Understanding ESG investments – What should you know?

The financial landscape in the UK, as well as globally, is in a constant state of change.

The current focus is very much based around Environmental, Social, and Governance (ESG) investments.

The growing worldwide concern for climate change, social justice, and corporate accountability is reshaping business practices, and the investment community is not exempt.

Investors worldwide are increasingly embracing ESG principles, shifting away from purely profit-driven strategies toward more sustainable approaches.

They are now committed to investing in companies that are not only financially robust but also have a positive impact on the environment and society.

What are ESG investments?

ESG investments take into account the environmental, social, and governance aspects of a business.

Environmental factors evaluate a company’s impact on the environment, such as energy usage, waste management, pollution, conservation of natural resources, and more.

The social element considers how a business manages relationships with internal and external stakeholders, as well as local communities.

The governance component assesses a business’s leadership, executive compensation, transparency in accounting methods, and protection of shareholder rights.

Net zero targets

ESG investments also play a crucial role in meeting net-zero targets.

In 2019, the UK became the first major economy to pass a net-zero emissions law, committing to achieve net-zero greenhouse gas emissions by 2050.

ESG investments can help achieve these targets by favouring businesses that actively reduce their carbon footprint.

Financial regulators in the UK, including the Financial Conduct Authority (FCA) and the Bank of England, are introducing stricter disclosure requirements related to climate-related risks.

This encourages financial institutions to be more transparent about their exposure to such risks and to increase investments in companies with strong environmental practices.

Plastic free July

ESG investments can also address pressing issues like plastic pollution.

Plastic Free July, a global movement celebrated every July, encourages individuals and businesses to minimise their plastic waste.

Businesses that actively reduce their plastic consumption and adopt sustainable packaging options score higher on the environmental component of ESG criteria.

For example, businesses that switch to recyclable or compostable packaging or promote refillable options contribute positively to reducing plastic waste.

By investing in these businesses, investors can support the transition to a society that is less dependent on plastic.

Through ESG investing, both individuals and institutions can support businesses that not only deliver financial performance but also make positive contributions to society and the environment.

If you’re interested in making an ESG investment, get in touch with our team for advice and support.

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Posted in Blog, SMEs.