There has been huge growth in the number of ‘sustainable’ and ‘responsible investment’ funds, which now look at a company’s environmental, social and governance (ESG) track record as part of the investment process. However not every ‘green’ label should be taken at face value.
In some cases these terms are simply being used as a marketing tool — a trend known as ‘greenwashing’. Investors might assume they are in a climate-friendly fund, but the reality could be quite different.
MPs are now calling on regulators to do more to address this issue and there is a growing push for European regulators to police how the fund management industry reports ESG issues. Until regulations are in place, investors will need to take a closer look at funds, which can be complicated by financial and technical jargon.
To select a fund that is aligned to your values it’s worth considering the following issues.
- Active or passive Passive funds may have limited ability to exclude stocks, but there are specialist indices weighted on carbon emissions as well as the FTSE4Good indices.
- Top ten holdings Most funds publish their ten biggest holdings on fact sheets, indicating where your money is invested.
- Commitments and pledges Make My Money Matter and the Net Zero Asset Managers Initiative, among others, work with the financial industry to address climate change. Fund managers can sign up to the aims of one or more of these organisations.
For guidance on making your investments more sustainable please get in touch.
The value of your investment and the income from it 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.
Investing in shares should be regarded as a long-term investment and should fit with your overall attitude to risk and financial circumstances.