The primary reason that people invest their money is to protect and grow it for the future. There is, however, a growing contingent of people for whom this is no longer enough. Yes, they want their money to grow, but they want to know that it’s growing in a sustainable, ethical manner.
As a result, socially responsible investing (SRI) has exploded in popularity in recent years. Services that focus on positive outcomes both environmentally and socially are giving investors a green alternative to traditional portfolios.
Moneyfarm recently launched its own Socially Responsible Portfolios, to help new and existing customers invest in a way that better fits with their worldview. In this article, we’ll take a look at the four key ways that a sustainable investment portfolio can make an impact.
Sustainable investments can help the environment
Firstly, and perhaps most importantly, socially responsible portfolios are almost always geared towards environmental sustainability. Moneyfarm’s ESG – that’s Environmental, Social and Governance, another term for SRI – portfolios invest in companies that are less CO2 intensive (42% reduction on average) than non-ESG ones*.
In a time when environmental issues have never been so important, we all like to know that our money is going towards sustainable practices. Whether it’s our choice of groceries or our investment portfolios, most of us want to help build the future we want to see.
SRI can lead to great returns
In the past, investing in socially responsible portfolios was perceived as coming with a trade-off in terms of performance. This is no longer necessarily the case, with ESG funds performing better in some cases and less well in others. Another way to say this would be that there is no clear choice if performance is your chief concern.
It would no longer be fair to say that a focus on environmental, social or governance issues hinders performance and, in many cases, the opposite is true. Of course, there can be no guarantees with investing, but SRI can provide great returns. For a deeper dive into the performance of socially responsible portfolios, take a look at our full post here.
You’ll invest in socially responsible companies
Another big facet of SRI is the decision to invest only in companies that meet certain standards of ethics. The areas for consideration are things like workers rights, corruption, diversity – essentially filtering out business practices that investors would not want to align themselves with.
This also often means the blanket avoidance of companies operating in controversial or unethical sectors, like the arms trade or tobacco manufacturing. For example, Moneyfarm SRI portfolios comply 100% with the United Nations Global Compact principles and with international labour laws*. For more information on how this is adjudged and quantified, see our Socially Responsible Investing page.
You can future-proof your investments
By investing in funds comprised of businesses that meet certain ESG criteria, investors can build portfolios that are more robust over the long term. Fundamentally, businesses that operate sustainably and ethically are more protected from reputational or operational risk.
The reputational risk from scandals around workers rights or emissions, for example, can damage a business’ bottom line significantly. The operational risk side is the idea that businesses with sustainable supply chains will be better protected from the realities of climate change or any changes in regulations in the future, for example. An ESG investment is an investment for the long term.
If you want to find out what a Socially Responsible Portfolio could do for your long term financial future, take a look at our page. To open a portfolio of your own, you just need to answer a few questions about your financial situation and your attitude to risk – we’ll do the rest.
*Certain information ©2021 MSCI ESG Research LLC. Reproduced by permission.
Although Moneyfarm’s information providers, including without limitation, MSCI ESG Research LLC and its affiliates (the “ESG Parties”), obtain information (the “Information”) from sources they consider reliable, none of the ESG Parties warrants or guarantees the originality, accuracy and/or completeness, of any data herein and expressly disclaims all express or implied warranties, including those of merchantability and fitness for a particular purpose.
