Demystifying ESG investing

4 min read 28 Sep 22

Summary: When it comes to ESG investing there are many misconceptions out there. We seek to address some of the more common questions and confusion about this. 

ESG investing might not be something you’ve considered in the past, or know much about, but more and more people are looking for profits with purpose. They want their money to be invested in a positive way while they save for their future. 

The term ESG (Environmental, Social and Governance) investments is often used to cover a wide range of savings products, so might not be particularly helpful when making your investment decisions. It tends to be a catch-all term for funds that simply exclude controversial sectors like gambling and tobacco, to the other end of the spectrum where you'll find investments that only invest your money into companies and projects working to make a real, measurable impact on the environment or society. 

At M&G we prefer to talk about planet-friendly investing.

What is planet-friendly investing?

Planet-friendly investing is choosing to put your money into funds that invest in innovative and pioneering companies and projects working to help solve some of the world’s biggest challenges. These are businesses developing new carbon capture technology, reducing plastic pollution and generating renewable energy solutions. They’re also the businesses tackling social inequality through the products and services they offer, those developing components to help power clean transport solutions and the companies helping to make healthcare and medical treatment more accessible for everyone. They're the businesses working to help make the world a little better, while seeking long-term returns for their investors.

Do strong ESG practices mean more opportunity for success?

In short, it can do.

Environmental

A business using water efficiently for example, could be paying lower water bills, and spending less on grey water disposal, than a business that isn’t. Or a firm working to reduce its waste could benefit from spending less on raw materials (by only buying what they need) and paying lower waste disposal costs. Some might even sell or exchange their unwanted industrial scrap or by-products to other businesses to use as a raw material.

Social

A business treating its employees well and paying a good wage has the potential to attract and retain a superior, more loyal workforce than one that doesn’t. A logistics firm for instance, with a reputation for retaining skilled workers, could be more productive or resilient in times of uncertainty than a firm offering poorer pay and working conditions. Even businesses supporting their local communities could benefit from greater customer and brand loyalty than those that don’t.

Governance

Transparency, strong controls and good treatment of suppliers and vendors all have the potential to boost a company’s reputation as well as its value. Clear roles and responsibilities may also mean decisions are made quicker, ahead of competitors. Good governance and regulation could even help to reduce cases of mispractice, potentially avoiding brand and reputational damage and the penalties that can come with it

Planet-friendly investing isn’t just about numbers

When you invest your ISA with us, our experts look beyond just the ‘financials’ of the businesses they invest in. They look closely at their potential to succeed in a world shifting towards a more sustainable economy. We strongly believe that consideration for the global challenges we’re all facing will soon be commonplace for those businesses looking to prosper in the long term. Using investments to help heal the planet isn’t only the right thing to do, it makes good investment sense too.

To find out more about our Planet+ range of funds and some of the companies they invest in and how they’re working towards a better world, you can visit our Planet+ page here .

Please bear in mind that we are unable to give financial advice. If you are unsure about the suitability of your investment, speak to your financial adviser. The views expressed in this article should not be taken as a recommendation, advice or forecast.

The value and income from any fund's assets will go down as well as up. This will cause the value of your investment to fall as well as rise. There is no guarantee that any fund will achieve its objective and you may get back less than you originally invested. 

By M&G Investments

The views expressed here should not be taken as a recommendation, advice or forecast.

The value and income from any fund's assets will go down as well as up. This will cause the value of your investment to fall as well as rise. There is no guarantee that any fund will achieve its objective and you may get back less than you originally invested. 

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