Investing Clean and Green: Can ESG Investing Generate Higher Returns?

18 August 2023

Investing with a purpose has gained traction recently as individuals seek to align their financial goals with their values. Ethical investing, or investing in companies that prioritise environmental, social, and governance (ESG) factors, is one such rising investment conduit that offers a way to make a positive impact while potentially earning attractive returns. However, the relationship between socially responsible ESG investing and financial performance is a topic that requires exploration.

By understanding the nuances of ESG investing, we can navigate this evolving landscape and make informed decisions that not only contribute to a more sustainable future but also generate higher returns.

What is ethical investing?

Ethical investing, also known as socially conscious or responsible investing, is an investment approach that takes into account both financial returns and the ethical or moral values of the investor. In essence, it is an investment strategy that incorporates an individual's ethical principles as the primary criterion for selecting securities. 

In the past, ethical investing was often viewed as a purely philanthropic strategy driven by the aspiration to impact the world. However, it has since transformed into a more personalised approach, where investors now have the power to incorporate their specific ethical beliefs into their investments instead of mere financial analysis. This may involve excluding certain industries or allocating more capital towards sectors that align with their values.

What are ESG investments?

ESG investments, which stand for Environmental, Social, and Governance, are a type of investment approach that goes beyond traditional ethical investing and financial returns. Rather, it takes into account a company's performance in the aforementioned areas.

By integrating ESG factors with financial analysis during investment due diligence, investors can identify companies that demonstrate strong environmental practices, positive social impact, and effective governance structures. This holistic approach not only helps manage risks associated with environmental and social issues but also identifies companies that are well-positioned to capitalise on emerging opportunities in the evolving sustainable landscape. Moreover, it signifies that considering social values and investment performance can go hand in hand, demonstrating that responsible investing is not a trade-off between values and financial gains.

Is ESG investing good or bad?

One common question surrounding ESG investing is whether it can generate just-as-good returns compared to traditional asset classes. While the general relationship between good environmental, social, and governance practices and financial returns has been mixed, numbers do show that sustainable investments can deliver positive outcomes over the long term. Therefore, all that is required for investors to be offered an opportunity to generate attractive returns while aligning their portfolios with their values is patience and the ability to view ESG investing through a long-term lens.

However, it is important to note that not all ESG investing strategies are created equal. As such, investors should focus on material ESG factors that have a significant impact on a company's financial well-being, taking into account the specific sector or industry being analysed. For example, by focusing on material ESG factors, like greenhouse gas emissions in the transportation sector, investors can make informed decisions that may contribute to the long-term success of their investment portfolios.

Be a part of the evolving sustainable investing landscape

At StashAway, we understand the importance of sustainable investing. That's why we offer Environment and ESG Portfolios designed to align your investments with your values. These portfolios integrate ESG considerations, giving you the opportunity to invest in companies that prioritise sustainable practices along with profits. 

Be a part of the evolving sustainable investing landscape and make a positive impact while potentially earning attractive returns. Take a step towards investing clean and green by investing responsibly with ESG.


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