ESG investing more important than ever


Many investors are interested in the impact of their investments on the world around them, as well as in the financial performance of the companies in which they invest.

Next year, the investment industry in the European Union (EU) will be under a regulatory requirement to take Environmental, Social and Governance (ESG) matters into account when making investment decisions about how to generate the best return for the amount of the risk the client is willing to accept.

The EU’s “Regulation on sustainability-related disclosures in the financial services sector” comes into force on March 21 next year. Whilst the duty to seek good investment returns taking into account risks remains central, the manager will also need to consider the impact poor management of ESG matters can have on shares in a company.

It defines sustainability as “good governance and the precautionary principle of do no significant harm, neither environmental harm nor social harm”. The aim is for investment to reinforce its ambition to build a circular low-carbon economy. The UK too wishes to encourage ESG informed investing.

Nothing particularly new

At Charles Stanley, we have been looking into these factors when making investment decisions anyway. It is canny investing to identify risks that come from poor management of a company or from the way it could alienate its customers and the wider communities it serves.

We have seen in recent years the big damage to share prices from the Volkswagen emissions scandal and the BP and oil service industry’s problems with the Deepwater Horizon well blow out in the Gulf of Mexico. When companies make large and public mistakes, they end up paying plenty of compensation, suffer reputational damage and spend more on improving their management and governance to prevent a repeat.

All of us are learning how to be more formal in the way we look at these issues and report them to clients. It is no longer satisfactory to rely on common judgements and rumours that Company A is broadly well-intentioned and company B sails close to the wind.

View Full Article– published by Charles Stanley on 16th October 2020