ESG Investment Explained (Why ESG matters?)

Short for “Environmental, Social and Governance”, ESG refers to a company’s commitment to actively strive to contribute positively to these three issues.

“At its core, ESG investing is about influencing positive changes in society by being a better investor”, says Hank Smith, Head of Investment Strategy at The Haverford Trust Company.

ESG (Environmental, Social and Governance) Criteria

ESG investing aims to increase exposure to companies with a favourable ESG profile, while decreasing investments in companies with a lower ESG score. By doing so, the investment funds aim to influence positive change. Ensuring companies are actively combatting the ESG issues, while aiming to generate sustainable long-term returns for investors.

• Environmental – issues relating to protecting the planet

This may include the company’s energy and water usage, waste management and pollution control. This factor can also be used to evaluate the company’s sustainability efforts throughout its supply chain, as well as plans and actions on climate change. For instance, companies in all sectors are expected to reduce their use of carbon reserves as well as their carbon emissions.

• Social – issues that affect the fair treatment of people

This element focuses on a company’s demonstration of respect for human rights. This may include evaluation of the working conditions, including slavery and child labour risks throughout the supply chain. Other factors could be employees’ relations and diversity as well as health and safety. A social score could rise if a company is well integrated with its local community.

• Governance – about the way companies are run

This includes corporate governance factors, such as Board composition and gender diversity. Also looks at a company’s codes of conducts, corruption and bribery exposure, as well as risks and supply chain management. Other examples of good corporate governance include financial and accounting transparency and appropriate executives’ compensation.

Responsible Investment

Responsible investment allows you to take a view on what companies your money is invested in. It lets you avoid companies whose activities you do not wish to support, while investing in those whose practices and values reflect yours.

By applying environmental, social and governance (ESG) criteria to your investment decisions, you are influencing positive change. Driving companies to actively combat these issues. You are combining your desire to make a return on your investment with your concern and respect for wider social and environmental issues.

Responsible investment enables you to create a better future for yourself and the environment.

Want to know more – check Financial Times’ recent posts about ESG Investment here.

TFS World Friendly Stocks & Shares ISA

Our Stocks & Shares ISA funds are designed with environmental, social and governance (ESG) factors taken into consideration. They aim to influence positive change to the environment and society, while generating sustainable long-term returns.

TFS ISA lets you invest and save in a way that is easy to understand, flexible and tax efficient. Your tax-free payments can be made on a regular or one-off basis. And you will have the flexibility to make changes as and when you need to.

You can apply to open a TFS ISA for yourself, to save money for the long-term and even support your retirement. You can also open a Junior TFS ISA for your children or grandchildren, which they will be able to withdraw once they turn 18 and help them fund some of their future expenses such as, their further education, driving lessons or job training.

Find out more information about TFS World Friendly Stocks & Shares ISA here.