ESG is real, but is greenwashing also real?29 April 2021
The rollout of the various vaccines across both the UK and the US has been largely a success and this in turn will see the many restrictions on the populations ease as we return, not unscathed, to normality. The next 12-24 months from an economic perspective will be fascinating to observe. With the likely unprecedented ascent from the last year, it will be a busy and exciting time for many. At the same time ESG investing has correctly come to the fore, and it will be good to see how the dynamic of all three elements (environmental, social & governance) evolve as we progress, particularly social and governance, to make this future growth fair and sustainable, perhaps for the first time ever. Also a fascinating prospect.
The three factors of ESG are central to the measurement for the sustainability and environmental impact and behaviour of a business/company. We focused on this topic in July 2019 on our blog page and in anticipation of its implementation as an important investment factor from the start of 2021. ESG measurements are designed to help better determine the future financial performance of companies, arguably noting that this is just good corporate social responsibility, but it is also the need to think long-term. If you are interested in ESG investing and want to understand how the metrics can be measured, then the following weblink may be helpful: https://www.msci.com/esg-ratings
I think it is also important not to mix ESG with ethical investing. Both add additional parameters to investing to ensure that money invested meets an agreed standard or target, but the two focus on different factors. A good article / webpage on ESG investing, updated in July 2020, can be found at Aviva's website (not an endorsement) here: https://www.avivainvestors.com/en-gb/about/responsible-investment/our-approach/esg-alternative-assets/
Sadly, as with most change, there is always the risk that some will use rule changes and initiatives to push their products and services without really buying into the core principles of the objective. In the case of ESG, the risk is referred to as 'greenwashing', effectively presenting or repackaging your offering as suitable in the ESG marketplace, without actually being suitable. And greenwashing is real, with investors watching for this because it breaks the ethos of all that they seek to achieve through investing. Most capital projects in life start and end with money, so getting it right at the outset is vital, and it is disappointing to see greenwashing as a possibility.
Some investors we have spoken to have decided to let the launch hype of the ESG rule change calm for six months or so to try to avoid investing in 'greenwashed' offerings, with the firm plan to take action towards the end of 2021. We look forward to helping them as the market evolves quickly and real opportunities come to the fore.
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However you plan to invest, and make an impact on the elements of ESG that are important to you, talk to the team at Chapters Financial in Guildford.
No individual investment advice is provided during the course of this blog.
Keith Churchouse FPFS
CFP Chartered FCSI
Chartered Financial Planner
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