5 reasons to consider investing sustainably

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4 minute read

People are increasingly conscious of their impact on the planet. From cutting down on meat to recycling, more of us are taking active steps to reduce our contribution to social and environmental problems. But have you considered how your pension, Individual Savings Account (ISA) or other savings could help drive positive change?

Investing in funds that consider responsible investment criteria, sometimes called environmental, social and governance (ESG)-focused funds, is one way that your savings could help make a difference. In fact, when done collectively, this is one of the most powerful ways we can support a more sustainable future.

 

What’s responsible investment?

Before we get into the detail, let’s start with the basics. A responsible investment is generally defined as an investment where the fund manager – the person responsible for managing investments within a fund – considers environmental, social and governance factors when assessing whether a company is worth investing in. These factors include issues such as climate change, data protection and privacy, human rights, anti-corruption policies and more.

In 2021, £33.5bn was invested into funds that consider ESG factors in the UK alone1, with hundreds of funds to choose from worldwide.

 

So, why should I consider investing sustainably?

1. It could be better for your investment in the long term

Increasing evidence suggests that responsible investment can influence long-term company performance2, and therefore investment returns.

One reason for this could be that companies with a focus on sustainability are thinking carefully about long-term risks and opportunities and have a clearer purpose and long-term vision. Companies who are actively trying to make positive changes might benefit from less exposure to climate-related regulation, increased sales, less staff turnover and in turn, better long-term success.

Of course, there is no guarantee of better performance. Remember, your investments can go up or down over time and you may get back less than you put in.

 

2. It’s an easy way to align your savings with your values

We all have core values that are important to us, and you probably already take steps in your daily routine in line with these.

Responsible investments give you another opportunity to support your values by investing in line with what matters most to you. There are options available to allow you to be selective in the type of companies you are investing in.

 

3. You can help make a collective impact

The Government’s Green Agenda has pushed the importance of ‘going green’ in a bid to achieve the UK’s target of net zero carbon emissions by 20503.

The green agenda may have got you wondering what steps you could take to help the UK reach this ambitious target. How you shape your investments may not be something you had previously considered as a way to support change. But if all of us considered it, it could be a powerful tool.

So, what would change if a greater proportion of savers switched to responsible investment strategies?

Let’s say for example, that you decide to move your savings into funds focusing on climate change. Now let’s say thousands of other investors do the same. This could put pressure on fund managers to stop investing so much in fossil fuels, or to actively engage with the companies they invest in and vote for change. And in turn, those companies might reflect more on their ESG performance and take action to align their business activities with a fairer, more sustainable future.

This is just one example, but the key principle is that there is strength in numbers.

Collectively, we own trillions in pension pots, ISAs and other savings. By putting your savings into a more sustainable fund, investors can collectively send a powerful message that could influence companies to make more ethical and sustainable choices.

 

4. It may not be as expensive as you think

With the cost of living rapidly increasing, we all want to save money where we can.

Many funds have reduced their fees following downward pressure from the UK regulator4 and in a bid to stay competitive, and as responsible investments increase in popularity, this could drive down the fees associated with this type of investing.

There are many different ways that fund managers can implement a responsible investment approach, from very specific and targeted approaches that are likely to cost more, to more automated processes which will cost less. With more responsible investment options now on the market, it’s up to you to choose the approach and price point that’s the best fit for you.

Each fund has different fees, so make sure you are clear on the costs before deciding what option is right for you. You can find this information on fund factsheets or Key Information Documents.

 

 5. You can help protect the future for your loved ones

Many of us won’t live to experience the full effects of climate change and other global issues, but our younger friends and family will. It’s up to us to act now to protect the future for our loved ones, and every small action will have collective impact towards this goal.

We all have a part to play in driving this change, and by investing our money in more responsible ways, we put more pressure on companies, governments and local authorities to implement the strategies needed to safeguard the planet for the next generation.

You can find out more about what Aegon’s doing in the fight to tackle climate change on our responsible investing hub and corporate responsibility pages.

 

Are my savings already invested responsibly?

Some of your savings may already be invested responsibly. If you’re part of a workplace pension scheme, many providers are offering a commitment to ESG factors as standard. For example, at Aegon, our key default funds – the funds that savers are automatically invested in if they don’t choose their own fund – now include ESG considerations.

Some providers (including us) also have ‘self-select’ options, where you can choose more ESG-focused funds for your pension if you don’t want to stay on the default fund. If you’ve savings outside of your pension, these are less likely to be invested responsibly unless you actively selected a fund that uses an ESG approach.

If you’re looking to be more active with your investments, we recommend speaking to a financial adviser who can guide you through the process. If you don’t have one, you can find an adviser at MoneyHelper. There may be a charge for this advice.

 

For more articles and content on responsible investing, visit our Responsible investment hub.

 

Sources:

  1. Everything Green Flows: 2021 in Review. Data Source, Refinitiv, February 2022. 
  2. 2022 The Growth opportunity of the century – are you ready for the ESG change? Data source, PWC, 2020. 
  3. Net Zero Strategy: Build Back Greener. Data Source, HM Government, October 2021. 
  4. How far fund fees have fallen? Data Source, Morningstar, September 2020.