Sustainable Investing is Changing
How to make sustainable investing work for you
As investment advisors, it is important for us to stay up-to-date on the latest regulatory changes affecting the industry. One area that has been evolving rapidly in recent years is sustainable investing. New regulatory frameworks have been put in place to promote more responsible and ethical investing practices. This is an exciting development, as sustainable investments can provide attractive returns while also contributing to positive social and environmental outcomes. In this blog post, we will explore some of the key trends in sustainable investing and discuss how they are changing as a result of these new regulatory frameworks.
The recent shift towards more environmentally-conscious practices has been nothing short of breath-taking. The market value reached an all-time high in 2020 primarily due to increased awareness around green issues like climate change and pollution. It’s no wonder that many investors are eager for this trend to continue, after all, ESG factors make up 20% – 30%.
With the help of technology, the lockdown was possible. Businesses were able to thrive with remote working and eCommerce, while healthcare delivered Covid-19 treatments with unprecedented speed. In addition, governments focused on fiscal packages related to environmental initiatives such as renewable energy versus fossil fuels; these actions helped contribute positively within industrial sectors during times where demand cratered because people wanted sustainable living options while they awaited the economy’s recovery.
Investors are realizing that sustainable investing doesn’t have to mean weakened performance. Despite these more challenging environments, investors continue to understand how sustainable investing can actually lead to higher returns in long term investments rather than lower ones!
We have seen a lot of change in the asset management industry over recent years with many new funds being set up. However, it’s not all been positive – there are also risks associated when so many managers come into play. The sheer number and variety of funds can lead to compromise across standards. Some may try too hard to achieve results instead of delivering good investment performance which could result in greenwashing, which is a way for firms to market themselves to appear environmentally friendly when in practice their activity pollutes the environment.
Who doesn’t want to save for retirement responsibly?
The lack of consistency and clarity has been holding back investments, but now it’s finally over!
The UK’s Investment Association introduced their Responsible Investment Framework. This framework will make sure that all savers understand how they can invest responsibly with opportunities available – which is great news not just for savers but investors looking forward to being able to take advantage of these types of funds.
The recent legislation has caused some concern. The Sustainable Finance Disclosure Regulation (SFDR) gives investors more transparency, yet asset managers will have to choose how they want their funds categorized according to an imposed standard structure that could potentially harm investments in certain categories such as alternative energy or green technologies. The EU Taxonomy Regulation is more prescriptive and imposes an inflexible structure that may not be so positive.
This approach to sustainable investing assumes that diversity is bad. However, this isn’t the case in other sectors. For example, global equity funds do well by having diverse approaches.
This more directive approach to sustainable investing risks over-concentrating funds on limited parts of the market, which could lead to bubbles.
The idea of choice is generally considered a good thing. Asset management, as well as reducing risk from bubbles also helps advisers better match their clients’ values and principles to ensure the investments are in line with what they want for themselves or others who might depend on them financially someday.
Maintaining diversity while educating investors can help find a compromise, which would be more credible than simply having one approach dominate.
Sustainable investing is becoming more and more popular as people become more environmentally conscious. If you’re looking to make your business practices a little more sustainable, or if you want help getting started in sustainable investing, let us be your guide. Our team of experts can help you find the best ways to invest in a better future for everyone, and we can show you how easy it is to get started whether that be rebalancing your existing pensions or investments more ethically or setting up new plans that meet these requirements.
This communication is for informational purposes only based on our understanding of current legislation and practices which are subject to change and are not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.
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