ESG and Sustainability
ESG, or Environmental, Social and Corporate Governance to give it its full title, is a very broad term that has become synonymous with the investing world. Initially heard in the institutional investment environment, the term has also been adopted in the retail space and is often used by different fund managers in different ways. So, what does it mean and is everything now ESG? ESG can be broken down into:
Environmental
Focuses on how a business minimises its impact on the environment, covering its products/services, the supply chain and its operations. The impact can include climate change, deforestation, pollution and waste management.
Social
Focuses on how a business impacts wider society and workplace culture. Organisations can positively contribute to fairness in society, investing in fair and equal opportunities and conditions for employees, people working in the supply chain, and local communities.
Corporate
Governance
Refers to the processes of decision-making, reporting, and the logistics of running a business. It also looks at the business’s ethical behaviour and its transparency with stakeholders about its activities. But also covers the diversity of a company’s leadership team, executive pay or how the company handles tax.
An Important Role
In the tax-efficient investing space, ESG plays an increasingly important role in the investment decision-making process used by a growing number of fund managers. ESG principles and screens are often used during due diligence, investee companies may be required to report on how they are tackling ESG issues, and funds can be named to reflect their specific ESG/climate change/sustainability investment focus or strategy.
Certain fund managers will devise their own ESG policies, but some will go a step further by signing up to third-party accreditation initiatives. These initiatives require fund managers to meet certain objectives or principles. These may relate to their own corporate practices, their investment processes, or in some cases both. A selection of these initiatives are included below:
UNPRI signatory
B-Corporation certification
Investing in Women Code signatory
UKSIF member
UK Stewardship Code signatory
UN Global Compact participant
Climate Action 100+ signatory
Venture ESG member
Living Wage employer
Net Zero Asset Managers Initiative signatory
Diversity Project member
Diversity VC Standard member
GRESB member
HMT Women in Finance Charter signatory
ESG_VC member
Almost all Information Memorandums and Prospectuses will outline the approach the Manager takes towards incorporating ESG policies both internally and through their investment decision making criteria. These documents can be found on the respective offer pages.
Adviser Hour Featuring ESG
After the success of our previous ESG episodes, we look at the potential impact and implications of these changes, and explore the ways that advisers can access and categorise ESG Investments, especially in the private markets and for tax efficient and unlisted equities, including:
- FCA Sustainability Disclosures Impact on Advisers
- Green-washing & labels
- The Specific Regulatory Requirements for advisers
- Discussion of 3rd party research and classifications around ESG
- How to present to clients
- How earlier stage ESG & Sustainable investing be introduced into a client’s portfolio, and how to incorporate into suitability
- The options for Ethical, Sustainable or Impact investing in the tax efficient market
