ESG is short for environmental, social, and governance. ESG investing is a strategy where you place your investments in businesses that focus on eco-friendly practices. Practices that make the world a better place.
You can determine a company’s policies, strategies, and behavior regarding environmental performance, social performance, and governance problems by analysing independent ratings.
It is crucial to choose a company with a higher score on environmental and societal responsibility scales. Numerous research groups and third-party companies in the UK evaluate its performance and give it a rating.
What is ESG RISK?
ESG risk is used to manage the risks associated with ESG investments, protect value, and streamline business processes during the holding period by value-generating opportunities. Most private equity firms evaluate ESG risks to make informed decisions about buy-outs and acquisitions.
According to DNVGL, ESG risks include:
- Mitigation of climate change impact
- The duty of care and management practices for eco-friendliness
- Working and safety conditions
- Corruption-free and anti-bribery procedures
- Respect for human rights
- Compliance to laws and regulations.
It is crucial to consider various factors, including the impacts of megatrends, such as climate change. Likewise, a responsible investment must also focus on emerging regulations and voluntary guidelines, including UK’s Modern Slavery Act.
Is it Worth Investing in ESG Funds/ Stocks?
Many investors think investing in ESG funds and stocks is a daunting task because it has strict rules and regulations. However, this is not always the case. Advocates of ESG says that investing in it can generate higher returns on longer-term investments.
ESG investing allows you to pursue ethical principles, leading to success in the long run. So, choosing investments based on standards of ESG can generate higher ROIs over time. According to ubiased.co.uk, investing in ESG funds or stocks remains sustainable over the short, medium, and long-term, leading to increased growth opportunities.
Business Insider reports that ESG investing is more stable, profitable, and sustainable. Although some investors believe that ESG investing does not generate higher returns, research highlights that ESG funds and stocks have outperformed their peers during the 2020 pandemic. So, it is worth considering investing in ESG stocks and funds when you start investing.
In terms of ESG and it’s impact on foreign exchange, there are some brokers that try to promote it. This includes the likes of a MetaTrader 5 broker, but be sure to read through the individual company policies before jumping in.
What are the best ESG Funds?
Many established funds cover the UK, but not all of them are the best. When choosing an ESG fund, it is important to choose those which generate higher profits while meeting the standards or regulations regarding eco-friendly practices. Here are three of the best ESG funds in the UK, many of which can be found on various investment platforms:
1. Lion Trust Sustainable Future UK Growth
Lion Trust is the most popular ESG fund in the UK. The company’s managers make substantial efforts to determine important trends for structure growth, shaping the global economy, and making the world a better place. Lion Trust focuses on the development of efficient public transport to reduce carbon emissions. At the same time, the company makes efforts to improve digital security.
2. Royal London Sustainable Leaders Trust
Royal London is another best ESG fund in the UK. The company’s managers work collaboratively to develop sustainable projects and implement them reliably to contribute to society and the environment positively.
According to THEIA, Royal London has benefited from the Investment Association fund sector rules, allowing it to invest its 20% of assets in global or foreign shares. Moreover, Royal London also has holdings in London Stock Exchange and Croda International, a reputable chemical company.
3. Janus Henderson UK Responsible Income
If you want to invest in ESG funds that give you dividends, make sure you invest in Janus Henderson UK for Responsible income. It is ESG-oriented with a 4.4% of historical yield. The fund provides an income with higher capital growth potential over the long term, which is five years or more.
James is a Senior Account Manager who graduated from the University of Kent in 2014. His background is in eCommerce and SEO (working with clients such as HSBC UK and Nestle) and he has a keen interest in money-saving advice.