How to choose your ESG investments for 2024

During the festive season, you might indulge in a few more treats than usual and enjoy showering loved ones with gifts.

While Christmas may offer a well-earned opportunity to relax and spend time with family, it could also result in extra spending, wasted food and unwanted gifts.

According to research reported in Circular, nearly half of UK adults feel guilty about Christmas waste[1].

If you’re keen to offset the excesses of the festive season and start the new year off in a more sustainable way, it might be worth considering adding Environmental, Social & Governance (ESG) funds to your investment portfolio in 2024.

ESG investing has the potential to perform well over the long term. But, with “greenwashing” pervasive, how do you choose funds that are truly sustainable and help boost your portfolio?

Read on to learn more about the benefits of ESG investing and how to choose an ESG fund that’s right for you.

Investing in ESG could benefit your portfolio and the environment

Environmental, social and governance (ESG) is a framework used by companies to measure the sustainability and corporate responsibility of their business practices. 

Ethically minded investors take ESG factors into consideration, alongside traditional financial metrics, when choosing between potential investments.

3 top benefits of ESG investing

1. Balance risk in your portfolio

Companies that prioritise ESG factors may be more resilient and able to withstand short-term fluctuations in the market. This could be because they are generally better prepared for changes to environmental regulations and societal expectations.

Also, strong corporate governance and clear accountability may help them to build an efficient workforce that better serves shareholder’s interests.

2. Potential for enhanced performance

According to research published by Morgan Stanley, sustainable funds outperformed traditional funds in the first half of 2023[2]. Sustainable equity funds posted the strongest gains, outperforming traditional equity funds by 8%. The rebound in growth stocks, which are stocks of companies whose revenue is growing faster than the average, has helped to enhance the performance of ESG funds.

Also, ESG investments often benefit from enhanced operational efficiency, increased cost savings, lower employee turnover and lower compliance costs, which help to boost shareholder value.

3. Making a positive impact on the planet

ESG investing could allow you to support positive environmental changes while strengthening your portfolio. Companies that prioritise ESG often implement strategies such as carbon pricing, which charges organisations for every ton of CO₂ they emit, and policies that protect employee welfare.

As a result, ESG investing could contribute to a healthier environment and workforce, which is necessary for continued business growth, the wellbeing of humankind and the longevity of our planet.

How to choose an ESG fund that’s right for you

Understand your values and priorities

There’s a wide range of ESG funds available. From those that invest in electric cars and nanotech, to others that focus on companies’ social impact.

Before researching ESG investment options, ask yourself what’s most important to you? Are you passionate about ethical labour practices? Or is your primary concern reducing carbon emissions?

Once you have a solid grasp on your values and priorities you may be in a better position to choose an ESG fund that’s right for you.

Take a holistic view of investing

This will enable you to align your investments with your values and your financial goals.

A holistic approach could help you widen your focus by integrating sustainability considerations into your investment portfolio.

Instead of excluding entire sectors, such as tobacco or oil, you could remain open to all funds as investment options and base your decisions on companies’ ESG credentials.

Research a company’s ESG credentials

To ensure that companies and funds align with your goals, it may be worth taking time to research their ESG credentials.

As yet, there are no standardised measures for ESG, so it’s necessary to look carefully at how companies define and assess ESG values before investing.

There is also increasing concern about “greenwashing”, whereby companies selectively or inaccurately report their sustainability-related activities. So, make sure the company has a clear policy on what their ESG values are and how they are measured.

Read more: ESG investments and how to spot greenwashing

A financial planner who is experienced in ethical investments could work with you to locate genuine ESG funds that meet your individual needs.

Avoid discounting entire sectors and industries

Some ethically minded investors choose to discount entire sectors as “uninvestable” due to their perceived contradiction of ESG values.

However, there are companies that genuinely prioritise ESG values in all sectors. By dismissing entire industries, you could miss a great opportunity to achieve high returns long term.

The key is understanding how ESG funds work, researching companies’ assessment criteria and aligning these with your personal values, preferences, and financial objectives.

Review a fund’s top investments

You might choose to invest in funds, rather than shares in a single company to help diversify your portfolio and manage risk.

Before investing in a fund, review its investment objective and strategies to see how well the goals of the fund align with your expectations and values.

To ensure that a fund aligns with your values, it’s worth exploring which companies the fund is invested in and what their ESG credentials are.

Seek financial advice to align your investments with your values

If you’re new to ESG investing, the choices available, not to mention the terminology, could feel overwhelming.

A financial planner could help you understand what the different types of ESG funds are, how they might benefit you and which ones align with your financial goals.

For example, if you feel strongly that you’d rather not invest in a particular company or sector, an exclusionary fund might be a good choice. Whereas if your priority is making a positive environmental or social impact while also potentially achieving higher returns, you might wish to explore impact funds.

There’s a lot to take into consideration when approaching ESG investment, and the ESG market is constantly evolving.

So, even if you’ve been investing for some time, researching and understanding ESG funds can be complicated. And building ESG investments into an existing portfolio may not be straightforward.

We’ll go through all the information and find a suitable approach to building your investment portfolio based on your values and long-term financial goals.

Get in touch

If you’re interested in finding out more about investing in ESG funds, please get in touch.

We will work with you to identify the most appropriate funds for your investment needs after completing an in-depth risk analysis and gaining more insight into your values and beliefs.

Email info@aspirafp.co.uk or call us on 01454 632 495.

Please note

The information contained in this article is based on the opinion of Aspira and does not constitute financial advice or a recommendation for any investment or retirement strategy.

The value of investments and income from them may go down. You may not get back the original amount invested. Past performance is not indicative of future performance.

[1] https://www.circularonline.co.uk/news/nearly-half-of-uk-adults-feel-guilty-about-christmas-waste/

[2] https://www.morganstanley.com/ideas/sustainable-funds-performance-2023#