How can investment and financial planning play a key part in the battle against climate change?
Hebden Consulting’s Will Carling gives an overview of ESG investing in the first of a series of articles addressing how investment and financial planning can play a key part in the battle against climate change.
Why are people thinking about climate change?
As I sit here sipping an oat milk latte, weighing up which package to choose at the sustainable co-working space I recently visited whilst also vaguely worrying about whether Christmas will be cancelled for the second year running, I think it’s fair to say that the world has changed drastically over the last couple of years.
This might seem slightly short-sighted; however it does illustrate that in broad terms our consumption habits, our working routines and our hopes and fears for the future have all been reshaped, not just by the pandemic, but also in large part by the unfolding climate emergency.
This has been given additional focus by COP 26 (the much talked about UN Climate Change Conference), in which heads of state, business leaders and civil society convened to discuss the bigger picture and broad multilateral actions. But, given we are seemingly moving too slowly on both the political and industrial stage, many people have been left asking themselves what they can do to help as individuals.
How does investing impact the planet?
It’s important to understand that everyone has the power to effect and make positive change in regards to the climate crisis in a number of ways. This includes considering how and where your money is invested and what impact, either positive or negative, this is having on the planet, on other people – and of course yourself!
At Hebden Consulting, we regularly talk to our clients about long term planning and increasingly part of that discussion is centered on not just a comfortable retirement or leaving behind a financial legacy, but the wider world. By this we mean how vital it is to think about the health of the planet, as what’s the point in thinking about the future if the world has been ruined for future generations?
Thankfully, the rapidly increasing range of specialist investments which focus on sustainability that now exist mean it’s easier than ever to realign one’s portfolio not only with your financial objectives, but also one’s values. These are referenced in a variety of ways such as green funds, green bonds, eco finance, socially responsible investing, impact investing – which are all sub categories under the broader heading of ESG investing.
What is ESG investing?
ESG, Environmental, Social and Governance, is an investment discipline which focuses on companies (or bond issuers) that are actively addressing, or looking at ways to address, at least one of the key criteria of sustainable investing. This suggests that investments should be made into companies with sustainable business practices that are capable of being continued ad infinitum, in other words used again and again without causing harm to current or future generations, or exhausting natural resources.
‘Environmental’ relates to environmental conservation and sustainability. Specific issues of concern include climate change, the use of pesticides, genetic engineering, air and water pollution, deforestation and industries associated with fossil fuels.
‘Social’ issues look at a company’s relationships with its stakeholders and risks throughout their supply chains. Examples include human rights, equal opportunities, diversity, working conditions, training and development, and job creation and security. It also includes corporations that structure themselves in such a way that reduces their corporation tax bills in countries to levels that are disproportionate to the profits and activities taking place in those countries. As a result, the reduced tax collected hinders a government’s abilities to support wider society.
‘Governance’ refers to the way in which businesses are directed and controlled, such as board structures and practices, and encompasses corporate governance, board diversity and directors’ remuneration. Strong corporate governance is important to ensure that companies act in an ethical and responsible manner.
Business and bonds proven to be operating responsibly within this framework will be recommended as part of an ESG portfolio, subject to either the investors own or investment manager’s screening criteria.
Act today, prepare for tomorrow
To find out more on ESG investment and what you can do to check how sustainable your portfolio is, fill in the below form to book your free Hebden Consulting portfolio review today. You’ll have access to a UK qualified adviser for a 30-minute tailored, no-obligation discussion on your situation and how you can make sure that your money is being used for a better, brighter future for all.
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