Being “socially conscious” may seem very 21st century. But socially responsible investing (SRI) is actually nothing new, with the first SRI fund launching in 1952.
With SRI-focused mutual funds, ETFs, government bonds and other equities, investors can put their money where their values lie more safely. The best way to determine the sustainability of an investment is in its environmental, social, and governance (or ESG) principles.
Environmental: Environmental concerns are self-explanatory, covering the environmental impact of an investment as it pertains to climate change and overall sustainability.
Social: Social concerns involve the commitment to diversity and human rights and dignity.
Governance: Governance refers to an investment’s leadership structure and its relationship to employees. Meeting this principle requires transparency for all stakeholders.
Here are some ways a values-conscious investor can look toward aligning their standards with their investments in 2020 and beyond.
The Rise Of Climate Focus
Ever since the second World War, governments around the globe have focused on managing population growth as their primary driver for planning. But the new main priority will be the environment, as looming climate change threatens to cause food shortages, as well as battles for clean air and water.
The technologies that help countries advance these goals will largely be advanced in the private sector, and as they’re adopted by governments, enjoy widespread usage.
For instance, Germany has plans to move the entire country from coal to renewable energy by 2038, and China has become the largest manufacturer and buyer of electric vehicles in the world.
Many analysts believe that these green stocks could grow to become some of the world’s most valuable companies, and consumers might consider tilting their portfolio toward these securities to capture long-term opportunities.
Bonds Are Getting Big
Typically, investors look toward bonds as a defensive asset class, as they’re largely less volatile than asset classes, such as stocks. Including bonds in a portfolio tends to be a source of diversification, that helps reduce overall risk.
That said, green bonds are enjoying a big moment with investors. The first recognized green bond was issued in 2008 – and in 2019, green bond issuance is at an all-time high.
As institutions and governments raise billions to fund sustainable projects, bonds are issued to help pay for them. Proceeds from these bonds are targeting energy efficiency, pollution prevention, clean transportation and new ‘green’ technologies.
The benefit of green bonds is that they allow investors to earn tax-exempt income, while having their investments used in a positive manner.
Investing In A Post-COVID World
While COVID-19 may have put the economic world on its heels, many believe that it’s actually accelerating ESG investing and corporate sustainability practices.
As billions of people around the globe were urged to avoid public places, many “stay-at-home” stocks in the entertainment, tech and telecommunications sectors surged, while infrastructure-heavy securities such as retailers and airlines suffered.
Here’s how each consideration of ESG may be affected by the pandemic:
-Environmental Factors: Environmental concerns have traditionally been the most pronounced among E, S and G investors. And even during COVID, most investors have recognized that ESG and smart investing are not mutually exclusive.
-Social Factors: The very nature of human social activity has been uprooted during the pandemic, with an increase in volunteering, social cohesion and community support -- and has led Americans to reconsider their investment in companies that specialize in causes that are “bigger than ourselves”.
-Governance Factors: Many of these shifts in policy, organizational practice and technological efficiency will be reflected in global businesses over the coming years – especially as the demand for greater corporate transparency and stakeholder accountability grows.
How Signet Can Help
It is our mission to provide investment resources and strategies to clients and financial institutions helping them develop a greater knowledge and passion for sustainable, responsible and impact investments. Let us help you find your mark with our experience.
The return of Environmental, social, and governance investing may be lower than if the adviser made decisions based solely on investment considerations.
No strategy assures success or protects against loss.