The environment and climate change has been a hot topic over the last few years. In 2021, more than ever before, environmental and socially responsible issues are at the forefront of the investment landscape. Whilst the practice of ESG Investing has been around since the 1960’s it certainly something that as advisers, we talk about more than ever.

In October and November 2021 Glasgow hosted the UN Climate Change conference better known as “COP26” COP stands for Conference of the Parties, and was attended by countries that signed the United Nations Framework Convention on Climate Change (UNFCCC) – a treaty agreed in 1994. This was the 26th conference hence the title of “COP 26”.

Prior to the conference, the UN released the following goals that COP26 needed to achieve.

 

  1. Secure global net zero by mid-century and keep 1.5 degrees within reach

Countries are being asked to come forward with ambitious 2030 emissions reductions targets that align with reaching net zero by the middle of the century.

To deliver on these stretching targets, countries will need to:

  • accelerate the phase-out of coal
  • curtail deforestation
  • speed up the switch to electric vehicles
  • encourage investment in renewables.

 

  1. Adapt to protect communities and natural habitats

The climate is already changing and it will continue to change even as we reduce emissions, with devastating effects.

At COP26 we need to work together to enable and encourage countries affected by climate change to:

  • protect and restore ecosystems
  • build defences, warning systems and resilient infrastructure and agriculture to avoid loss of homes, livelihoods and even lives

 

  1. Mobilise finance

To deliver on our first two goals, developed countries must make good on their promise to mobilise at least $100bn in climate finance per year by 2020. International financial institutions must play their part and we need to work towards unleashing the trillions in private and public sector finance required to secure global net zero.

 

  1. Work together to deliver

We can only rise to the challenges of the climate crisis by working together. At COP26 we must:

  • finalise the Paris Rulebook (the detailed rules that make the Paris Agreement operational)
  • accelerate action to tackle the climate crisis through collaboration between governments, businesses and civil society.

(ref: https://ukcop26.org/cop26-goals )

 

What is ESG Investing?

ESG stands for Environmental, Social, and Governance investing. ESG evaluates how investments or companies in various categories are related to long-term environmental and societal impact. These include ‘green’ elements such as conservation of natural resources, social factors like inclusivity, and governance considerations regarding how a company is run.

Even prior to COP 26 ESG has been accelerated by the COVID-19 pandemic and increased attention to social and governance issues.

The financial industry is increasingly looking to make it easier to understand how ESG investing is quantified, by using specific measurement criteria to score investments on a consistent scale.

ESG aims to rank investment opportunities with a wide range of sustainability metrics in mind, from green energy initiatives and waste management to fair labour practices, board member diversity, and executive pay.

Over time we are likely to see ESG investing becoming the norm. Companies that meet ESG criteria are now seen as the companies of the future, able to adapt and evolve with the times.

During turbulent markets such as those seen in 2020, ESG funds often performed better than their traditional counterparts. This shows that now and, in the future, we hopefully should not have to sacrifice performance to be socially responsible and environmentally friendly in our investment choices.

If you would like to know more about investing and ESG choices or to review your own investments, please get in contact with one of our Independent financial advisers

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Natasha Fathers, Director of HWM

Natasha Fathers

Director of Hawsons Wealth Management Limited, Sheffield

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