In recent years, a powerful shift has been observed in the world of finance and investment; one that emphasises not just returns but also the impact of investments on society and the planet. This shift is encapsulated in the growing trend of sustainable and responsible investing (SRI). By incorporating environmental, social and governance (ESG) criteria into investment decisions, investors are proving that financial objectives can align with ethical and sustainable goals. This article focuses on how investors can ensure that their portfolios mirror their personal or institutional values.
What is Sustainable and Responsible Investing?
SRI, often synonymous with ESG investing, refers to the practice of integrating non-financial factors – specifically environmental, social and governance considerations – into investment decisions, alongside traditional financial analysis. The aim is to generate competitive financial returns while also ensuring investments reflect individual or institutional values.
Key Components of ESG:
- Environmental (E):
These criteria evaluate the ecological impact of a company. They include considerations like carbon emissions, renewable energy practices, waste management, water conservation and the company’s overall environmental footprint.
Social (S):
These measures show how a company manages its relationships with employees, suppliers, customers and communities. Factors include labour practices, diversity and inclusion, human rights and community engagement.
- Governance (G):
This dimension pertains to the internal system of practices, controls and procedures a company adopts. It evaluates board diversity, executive pay, business ethics and shareholder rights.
Why is SRI growing in popularity?
Several factors have contributed to the rise of SRI:
- Awareness and Concern:
Increased awareness about global challenges such as climate change, social inequalities and corporate misconduct has made many investors more conscious of where they put their money.
- Performance:
Various studies have indicated that companies with strong ESG practices can outperform their peers in the long run. They often have lower costs of capital, better operational performance and lower risks.
- Regulatory Environment:
Governments and regulators across the globe are introducing guidelines and policies promoting sustainable business practices.
- Generational Shift:
Millennials and Gen Z, who are set to inherit substantial wealth in the coming years, show a keen interest in aligning their investments with their values.
How Can Investors Align Their Portfolios with Their Values?
- Research and Due Diligence:
Investors should look into the ESG practices of companies or funds they are interested in. Numerous research firms and platforms offer ESG ratings and insights.
- Engage with Financial Advisors:
A financial advisor with expertise in SRI can guide investors toward options that match their financial and ethical goals.
- Diversify with ESG Funds:
Mutual funds and ETFs focused on ESG criteria allow investors to diversify their portfolios with companies that adhere to sustainable practices.
- Shareholder Activism:
Investors can use their rights as shareholders to vote on corporate resolutions related to ESG issues, pushing companies to adopt more responsible practices.
- Stay Updated:
ESG landscapes evolve, and new data emerges. Keeping abreast of current trends and research is crucial. Absolutely, aligning portfolios with values is a critical component of sustainable and responsible investing. Let’s delve into some tangible examples of how investors can ensure their portfolios mirror personal or institutional values:
- Impact Investing:
Invest in projects or companies which have a measurable social or environmental impact alongside financial returns. For instance, an investor concerned about clean energy might invest in a startup that’s developing new solar technology.
2. Screened Investments:
Apply negative or positive screens to investments. Negative screens exclude sectors or companies involved in activities contrary to the investor’s values; such as tobacco, weapons or fossil fuels. Positive screens actively seek out companies or sectors that align with specific values; like companies promoting gender equality or those with low carbon footprints.
3. Themed Funds:
Invest in funds that focus on a specific theme related to the investor’s values. For example, if one is passionate about gender equality, they might invest in a fund that focuses on companies with women in leadership positions.
4. Community Investments:
Direct investments toward local businesses and community projects. An investor who values community development might provide capital to a local organic farm or a community housing project.
5. Green Bonds:
Purchase bonds that are specifically used to fund projects with environmental benefits, such as renewable energy installations or reforestation efforts.
6. Socially Responsible Index Funds:
These are index funds constructed to track stocks of companies that meet certain ESG criteria. They offer an easy way for investors to diversify their investments while ensuring alignment with their values.
7. Engagement and Shareholder Advocacy:
Buy shares in companies to influence their practices. An investor might buy shares in a company and then use their position to advocate for more environmentally-friendly practices or better labour conditions.
8. Invest in B Corps:
B Corps are companies that meet rigorous standards of social and environmental performance, accountability and transparency. By investing in them, investors support a more ethical approach to business.
9. Microfinance:
Invest in institutions that provide financial services to low-income individuals or those without access to typical banking services. This can help boost entrepreneurship and alleviate poverty in underserved areas.
10. Renewable Energy Certificates (RECs):
By purchasing RECs, investors can effectively offset their carbon footprint or that of their business, thus supporting the generation of renewable energy.
