4 powerful reasons why ESG funds could help the planet and your wealth

In the run up to the United Nations Climate Change Conference (COP26) 2021 later this year, it seems Europe has been experiencing first-hand the effects of global warming. In July, Germany and Belgium had two months’ rain in just two days, resulting in severe floods that claimed almost 200 lives and left more than 700 people injured, according to media reports.

The flooding also affected the Netherlands, Luxembourg, and Switzerland.

As world leaders prepare to discuss climate change at COP 26, the BBC reported that UN scientists recently released a report that makes for sobering reading. It warned of increasingly extreme heatwaves, droughts, and flooding in the years to come, prompting UN secretary general Antonio Guterres to say it was now “code red” for humanity.

He also said we might avoid a global catastrophe if humanity works fast to tackle climate change. One way you might do your bit for the environment is to put your money into “environmentally friendly” investments.

Today these are known as “Environmental, Social and Governance” (ESG) funds, and have risen in popularity more recently. Read on to discover what they are, and 4 reasons they may be good for the planet and your investment strategy.

1. ESG funds aim to reduce your investment’s impact on the world

ESG investments measure the sustainability and societal impact of a company using the following criteria, which includes:

• Environment: what is its energy use, how much waste and pollution does it create, and does it work to conserve natural resources?

• Social: does the company work with suppliers who hold the same values as its own, and do working conditions show high regard for employees?

• Governance: does the company provide accurate and transparent accounting methods, and can stockholders vote on important issues?

In March 2021, the EU introduced disclosure rules to prevent “greenwashing”. This is when companies and investments are made to look more environmentally friendly and sustainable than they really are.

Under the rules, fund managers have to follow more stringent regulations before classing funds as ESG, meaning environmentally friendly investments should be more genuine. Always check with a financial planner who can confirm the authenticity of ESG investments.

2. ESG funds could significantly reduce your investment’s carbon footprint

According to recent media articles, a study carried out by Make My Money Matter, Aviva and Route2 found that switching your pension to ESG funds could be highly effective in tackling global warming.

In its article, Money Marketing reports that researchers found that switching to an ESG fund is 20 times more effective in tackling climate change than switching to an electric car. It’s also 40 times more effective than using a renewable energy provider.

While the research concentrated on pension investments, it makes interesting reading for ESGs more widely, claiming that moving a £30,000 pension to ESG funds could save 19 tonnes of carbon a year.

3. Europe is leading the way with ESG investments

According to a recent Reuters article, Europe is leading the way in putting money into sustainable funds.

It reported that in Q2 of 2021, inflows into the funds across the world hit new records after increasing by 12% since the end of March. In Europe, inflows into the funds were around €95 billion, significantly higher than the United States, which had net inflows of nearly €15 billion.

Europe’s desire to invest in ESG funds dovetails into Black Swan’s aim of minimising its impact on the environment.

We follow the principles of ESG funds through our business, which is why we are paperless and work to minimise our use of energy. It is also why we’re committed to providing ESG investments to every one of our clients where it’s appropriate for their needs.

4. In 2021, demand for ESG funds remains strong

As the Reuters graph below shows, investments into ESG funds grew for the fifth consecutive quarter.

Source: Reuters

One reason for ESG funds’ popularity could be their performance in 2020 and 2021. According to market intelligence company S&P Global, most ESG funds outperformed the S&P 500 – America’s main stocks and shares index – in the first five months of 2021.

As a result, the belief that you typically sacrifice potential growth if you invest in “sustainable funds” is being challenged, with many now wondering if ESG funds could be a shrewd investment.

Another reason may be changing attitudes amongst investors. A recent FinTech Timesarticle explains that millennials typically favour ethically led products and services, and as they’re now at an age where they could have money to invest, it’s more likely they will see ESG funds as their preferred option.

This could continue to drive up the popularity of ESG funds going forward.

Get in touch

If you would like to discuss your investments and whether ESGs might be suitable for your financial portfolio, please contact us at info@blackswancapital.eu and we’ll be happy to help.

Please note:

This article is for information only. Please do not act based on anything you might read in this article.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.