24th-30th October is Good Money Week, a week to look at sustainable and ethical investing and raising awareness of what this actually means. This is our first blog explaining a bit more investing in an ethical, responsible and sustainable way.
With the rise of eco-consciousness behaviours for sustainability, many people are reconsidering how they would usually spend their money. Whether this may be purchasing second-hand clothing instead of buying into fast fashion retailers, reducing single-use plastics or opting for vegan or flexitarian diets to combat the environmental issues in the worldwide food structure, our society is constantly seeking new eco-friendly alternatives. We often find ourselves discussing how to spend our money ethically but is there a way we can invest ethically too?
Investing with Environmental, Social and Governance (ESG) principles is generally defined as making financial investments in companies that support environmentalism and have an ethical focus. In simpler terms, instead of putting your money into a fund that supports the production of fossil fuels, unethical employee workplaces and poor rates of pay; you can choose to support companies that are making a conscious effort to better their employees working conditions and the world we live in today, and for the future.
There is a popular misconception that these investments won’t give the monetary return that investing in a larger corporation would. Though there may be a higher risk when investing in small to medium-sized businesses (SMEs) than more established companies, interestingly it has been reported that ethical funds have outperformed traditional funds across the board during the Covid-19 pandemic. Morningstar, a global research agency, examined 745 sustainable funds and compared them against 4,150 traditional funds. They discovered that the sustainable funds matched or surpassed returns in all categories.
Of course, when you invest in this way, you can also be reassured knowing your money will go towards social and environmental advancements.
As with anything, research is key. We recommend you do thorough research into any company you are considering investing in, their ethics and values and what socially and environmentally conscious practices they promote through their website. Be mindful when researching that some companies might conceal some of their information to seem more appealing than their practices really are.