traditional investments: it is apparent that a good ESG record enhances the desirability of a company, and that a bad record could hinder performance.
Clearly, establishing the record of a company in terms of its impact on the planet is not easy for the amateur. However, there are reporting sources available to investment managers that allow us to rate a company’s performance against all ESG benchmarks to support financial advisers when building suitable investment strategies for clients. Further to this, meetings with managers of ethical/ESG funds allow us a greater chance to interrogate the managers’ application of ESG standards when assessing investments.
For many investors, the most effective way to access ESG investments is through a managed investment portfolio.
Managed investment portfolios contain a mix of assets aligned to a risk profile. This asset mix is monitored by specialist investment managers within agreed parameters and adjusted, if necessary, to optimise their risk adjusted return. Our own S&P ethical model portfolios, managed by our investment management team, have been running since 2009 and have delivered proven growth to match our clients’ objectives within their agreed investment risk profile.
For those with more specific requirements – such as hard exclusions or targeted positive impact investing – it may be more suitable to create a bespoke portfolio, managed and reviewed by investment managers on a bespoke basis. With both model and bespoke portfolios, the risk profile of the investments in the portfolio should be suited to your attitude to risk.
Putting together an investment strategy that is right for you in every respect, including your investment objectives and your personal preferences, is not something to be undertaken lightly. Independent investment advice from a firm of Chartered Financial Planners can provide you with an understanding of all of the factors that go into making investment decisions. The analysis process should explore every aspect of your financial circumstances and preferences, and will build a tangible, achievable plan to allow you to reach your investment goals.
Any opinions expressed in this article are subject to change and are not advice. Any solution described may not be suitable for everyone. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.
Smith & Pinching are Chartered Financial Planners. If you would like a no-cost exploratory review to discuss your investment planning with an adviser, call us today on 01603 789966 or email email@example.com