ESG: investing in the future

Crystal clear water, skies of the deepest blue, air so fresh you want to bottle it. Places like this are usually only found in a tropical paradise but during the lockdown with the global population restricted to working from home, we have allowed the world's eco-systems to 'breathe' again. Amazing what can be done to help the environment, even if it was so tragically forced upon us. 

Even before COVID-19, global warming, the environment, and the policies of ethically run companies, had become topics of hot debate among many people the world over. So much so that companies now realize they need to display a strong awareness of, and have a coherent policy for 'ESG' to attract and retain employees and stakeholders alike.

ESG means 'environmental, social and governance'. Companies with strong and clear policies surrounding these issues are set to get ahead, and many people believe, stay ahead.

But what does this mean for the individual investor? More and more clients are asking us for ways in which they can invest in the ESG sector, be that for capital growth and/or they simply believe in ESG and wish to be a part of it for moral reasons.

So which sectors could be hotspots for ESG investing in the future? One of the most obvious is water and with global warming, it is becoming an increasingly scarce commodity. Companies involved in good water management and clean water processing could be set for strong growth. Also, companies committed to clean and renewable energies and de-carbonization may attract more stakeholders in the future and alongside them, companies involved in the evolution of electric vehicles and the batteries that power them.     

Of course, purchasing individual shares in companies is always a risky strategy, even more so in specific sectors. Should you wish to do so, we would recommend no more than 10-15% exposure to ESG in any investment portfolio. Alternatively, due to the rising demand for ESG-related investments, more and more collective investment schemes like mutual funds and ETF's with a specific focus on investing in stocks of companies with a strong ESG identity, are coming to the market and a number of them offered by some of the world's largest fund houses. Collective investment schemes typically invest in a basket of 30-40 stocks which diversifies your risk.   

This article is not a solicitation to invest in the ESG sector, it is simply for your general information.  Oh and while we are on the subject, AP Advisers Ltd is committed to the highest levels of ethical corporate governance, and its staff regularly contribute time and effort to the good of the local community whenever it is able.         

Robert Williams
Senior Investment Adviser