Pension Funds Are Moving Forward With ESG Investing and You Should Too
Pension funds in North America and Europe are moving forward with ESG investing, and you should too. More and more, pension funds and asset owners see ESG as a “core element of investing rather than a socialist niche,” according to a Morningstar study. This makes it an ideal time for individual investors, high-net-worth individuals, charities, and institutions to move forward with ESG investing. EGÉA SRI makes it even easier with our Chartered SRI Counselors™.
ESG investing is a form of sustainable investing that considers environmental, social, and governance factors to judge an investment’s financial returns and its overall sustainability. While ESG used to be a niche area of investing, it is becoming much more mainstream. A study by Morningstar Indexes was based on 14 interviews with pension funds and other asset owners in Europe and North America who are adopting sustainable investment practices for their portfolios.
The growing use of ESG investing is driven by client demand and investors’ belief in the strategy. According to the study, they used ESG factors because of wider public awareness and support, as well as regulation that endorses asset owners taking a broader view of their responsibilities, particularly in Europe.
It is also proven that there is no financial trade-off when it comes to ESG investing and it can demonstrate lower downside risk, which is vital to pension fund asset managers.
Core Elements of Sustainable Investing
Sustainable investing consists of three core elements: environmental, social, and governance. These are all non-financial factors that are used to determine an investment or company’s sustainability.
Environmental
Environmental factors include a company’s stance on climate change, energy use, air and water pollution, wasting materials, damage to forests, harm to wildlife and their habitats, carbon emissions, and more.
Social
Social factors include evaluating a company’s stance on human rights, political issues, community engagement, commitment to the health, safety, and wellbeing of its employees and the community at large, labor and employee relations, and policies and practices on using child or forced labor.
Governance
Governance factors take into account a company’s business ethics, board structure and independence, diversity of leadership, representation of women and minorities on governing boards and in executive-level positions, and overall ensuring that investments are made in companies that are managed in ethically responsible manners.
ESG Challenges
While we believe ESG investing is the way of the future, it is true that there are some challenges associated with ESG investing. We always want our clients to be informed and up-to-date when it comes to trends with ESG investing. These are the current ESG challenges:
Politicization of ESG Investing
The growth of ESG investing has faced political backlash in the United States. Former Vice President Mike Pence wrote an essay in the Wall Street Journal claiming that ESG is empowering a “cabal” of CEOs, bureaucrats, and regulators to promote “left-wing values.” Despite this political firestorm, ESG has only gained popularity.
Greenwashing
Unfortunately, some companies attempt to capitalize on the recent sustainability trend with consumers by “greenwashing.” These companies make claims about how green or sustainable their products and services are that might not be entirely accurate. ESG scores can help eradicate the practice of greenwashing. ESG scores range from 0-100 and compare a company’s performance and sustainability to others. A score of less than 50 is considered poor, while a score of 70 and above is considered excellent.
Difficult to Transition
Some investors worry that building a sustainable portfolio will be time-consuming and difficult. However, if you work with an experienced ESG investment team like EGÉA SRI, we make it easy to transition your portfolio to ESG investments.
Benefits of Shifting to ESG Investing
Now that we have addressed the challenges, there are also several benefits to transitioning to ESG investing.
Create a Sustainable Investment Portfolio
Whether you are passionate about the environment or contributing to a better society, ESG investing allows you to create a portfolio that is aligned with your own beliefs and values. Whether you are a casual investor, a high-net-worth individual, or simply someone trying to make a difference in the world, we can help you create and manage a sustainable portfolio.
ESG Investing May Lead to High Returns
A 2021 report by the Morgan Stanley Institute for Sustainable Investing found that sustainable investing funds outperformed traditional funds by 4.3 percentage points in 2020. Contrary to past misconceptions, ESG investing is not just good for the world, but also good for your wallet.
ESG Investing May Lower Your Risk
The same Morgan Stanley paper found that sustainable funds show a lower downside risk than traditional funds consistently. Sustainable funds weathered the severe market volatility throughout 2020 better than their traditional counterparts. This means that sustainable funds are can be less risky than conventional funds.
ESG Investment Process
At EGÉA SRI, our Chartered SRI Counselors™ utilize ESG criteria to help you make a difference with your investments. We make the ESG investment process easy. Sustainable investing is our main focus and is all we do. Our counselors are trained in the history, definitions, trends, portfolio construction principles, fiduciary responsibilities, and best practices for sustainable, responsible, and impact investments. Our ESG investment process involves developing and monitoring investment strategies for our clients. We direct your resources to invest in and support companies and assets that create positive change in the world.
We can use positive or negative screening for our ESG investment process. Positive screening means actively seeking and investing in charities, trusts, and endowments that mirror your values and beliefs. Negative screening means not investing in companies or institutions that do not align with your values, like for instance, not investing in fossil fuel companies.
Move Forward With ESG Investing with EGÉA SRI
Are you ready to start investing sustainably? If you, like many major pension funds in North America and Europe, are ready to move forward with ESG investing, open an account or schedule a free consultation with us at EGÉA SRI. At EGÉA SRI, we are not simply jumping on the ESG investing trend. We have been creating sustainable portfolios for our clients since 1999. We strive to align our client’s beliefs and values with their investments. That is why we are one of the best firms for value-based investing.
Disclosure:
Socially Responsible Investing (SRI) / Environmental Social Governance (ESG) investing has certain risks based on the fact that the criteria excludes securities of certain issuers for non-financial reasons and, therefore, investors may forgo some market opportunities and the universe of investments available will be smaller.
This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.
