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Friday, January 14, 2022
Financial Planning | ESG | Sustainable portfolios
There is no doubt that our social world is becoming much more conscious of the impact business and governance has on the world. As a response, we have seen ‘ESG’ become a keyword in business and finance, and it seems that it is likely to stay key as we progress into the future.
Though the future might be heading towards ESG-friendly practices, is ESG investing currently worthwhile?
To answer that, there are several notes to make about the year ahead.
Regulating a future of ESG
Science has long proven the damaging environmental effects of human activity, yet governments and industries have been slow to respond or accept responsibility. However, between the global COP26 Summit and the dawn of Biden’s new administration, 2021 brought with it an increased focus on addressing climate change.
At the COP26 Summit, the International Financial Reporting Standard (IFRS) announced setting up the International Sustainability Standards Boards (ISSB), which will lay out consistent ESG standards for companies reporting on ESG factors that affect their business.
Similarly, the Taskforce on Climate-related Financial Disclosure (TCFD), chaired by Michael R. Bloomberg, works towards dependable ESG disclosure.
With support from over 1000 financial institutions responsible for assets of $194 trillion, it’s worth noting their influence and – as we look towards 2022 – that many jurisdictions proposing or finalising TCFD-recommended laws and regulations on ESG disclosure are due to come into effect.
Biden’s new administration saw a renewed commitment to ESG practices from the US.
In its early days, the administration released an executive order on Climate-related Financial Risk, which pushes the federal government to disclose the financial risks on US businesses and saving and pension funds, including ‘physical risks’ of supply chain disruptions, and ‘transition risks’ from the global move away from carbon-intense energy sources.
The bigger picture for organisations
The deeper meaning behind these developments is an acknowledgement that the financial sector needs to consider its role in our shifting world.
As a response, more-and-more businesses will likely consider moving towards ESG-friendly practices. Increasing research shows that customer satisfaction is higher with ESG-practicing businesses, meaning that it also shows the business risk attached to companies who don’t consider ESG.
The regulations being introduced – some as early as 2022 – that mandate ESG-disclosure will make it increasingly obvious for customers and investors to identify companies with bad ESG-practices, therefore putting them at risk. Studies even suggest businesses that include sustainability initiatives drive better financial performance by considering mediating factors like innovation and improved risk management.
As the pieces come together and we develop a bigger picture of our current and future world, there are increasing reasons for businesses to include ESG in their future corporate strategy - and as businesses move towards an ESG future, so too will private investments.
The increasingly conscious world
Whether through COP26, social media commentary or political turmoil, 2021 put a spotlight on ESG principles and in the aftermath, 2022 will undoubtedly bring more momentum towards ESG-investing.
Evidently, the global community is moving towards ESG-investing, and as financial institutions and large funds follow suit, it is increasingly clear that the future is in ESG-investing.
At the heart of ESG is the dedication towards caring for the world around us. Moving towards a more ESG-friendly world takes individual, government and financial action. No act is too small, and we all are responsible for ensuring we leave this world in a healthy state for our future generations to enjoy. This is our legacy.
ESG in our DNA
A key principle of our investment strategy is the belief that building wealth takes time. From this perspective, we construct financial plans for our clients that will be relevant not only next year but also over the next decade. As a result of this long-term approach, we spend a lot of time researching how the world will be in the future and how best to position our clients.
Whether it be sustainability, changes in healthcare, technological development, or any of the numerous trends, we will help develop a portfolio that will aim to take advantage of these changes.
If you would like to discover how you can start using your wealth for good, please contact one of our wealth managers to discuss your ESG portfolio.
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