The most Googled ESG questions … and their answers

In an era where environmental, social, and governance (ESG) issues are at the forefront of global headlines, ESG investing has emerged as a powerful way for individuals to align their financial goals with their personal values.

But first, it’s important to distinguish between sustainable, responsible, and ethical investing. While these terms can often be used interchangeably, they mean three different things. Let’s start with sustainable investing.

Sustainable investing focuses on generating a financial return while considering – and promoting – the long-term environmental, social and governance impact of investments. It aims to support companies that operate sustainably and can continue to thrive over time.

Responsible investing encompasses a broader range of strategies. It may involve screening out companies involved in controversial activities, but ultimately places an emphasis on responsible business practices without necessarily aligning the investments with a specific or ethical stance.

Ethical investing, on the other hand, is a more values or ethics-driven approach. It involves actively selecting investments that align with specific ethical principles or values. This means often excluding companies or industries that conflict with these beliefs, such as weapons manufacturers, tobacco companies, or animal testing.

In this article, we’re going to answer some of the most frequently Googled questions around ESG investing, keeping in mind the nuances between the terminology within ESG investing.

Most frequently asked questions on sustainable, responsible, and ethical investing

1. What came first: sustainable, responsible, or ethical investing?

Ethical investing is often considered the precursor to sustainable and responsible investing. With roots dating back to religious groups such as the Quakers in the 18th century, who avoided investments in industries like slavery and alcohol due to moral objections. This ethical stance laid the foundation for what we now call socially responsible investing.

Kate Hewitt, ESG and Impact specialist at Montanaro tells us more about the evolution of ethical investing in this short video.

2. When did ESG investing start?

According to MSCI, ESG investing traces its roots back to the 1960s as socially responsible investing, with investors excluding stocks or entire industries from their portfolios based on business activities such as tobacco production or involvement in the South African apartheid regime*.

3. When did sustainable investing become popular?

Sustainable investing gained significant popularity in the early 2000s, with a growing awareness of climate change, social issues, and corporate responsibility driving investor interest.

4. Is sustainable investing the same as ESG?

Although sustainable investing and ESG investing are closely related they are not the same. Sustainable investing is a broader term that encompasses various approaches, including ESG integration.

5. What are the four strategies of sustainable investing?

The four main strategies of sustainable investing are screening, integration, thematic investing, and impact investing. These approaches allow investors to align their portfolios with their sustainability goals and values. From these, thematic and impact investing have taken on their own sub-sector of ESG investing.

6. What is impact investing?

Impact investing seeks to generate both financial returns and positive social or environmental outcomes. Unlike traditional investments, where the primary focus is on financial gains, impact investing intentionally directs capital toward businesses, projects, or funds that aim to address specific social or environmental challenges. The Artemis Positive Future fund would be one example of an impact fund. The fund looks to invest in companies making a material positive impact on the world through either environmental or social improvements.

7. What is thematic investing?

Thematic investing is an approach that focuses on specific sustainability themes or trends when selecting investments. For example, the Ninety One Global Environment fund has a unique approach of only investing in companies that are contributing to the decarbonisation of the world economy. Similarly, the JPM Climate Change Solutions fund looks to invest in companies that are developing solutions required to address climate change.

8. What are three key factors to consider in ESG investing?

The three main factors to consider within ESG investing are given in the name environmental, social and governance. Environmental impact should include a company’s efforts and impact on environmental sustainability. Social practices should evaluate how a company treats its employees and wider communities. Lastly, governance policies include a company’s leadership, transparency, and ethical practices internally.

9. How can I start with sustainable investing?

Before starting on a journey of sustainable investing, first start by identifying your personal values and sustainability goals. What do you want your money to achieve? Then begin your research on the different options available. FundCalibre can help with that. If you need more information and guidance, consult with a financial adviser to answer any questions. Of course, don’t forget to consider the diversification of your sustainable investments, or you could opt for a multi-asset sustainable fund, such as the Liontrust Sustainable Future Managed fund.

10.  Are there responsible investments in fixed income markets?

In short, yes. There are such things as green bonds (bonds issued to finance projects that will have a positive environmental or climate outcome), blue bonds (bonds issued to finance investment in healthy oceans or countries dependent on oceans) or social impact bonds (designed to fund projects with positive social outcomes). The Rathbone Ethical Bond fund is one such established fund and operates a strict ethical exclusions process.

11. How does ethical investing differ from sustainable investing?

Ethical investing differs from sustainable investing in that it primarily focuses on aligning investments with specific ethical principles or values, often involving the exclusion of companies or industries that conflict with these beliefs, while sustainable investing encompasses a broader range of strategies aimed at long-term sustainability.

Deirdre Cooper, co-manager of Ninety One Global Environment, tells us more about the difference in this short video.

12. How does an ethical investment work?

Ethical investing typically involves selecting assets that align with your ethical principles. This is typically through what we call a negative screen. This will excluding certain industries or companies that contradict those principles, such as avoiding tobacco or weapons manufactures.

13. What are some examples of ethical investing?

Ethical investments typically screen out companies, such as those involved in animal testing or alcohol for example. But it can also mean focusing on companies doing good, such as those with strong human rights records or those which support industries such as renewable energy.

Explore all of FundCalibre Elite Rated responsible funds here.

14. Is ESG investing profitable?

ESG investments carry risk just like any other investment. However, sustainable practices can enhance a company’s long-term performance and reduce risks.

15. Why is a sustainable investment approach important in 2023?

A sustainable investment approach is crucial in 2023 due to growing awareness of environmental and social challenges. Investing sustainably helps address these issues, aligns with changing consumer preferences, and helps address risks associated with climate change and social inequality head on. It also positions investors to capitalise on opportunities in sustainable industries such as renewable energy.

Mike Appleby, co-manager of Liontrust Sustainable Future Global Growth, tells us more about the difference in this short video.

*Source: MSCI, The evolution of ESG investing

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