Your guide to ESG investing and why it matters to your workplace pension scheme
According to a recent report from Bloomberg Intelligence, Global ESG assets topped $30 trillion in 2022. The figure is projected to rise to $40 trillion (or around 25% of global assets under management) before the decade is out.
The increase is particularly impressive against a backdrop of growing political turmoil, polarised opinions, and slowing growth. While the sustainable investment market is huge, it is also complicated and provocative.
Aligning your money with your values on ESG issues might seem difficult and in many ways it is. You’ll need to think about the possible effects of “greenwashing”, the potential impact of how and where you invest, and the overall influence you want your money to have. At Parker FA, we’re on hand to help.
Keep reading for your latest look at this ever-changing market.
The ESG investment market has grown as environmental, social, and governance issues have become increasingly prominent on the world stage
ESG has taken off over the last decade or so. Back in 2019, FTAdviser reported a 2,500% increase in ESG inflows in the five years since 2014. Due in part to increased fund choice and competitive returns, the so-called “Greta effect” also helped.
The high-profile campaigning of Swedish climate activist Greta Thunberg and the lifelong work of naturalist David Attenborough have ensured that the “environmental” part of ESG has dominated headlines. The devastating effects of the climate crisis are now part of the public consciousness.
Coronavirus also played a part. The effect of the pandemic began with lockdown reports of decreased air pollution, clear water in Venice canals, and the rewilding of the UK seaside. Soon the “social” element of ESG hit headlines as the media called out perceived “bad bosses”.
In the early days of ESG investment, the prevailing sentiment was that aligning your money with your values was a form of sacrifice – lower returns for a clear conscience and the greater good. This myth was put to bed as ESG fund options and inflows grew.
An FTAdviser report from April 2023 suggested that the impact of ESG choices on investment performance is “non-existent”. But that doesn’t mean there aren’t still some important aspects to consider.
The rise of “greenwashing” and the need for regulation mean ESG investing remains polarising in some quarters
Bloomberg’s predicted rise in ESG assets sees Europe remain at the forefront of sustainable investing; set to hold over $18 trillion in ESG assets by 2030.
With the targets of the Paris Agreement still out of reach at home, the climate crisis is even more polarising in the US. Progress (or not) in this area will be firmly linked to the result of November’s presidential election. China, currently the largest CO2 emitter among UNFCCC members also has much work to do.
Since the emergence of ESG investing, stubborn myths have persisted. One such myth involves the difference sustainable investing actually makes.
Investor confidence has been repeatedly dented by well-publicised claims of “greenwashing”. That is, the process by which companies and funds exaggerate or provide misleading statements about their ESG credentials.
The most recent, highly publicised case involved Baillie Gifford, one of the UK’s largest and oldest investment management firms. Amid accusations of “greenwashing”, Baillie Gifford lost sponsorship deals.
After a lengthy consultation on the subject of “greenwashing”, the FCA recently stepped in.
To help investors better understand the ESG credentials of firms they invest in, the FCA has introduced 4 simple new labels.
The FCA’s new Sustainability Disclosure Requirements will make your job – within your business and as a private pension holder – easier, helping you to identify and invest in ESG funds with confidence, through:
Anti-greenwashing measures to ensure sustainability-related claims are fair, clear, and not misleading
Readily available information to help you make up your mind about a product’s sustainability features.
Simple labels to highlight an investment’s sustainability credentials and its area of focus.
The four labels are broken down as follows:
The new rules are due to come into force over the next three years, but the labels will be rolled out sooner. If you need any help aligning your personal or workplace pension scheme with your values on the ESG issues in the meantime, be sure to speak to us.
Get in touch
The world of ESG investment can be complicated but Parker FA’s expert team is on hand to help. Please contact us to talk about what we can do for you.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance. The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts. Workplace pensions are regulated by The Pension Regulator.