As the sun sets on COP26, where world leaders assembled to discuss climate change, conversations turn to; what can the average person, or average investor, do to make a real difference? So, is Environmental Investing the answer?
In the last 18 months, there has been a huge influx of investment into “socially responsible” strategies. It is no coincidence this runs parallel to a time that has seen a global pandemic, reports of worldwide climate emergency and lights being shone upon social injustice and inequality.
The term “ESG” has become hugely more prominent in recent times and is defined as the consideration of Environmental, Social and Governance factors alongside traditional financial elements in investment decision-making. However, what does investing in these areas truly mean?
An investment concentrated on how companies manage the environmental impacts of their products and operations. This encompasses climate change, pollution, how raw materials are sourced, water usage and the utilisation of clean energy sources.
There are two ways of screening for Environmental factors; Positive (Advance Principle), or Negative (Avoid Principle).
Negative screening sets clear parameters for filtering out companies operating in controversial sectors, or areas that impact negatively on the environment. Oil production, mining and other fossil fuel production are industries that would not be invested in, regardless of the positive investment in green energies made by the same companies.
A leading provider in ESG investments recently stated that each of their funds, on average, holds 28% in companies actively improving resource efficiency and reducing emissions in areas such as energy waste, water management and recycled material.
An example of a holding in this area is the US Solar Fund PLC. Listed on the London Stock Exchange, a renewable electricity generation firm that builds and operates Solar Farms in the United States. Solar power is an ever-growing, inexpensive source of electricity generation that is now outperforming natural gas on an economic basis, as well as being better for the environment.
Another holding is SDCL Energy Efficiency Income Trust PLC. As the name implies, the key focus is an investment in assets and projects that reduce the amount of energy wasted, across a broad range of technologies and sectors around the world.
Homebuilders such as US-based NVR, who construct houses 40% more energy efficient than the average home, and National Express who provide safe and efficient mass transport, whilst committing to never buying another diesel bus, are further examples of the type of companies ESG funds will invest.
If you want to reach your financial goals, whilst also considering the environment and sustainability, then socially responsible investments may be the perfect fit for achieving your objectives.
If you would like to find out more about investments in line with your ethical view, then why not contact Barnes to find out more. The initial meeting is at our expense and is without obligation. As Independent Financial Advisers (IFA’s), the financial advice we offer is unbiased. Our experience covers all aspects of financial planning, including pensions, estate planning, mortgages and investments.
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So, if you have any thoughts or comments on this article, “Environmental Investing. What is it?”, then we would love to hear your thoughts.