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What is... ESG Investing?

Published on 29/10/2020

Investing is open to everyone, with all sorts of opinions. Some investors don’t see the harm in buying stock from any type of company, but others may wish to invest in companies that fit their specific values. Some investors for example, may not wish to profit from companies that damage the planet, or companies that harm their customers or workers.

If the latter is more your cup of organic tea, welcome to ESG investing. ESG investing is investing with a focus on environmental, social and governance issues - it’s ethical investing.

We all have pain points, things we don’t feel are right, or don’t feel comfortable with. As an investor you have the right to avoid companies that hit those areas. You may not want to profit from tobacco, alcohol or gambling companies, you may wish to avoid weapons manufacturers, fossil fuel companies, companies that test on animals or that have a record of treating their staff poorly.

But what does this really cover?

The ‘environmental’ covers a company’s environmental and sustainability plan. Is the company reducing their carbon emissions? What are their plans for future reductions? Are they endangering the planet by digging up rare minerals or dumping sewage or oil into our oceans? How are they planning to become a more environmentally sustainable company?

The ‘social’ covers the company’s track record in human rights. Do they employ child labourers, or have workers in unsafe conditions? What are their plans to ensure the health, safety and prosperity of their workforce and customers? Do they embrace diversity and inclusion across their boards and in their recruitment strategies? Social also covers animal welfare - does the company still employ animal testing, or are they concerned with the welfare of animals bred for the food market?

The ‘governance’ covers the management structure, employee relations and the culture and values of a company. What’s the difference between management compensation and employee compensation?

The growth of ESG strategies is well documented, for example wind and solar energy companies have been outperforming oil producers in recent years, since the global emphasis on climate change.

A recent study by Morningstar highlighted that “annual European sustainable fund flows increased from €50bn (£45bn) in 2018 to a record-breaking €120bn in 2019, bringing the total assets under management to €668bn. This increase was mirrored in the number of sustainable funds, which increased by 360 in 2019, to total 2,405.”

Since the start of the COVID-19 crisis the interest in ethical investing has only increased.

Here at Upside, we have opened up idea picking to suit all types of investors. So, if you’re not into profiting off the Marlboro Man then you can filter (haha) out these ideas at the beginning of your search for your next big investment idea.

What is acceptable to one investor may not be reflective of what is acceptable for another. So the Upside investment idea marketplace allows you to clearly see all the ESG research gathered on a stock, allowing you to easily pick investment ideas that fit your values.

When it comes to ESG investing, there’s a science to being right.

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