08 Apr Socially responsible investing expected to double this year
The majority of investors today are shifting their attention towards green investment plans in response to the rising challenges of climate change. Investors are increasingly avoiding businesses associated with big environmental impacts.
The financial world is beginning to recognise the true threat of climate change and its influence on long-term prosperity. As a consequence, a significant amount of money is being diverted from traditional assets and funnelled into cleaner and greener enterprises.
This isn’t simply a rise in environmental consciousness but a recognition that there are many incentives with choosing to be more environmentally responsible. With many investments, like pensions funds that expand for many years, the risks that might emerge in the future need to be considered in financial plans today.
With the financial cost of climate change exceeding £200 billion every year, it is clear that conventional fossil fuel assets will be squeezed for as much of this investment as possible. Investments that may be prospering at the moment may become an issue as long-term funds mature. As a result, smart money is shifting away from carbon-heavy markets and making it clear that they aren’t associated with these assets.
Recent research by OnePlanetCaptial suggested that over 80% of investors now regard climate change as the biggest long-term threat, and as a result, many have already started to move their investments.
Over 10% of investors have made plans to shift their focus into ESG funds and a further 17% intend to move this way in the next few years. A further 70% stated that they would actively avoid investing money into businesses with a negative environmental impact. If these figures are correct, we are likely to see a significant rise in the ESG market this year. The emphasis investors placed on global warming is also important, identified as the biggest threat, ahead of overpopulation and pandemics. This is significant, considering the impacts the pandemic has had on global economies over the last year.
Matthew Jellico, the co-founder of OnePlanetCapital explains that investors are becoming increasingly aware of businesses that have a positive impact on the environment and are more willing to take on more risk to ensure their investments meet their expectations. Jellico believes that UK sustainable funds will outperform the market for the short and long term.
The latest research showed that nearly 30% are considering higher-risk investments with a specific focus on climate change. The new Sustainable EIS Fund launched by OnePlanetCapital targets businesses involved in climate action and others with a positive environmental impact. Other ESG investments with clear benefits include the Global Macro Sustainable Fund from J P Morgan and the Sustainable Equity Fund Global from LGT Group.
While standard investments are predominantly based on generating a return, ESG investments are focused on a return and not harm. Having a two-fold approach makes it natural for investors to question whether ESG investments are capable of delivering the same kind of returns similar to conventional funds.
The good news is that ESG funds are capable of performing as well, if not better than conventional funds. While the choice of companies to invest in is relatively limited, this is inevitably changing. ESG investments tend to be less volatile, with fewer growth spikes but minimal big dips too.