ESG vs Ethical – The Rumble in the Investment Jungle

As the voices of the activists grows in the media and governments are striving to do better with the numerous COPS, the investment world is progressing and incorporating ethical ideals and ESG practices into its models.

The investment world is already filled with too many anacronyms and options as it is, so the addition of more routes to consider can be daunting. The main question is – are they really so different?

  1. ESG is all about corporate behaviour

Fund managers will assess whether the companies they are investing in are behaving in a way that considers the environment, society and how they are governed. The idea is that companies that don’t impact the environment, have a social conscience and are well controlled will outperform other companies.

  1. Ethical investing using principles and ethics as a guideline

Much like your cute new Instagram picture, ethical fund managers filter out the bad stuff- such as tobacco or companies that test on animals. This is not to say that ESG funds do not do any filtering, but they would not actively remove any area specifically, like ethical fund managers would.

  1. ESG fund managers get in touch with companies to help make them more ESG-focussed and encourage good practices

Rather than completely avoiding things they don’t like, ESG fund managers will get in touch and help the companies improve their internal processes. They will give them pointers on how to be more environmentally friendly, make more of a positive impact on society and have best practices towards their employees and doing the right thing.

  1. You can be as ethical as you like and have the opportunity to have a say on what is invested in and what stays out with ethical investing

Investors can place their money with companies/ investment strategies that deliberately filter out or filter in areas that they want/don’t want. You do not get this level of control with ESG investing as the fund manager picks for you. This can match your personal beliefs if you so wish.

  1. Ethical investing means companies will not be chosen on performance

An example is that an armament company may have great performance but will not be invested in because of the investors ethical concerns about weapons. Performance is not the forefront of the investment mandate, but they will still aim to make money whilst taking the investors ethical considerations into account.

Before jumping in and investing we would always recommend that you seek financial planning advice if you are looking to invest in order to determine which is the correct investment for you and your needs. Please do not hesitate to contact us if this is something you are thinking about on 01482 219325 or email [email protected].

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