11. Land Conservation:
For those with significant capital, investing in land – not for development but for conservation – can be a way to preserve natural habitats and combat deforestation.
12. Research Companies’ Charitable Activities and Partnerships:
Some investors value companies that not only have good ESG scores but also actively engage in charitable projects or partnerships. Investing in such companies can be a way to support philanthropy indirectly.
13. Engage with ESG-focused Robo-Advisors:
As technology advances, there are now digital platforms and robo-advisors that curate investments based on ESG criteria. This can be an easy way for novice investors to ensure their portfolios align with their values.
Remember, aligning portfolios with values doesn’t mean sacrificing returns. Many studies have shown that ESG-focused investments can perform as well as, if not better than, traditional investments. Ghana, like many countries around the world, has seen a growing interest for sustainable and responsible investments. Here are some examples of such investments in the country:
- Renewable Energy:
Ghana has shown a commitment to increasing its renewable energy capacity. Investors have been involved in projects such as:
- The Bui Hydroelectric Power Project is one such endeavour that not only produces electricity but also focuses on environmental conservation and fish-farming.
- Solar power projects such as the Nzema Solar Power Station, which aims to be one of West Africa’s largest solar PV projects.
- Sustainable Agriculture:
With agriculture playing a significant role in Ghana’s economy, sustainable farming practices have attracted investments. Examples include:
- The Moringa Partnership, which has invested in agroforestry projects in Ghana. This includes sustainable cultivation of crops like cocoa and cashew.
- Organisations like the Ghana Organic Agriculture Network (GOAN) promote organic farming, and investments in such networks or affiliated farms can be seen as sustainable and responsible.
- Sustainable Real Estate:
Investments in real estate that take into account environmental factors and community well-being are on the rise. For instance:
- Green-designed buildings in Accra and other major cities, focusing on energy efficiency, water conservation and sustainable construction materials.
- Forestry and Biodiversity:
Ghana’s forests are vital for its ecology and economy. Sustainable forestry projects include:
- The Reduced Emissions from Deforestation and Forest Degradation (REDD+) initiative, where investments go toward preserving forests and promoting sustainable usage.
- Water Management and Sanitation:
With the challenge of ensuring clean water and sanitation, there are projects like:
- The Community Water and Sanitation Agency (CWSA) projects, which aim to provide sustainable water supply and sanitation services to rural communities.
- Sustainable Mining:
Given Ghana’s rich mineral resources, especially gold, sustainable mining practices are crucial. Efforts include:
- The Ghana Chamber of Mines, which undertakes initiatives to promote sustainable and responsible mining practices among its members.
- Financial Instruments:
- Sustainable bonds: Ghana has plans to issue green bonds to finance renewable energy projects and other sustainable endeavours. Investing in these bonds supports projects that are environmentally beneficial.
- Microfinance Institutions:
These provide financial services to low-income individuals and small businesses, thus fostering local entrepreneurship and economic growth. Investing in or supporting these institutions can be seen as a responsible investment strategy, especially if they promote sustainable business practices among their clientele.
- Eco-tourism:
Investing in eco-friendly resorts or tourism businesses that promote cultural heritage, conservation and sustainable practices is another avenue. These initiatives focus on preserving the environment while also promoting local communities.
As always, investors interested in sustainable and responsible investments in Ghana – or any other country, should conduct thorough research or consult with local experts to ensure their investments align with their values and the region’s specific sustainability needs.
In conclusion, sustainable and responsible investing is not just a fleeting trend; it represents a fundamental shift in how many perceive the role of money and investments. By aligning financial goals with ESG principles, investors are demonstrating that it is possible to achieve both fiscal rewards and positive change in the world.
Ashfield Investment Managers (AIM) is an integrated Asset Management company licenced by the Securities and Exchange Commission (SEC). We offer innovative investment management services to corporates, individual high-net worth and retail clients, government agencies and development finance institutions (DFIs) across Africa.
Our experience cuts across various sectors, and we achieve superior results for clients because our decisions are based on reliable data. With our data-driven investment processes, the desire to work with you to grow your wealth is our topmost priority. Services on offer include Specialised Fund Management, Institutional and Corporate Fund Management, Private Wealth Management and Collective Investment Schemes.
The firm has three mutual fund products under management: namely Gold Money Market Fund (GMMF), AIM Fixed Income Trust and AIM Multi-Asset Trust.
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The writer is Chief Marketing Officer (CMO) and Investment Advisor, Ashfield Investment Managers. She can be reached on +233246152750, e-mail [email protected] or [email protected]
