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Responsible investing enables you to contribute to a better, more sustainable future, whilst diversifying and growing your financial portfolio simultaneously.
Responsible investing is a type of investment approach that combines financial gain with ethical, Environmental, Social and Governance (ESG) considerations, ensuring businesses and their investors are making a positive, measurable impact on the environment or society.
Although there are many investment opportunities in the market, only some may meet your requirements for ethical or ESG investing. Therefore, it can be difficult to identify what exactly to invest in to make a difference while still aiming for returns on capital. However, you may have a certain goal in mind - for example, wanting to invest in an entity that advocates for human rights or commits to sustainable business practices.
Important - Investment involves risk. The value of investments can fall as well as rise. You may get back less than you originally invested.
Ethical investing is focused on aligning your investment goals with your ethical values or morals, and excluding businesses that don’t fit. For instance, not investing in alcohol, tobacco, gambling, or oil industries - or avoiding companies that are involved in animal testing. These investments aim to exclude businesses that do not meet specific criteria.
ESG investing on the other hand, considers long-term environmental, governmental and societal issues, and strategically invests to positively impact those. Compared to ethical investing, ESG investing is not as focused on excluded industries, although some of the same considerations will likely come into play - e.g., oil industries having a negative impact on the environment yet being motivated by investors to invest in more sustainable areas with an ESG policy. Typically an ESG investment would also be aligned to one or more of the United Nations 17 Sustainable Development Goals.
There are several benefits to responsible investing, such as:
To ensure investments meet the expectations of responsible investing, advisers use positive and negative screening tools. Positive screening consists of identifying investments that are best-in-class on ESG criteria. Negative screening excludes certain investments in sectors such as alcohol, oil or weapons.
There are some factors to consider when making a responsible investment, including:
Following the above, what people consider responsible investing is subjective. This means it’s important to get all the details about the investment into businesses before you make an investment.
To take a more ESG-focused approach to investing, an Ascot Lloyd adviser can help. As part of a wider financial plan, we will source suitable responsible collective investments for you. We will need to understand your risk profile and the specific investment preferences and priorities you have.
Your adviser will source and screen products across the market, using the collective due diligence and ongoing research that Ascot Lloyd takes on all companies that we recommend. The best part of being independent is that our advisers aren’t bound to certain investment products or providers. Our only priority is you and what you believe in.
If you are interested in responsible investing as part of your financial plan, contact the Ascot Lloyd team to learn more.
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“Greenwashing” is essentially an overstatement of a businesses or investments green credentials often used to entice a green consumer into buying from the company. For example, where a business advertises its products as “eco-friendly”, but source their raw materials from unsustainable suppliers.
It can also apply to government debt finance such as government bonds and some countries are beginning to issue sovereign green bonds to finance solutions to environmental and climate challenges. Green bonds are allocated to environmental projects or uses, and can help investors diversify and manage risk in their portfolios whilst integrating responsible and ethical investment approaches.