ESG INVESTING EXPLAINED

Take a look at our ESG factsheet to learn about our principles and approach. 

Environmental, social and governance (ESG) considerations have gained more recognition

in recent years. More and more, investors want to invest sustainably: they want to combine
investing for a financial return while making a positive contribution to the environment, society or both.

It is now widely recognised that the ESG aspects of a company’s activities can have
a material influence on its ability to deliver long-term returns to its investors.

ESG factors are useful indicators of a company’s overall strength, how it is likely to perform in the future, as well as risks that could impact its prospects.

ESG factors are constantly evolving, but can include the following:
Environmental – a company’s approach to conservation and sustainability:

  • management of waste and pollution, including greenhouse gases
  • contribution to or controls of impact on climate change
  • management of natural resources including water

Social - a company’s consideration of people and relationships:

  • treatment of employees and their working conditions
  • valuing human rights and its stance on child labour and slavery
  • considerations as to impact on wider stakeholders and society, including local communities and animal welfare

Governance – a company’s standards for the way they run their business:

  • approaches to diversity and how it structures its board
  • rewards and payment of executives
  • limits its exposure to corrupt practices and deals with bribery
  • makes, declares or avoids political donations

THE BENEFITS OF AN ESG APPROACH

Opportunity for better long-term returns

There was once a widely held perception that investors might need to sacrifice the potential
for decent investment performance in order to invest ethically.

This debate has moved on considerably in recent years and there is now a weight of
research showing companies that take their ESG responsibilities seriously are more
likely to outperform their less well-managed peers.

Selecting companies that focus on the social and economic impact of their activities does
not have to mean compromising on performance; in fact quite the opposite can be true.

An indicator of quality

By scoring companies on ESG factors, investment managers can gauge if a company
may be exposing itself to risks that could impact its earnings. They can also be excellent
indicators of any ‘red flag’ warnings that could affect future investment performance of a
company, such as deterioration in operations or possibility of bankruptcy – ultimately helping
reduce long-term investment risk. Considering ESG issues helps to significantly improve the
assessment of a company’s quality.

Transparency


An ESG investment approach by its very nature encourages transparency, with investors
increasingly demanding clarity on where and how their money is being invested. Companies
that take their corporate responsibilities seriously tend to operate more openly, have
measurable outcomes and are able to publicly communicate their ESG practices.
Financial Advice Centre engage with top investment companies to ensure we have fund
solutions available to our clients that meet the highest possible standards.

For instance we work with our investment partners to ensure:


• Investment managers have signed up to the United Nations Principles for Responsible Investment (PRI) and we review recent assessment reports.
• We review their processes and policies outlining how they incorporate (ESG) issues
into the investment decision making as well as how they monitor and evaluate
compliance with the policy.
• We are fully abreast of any voting and exclusion policies and voting track record.
• We review their engagement policy and are updated regularly on the ESG research
and sources used to make decisions.

At Financial Advice Centre, we are passionate about social responsibility so ESG investment
ties in perfectly with our company ethos. We are happy to provide you further information in
line with your individual needs and financial objectives.