What is ESG Investing?

The value of investments can fall as well as rise and you could get back less than you invest. If you’re not sure about investing, seek independent advice.

Sustainable, ESG and Impact investing

The world today isn’t short of challenges. From global warming to an increasing and ageing global population – humanity has its work cut out to create solutions to the many complex problems of the 21st century.

And rather than something to be solved by charities and NGOs, or government regulations, it’s become clear that sustainability is everyone’s responsibility. So it’s no surprise that investors increasingly want their investments to support these goals.

Principles at a price?

Responsible investing isn’t new – it’s been around for centuries – as people have always invested in what they approve of and avoided what they won’t support. One approach to this is ‘negative screening’, and the managers of many traditional ethical funds use this technique today, often excluding putting money into things like oil companies, the tobacco industry or arms manufacturers.

Investors though have often felt that their principles came at the expense of their pocket, as they missed out on key areas of returns.

While in the past investing with principles suggested lower returns, many argue that investing in a sustainable way could in fact see better returns than investing which only looked for financial gains. After all a business which evaluates the long-term needs of the world at large, values and invests in its employees, and makes sure it’s being well run, will often have the potential for providing sustainable earnings growth as well as sustaining people and the environment.

However, whilst there is some evidence that the risk-adjusted returns of sustainable investment strategies can outperform traditional strategies, because this is a relatively young area we cannot draw any concrete conclusions about its expected returns. This type of investment, just like all others, can fall in value as well as rise.

ESG - Environmental, Social, Governance

ESG investing is traditional investing combined with philanthropic aims. New options emerge where the aims of generating a financial return and creating societal impact overlap.

As the challenges of global sustainability have come into focus – so too have the ways in which investing can support these. Many fund managers have come to consider the effect their investments have on the environment and society, and the governance structures companies have in place to make sure they’re achieving their investment goals in the right way.

We’ve looked through all the funds and Exchange Traded Funds (ETFs) that we offer on Smart Investor to find those that say they consider ESG factors.

You will also find ESG funds that we like on the Barclays Funds List.

Impact Investing

While many products may say they consider ESG factors it can be hard to know the actual role this plays in their choices and the returns they achieve.

What sets impact investing apart from other forms of sustainable investing is the selection of companies based on the measurable positive impact they have on the world, as well as their financial returns. Managers of impact investing funds select companies which meet their criteria, and will report on the impact generated by the underlying investments as well as the performance of the fund.

While it might seem that impact investing would just involve companies making wind-farms and solar panels, the investment universe is actually much bigger. Healthcare, sustainable transport, education and technology are all areas that contribute to the wellbeing of society, so companies in these sectors will be found in many impact investing funds. Find out more about Impact investing.

Barclays Multi Impact Growth Fund

If choosing the right ESG or Impact fund for your portfolio is a challenge – with products investing in all kinds of areas you’re unfamiliar with – another product you might consider is the Barclays Multi Impact Growth Fund (MIGF).

This fund is an award-winning “fund of funds” – meaning that it doesn’t directly invest in companies but invests in a selection of other specialist funds which Barclays’ experts considers to be “best in class” impact funds.

Take a closer look at the Barclays Multi Impact Growth Fund.

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