ESG Investing - What it is and why it’s important
Almost everyone has a Workplace Pension, yet very few people have any idea how their pension is invested. When asked, over two thirds of people want to invest in a way that considers environmental and social issues, yet these same investors may unknowingly hold shares in companies that directly contradict their wishes.
Environmental, Social and Governance (ESG) investing is about ensuring that investment decisions are made not only on the profitability of a company, but on how it performs in these three areas.
In practice, ESG investing looks at how companies are approaching environmental challenges such as the climate crisis and pollution, social issues like workers’ rights and their company’s impact on the local community, and corporate governance, which considers executive remuneration and board diversity.
Many pension companies are now integrating ESG criteria into their default investment funds to ensure that investors don’t have to choose an ‘ethical’ or ‘sustainable’ fund, to know that their money is invested in a way that aligns with their values. Recent examples of ESG investing would be Aviva and Legal & General opting out of Deliveroo’s stock market launch due to concerns about workers’ rights and also the fund manager Standard Life Aberdeen disinvesting from fashion retailer Boohoo, citing the company’s “inadequate” response to allegations of worker abuse at its suppliers.
For those concerned about the impact on the performance of their investments, it is often noted that companies violating ESG principles are less likely to perform better in the long-term, given the fact that they face increasing pressure from both consumers and governments to stop polluting, to take care of their workers and ensure their business is well run.
The Ink Group helps our clients and their employees understand how their workplace pension provider is approaching ESG integration in their default investment fund, as well as how the fund compares to its peer group. If you would like any further information, please contact Angela Ward at angela.ward@theinkgroup.co.uk
