ESG ISA

What is a ESG ISA?

A ESG ISA is an ISA where your money is used to invest in assets that come under the umbrella of investments that seek positive returns and a long term impact on the Environment, Social issues and business Governance.

Basically ESG funds seek to have a positive impact on the world.

Investing within an ISA wrapper allows any investment returns to be generated tax efficiently.

ESG funds typically invest in the companies involved in activities that deal with mitigating climate change and new technologies that seek to provide better prospects for the environment. 

They are suitable for people who are willing to leave funds in their ISA for long periods such as five years. They are also good for people who are willing to withstand a bit more fluctuation in the value of their fund.

What investments are likely to be considered for ESG investment?

A fund manager taking into account ESG principles means that environmental, socials and governance criteria will be at the top of the list when connsidering what to invest in.

For example when assessing a company to invest in a fund manager will look at:

1. Environmental track record
2. Energy consumption
3. Policy on climate change
4. Waste management
5. Community engagement
6. Human rights record
7. Employee relations policy
8. How the business is run
9. Diversity of the management team
10. Quality of the management team & potential conflicts of interest

ESG investing puts on a more even footing investing responsibly with the need to deliver investment returns for investors.

Why is ESG investing important?

According to the United Nations the world's population is growing at a rate of 83 million people per year. By the year 2050 it is calculated that there will be 9.9 billion people on our planet with over 25% aged 65+. 

The need to ensure that the planet can cope with this increasing dynamic on our finite resources is more important than ever.

ESG investing is becoming increasingly popular with a greater awareness by investors for the need to invest sustainably. There is now more than $21.4 trillion invested sustainably.

In the UK sustainable investment for 85% of 18 to 36 year olds sustainable investment is seen as an important factor when investing.

What is the difference between Ethical and ESG Investing?

Ethical investing tends to avoid companies that have a negative impact on the environment or society. In an ethical fund the manager will typically screen out companies involved in certain activities or industries e.g. oil and gas, tobacco.

With ESG investing fund managers typically focus on companies that are having a positive impact on the world, so its less black and white when it comes to the types of companies that might be included in a fund. 

This approach means that a company in the oil and gas sector for example which has a progressive approach to clean energy might be included.