You can make money and do good at the same time
Why ESG should be part of your investment strategy.
Last Updated: 1 January 2003
Women could be shaping financial markets for the better.
Many of us want our investments to reflect our personal values and are leading the charge when it comes to demanding that environmental, social and governance (ESG) issues are considered as part of an investment strategy. And in some cases, we’re even prepared give up part of our returns if it reflects our values. Yet we may not have to.
Estimates suggest that women, especially widows, are likely to inherit trillions over the next few decades.
Together with the fact that large amounts of inheritance is going to make its way into ESG-conscious millennials’ hands over the next few decades.
This shift in power means companies will be held more accountable for their impact on people and the planet.
Please note: in this article we explore ESG investing, but it’s not personal advice. If you’re not sure what’s best for you, ask for financial advice. All investments can fall as well as rise in value, so you could get back less than you invest.
The future is bright, the future is ESG
If you’re not already considering ESG with your investment decisions, you should be. Especially if you’re a woman.
That’s because ESG aims to tackle unequal pay, gender diversity and countless other issues that impact us.
One of the easiest ways to invest is with a fund. And with a fund that considers ESG, your money will be pooled together with other people, and then managed by a fund manager who follows these principles. Allowing you to grow your investments while staying true to your values.
ESG is one of the many different approaches that sit under the responsible investing umbrella.
Learn more about ESG and other responsible investing strategies
Two Responsible investment case studies
Aegon Ethical Equity
The Aegon Ethical Equity fund is a UK-focused fund that has been managed by Audrey Ryan for more than two decades.
This fund invests in UK companies using an 'exclusions-based' approach, so it doesn’t invest in companies involved in activities deemed unethical. The UK stock market is filtered for these ‘sin stocks' by Aegon's ESG Research Team.
The fund aims to stand out from the crowd with client-led exclusions, like tobacco and alcohol producers to companies that use animal testing and make substantial donations to political parties. After this screening, at the last count, around 50% of the companies in the FTSE 250 index remain investable options for the fund with a bias towards higher-risk small and medium-sized companies.
These exclusions are reviewed every two years following an investor survey. In the past, findings from the survey have influenced the team to change their stance on matters such as oil & gas, removing the sector entirely from the fund.
After the extensive screening approach has narrowed the fund’s investable universe, Ryan and her team aim to identify and understand the main ESG risks of each company, industry and sector they invest in. They believe companies that lead the way in governance and sustainability can outperform over the long run.
This fund holds shares in Hargreaves Lansdown.
More information on Aegon Ethical Equity, including charges
Aegon Ethical Equity Key Investor Information
Legal & General Future World ESG Tilted & Optimised Developed Index
This fund is a good option for broad exposure to developed stock markets all over the world, while being mindful of ESG issues. Legal & General is one of the largest providers of index tracker funds in the UK and have offered index funds to investors for over 30 years.
The fund is made up of around 1,300 companies. As you’d expect from a global fund, it’s heavily invested in the US, with the rest invested in other developed countries such as Japan, the UK and Canada. The fund predominately invests in larger companies but also invests in some smaller companies in line with the benchmark. These can be subject to more extreme price movements, which can increase risk.
This fund aims to track the performance of the Solactive L&G Enhanced ESG Developed Markets Index. The index increases investments in companies that score well on a variety of ESG criteria – from the level of carbon emissions generated, to the number of women on the board and the quality of disclosure on executive pay. It also reduces exposure to companies that score poorly on these measures.
The advantage of reducing investments in poorly-scoring companies, rather than selling their shares completely, is that the Legal & General team can engage to help them improve. An increased investment in exchange for improvement on various factors is also a good incentive, so investors' money could make a positive difference.
The fund won't invest in persistent violators of the UN Global Compact Principles (a UN pact on human rights, labour, the environment and anti-corruption) or companies involved in tobacco and controversial weapons. The fund also excludes companies that earn more than 20% of their revenues from the mining and extraction of thermal coal, thermal coal power generation and oil sands.
The fund also adopts a decarbonisation pathway. This means it aims to reduce emissions by 50% relative to the unadjusted benchmark and thereafter achieve at least a 7% reduction in carbon emissions per year until 2050.
Legal & General Future World ESG Tilted & Optimised Developed Index Key Investor Information
Join the Financially Fearless mailing list
Financially Fearless is the first step in empowering women to improve their financial health and wealth. Take your first step today and sign up for weekly emails packed full of expert content using the form below. Or if you’re on Instagram follow us @FinanciallyFearless_hl.
Please correct the following errors before you continue:
Hargreaves Lansdown group companies will usually send you further information by post and/or email about our products and services. If you would prefer not to receive this, please do let us know. We will not sell or trade your personal data.
