Today more than ever…
Investors are calling for investment opportunities that reflect their personal ethics and causes.
And the markets are answering.
For a high-performance executive who seeks to hold a portfolio that reflects their commitment to certain global initiatives…
Ethically aligned investment strategies are available.
These strategies are backed by scientific research and sound investment principles.
Here are 5 questions my clients ask me about ESG investing.
1. What is ESG investing?
ESG investing has a variety of definitions.
It generally considers environmental, social, and governance (ESG) practices when analysing an investment.
Broken down, ESG stands for:
- Environmental challenges: for example, fossil fuels, pollution, emissions, environmental issues and climate change.
- Social factors: for example, human rights, child labour and equal opportunity employers.
- Governance: for example, company management and corporate governance, partner remuneration and corruption.
Historically ESG funds were expensive, hard to access and usually only available through small boutique fund houses.
That's no longer the case and big asset managers now offer them too.
2. Why is Dimensional Funds Advisors our preferred option?
As an investor, you are either in your accumulation phase (investing over the long-term) or in the consumption phase (maintaining a certain standard of living through retirement).
Either way, to achieve your goals, you need a robust and well-diversified portfolio tailored to you and your specific objectives, time frame and appetite for risk.
For sustainable investors, there are additional factors to consider.
Dimensional’s sustainability strategy is based on the same Nobel prize-winning, scientifically backed principles that has had so much success in investing for many years.
It's designed to target measurable sustainability goals while maintaining broad diversification, efficient cost management, and a focus on higher expected returns.
3. Does ESG investing work?
One key consideration for investors is whether they can adopt a sustainability focus and still have a good investment experience.
For example, is it possible to reduce a portfolio’s greenhouse gas emissions exposure while maintaining broad diversification and a focus on higher returns?
The challenge of balancing shorter-term economic goals with longer-term concern for the environment presents diﬃcult questions.
Is there a price to pay for investing with your conscience?
The data shows that sustainable funds perform on par with their non-sustainable counterparts.
There is even some evidence to show that sustainable investing leads you to companies that are poised for outperformance.
4. What was the effect of the COVID-19 pandemic on sustainable investing?
Most people have sustainability concerns.
The climate crisis, chief among them.
But the pandemic further demonstrated how interconnected and interdependent we are across countries, economic status, and race.
During the crisis, companies had to prioritise the safety of their workers and customers.
So, when people are asked if they think corporate decisions and investment decisions should be made with an eye towards not just profits, but also people and planet…
It’s pretty close to a unanimous yes.
5. What are the main challenges to the continued growth of sustainable investing?
ESG investing has gained plenty of attention among investors.
Yet despite these global movements towards more sustainable solutions, financial services have been slow to adapt.
Not all financial planners are able, or willing, to help investors invest in a way that keeps their environmental concerns at the forefront.
As a result, many investors who are interested are not going to have their concerns addressed when they get financial advice.
Which means, many investors are missing out on the opportunity to not only have their money work for them...
But also for the planet.
If you want to talk about your long-term goals and how to ensure you reach your ideal future, my team are on hand.