When it comes to investing, you have many options. You can choose to invest in things like stocks and bonds, which are considered more traditional investments. Or you can choose to invest in alternatives like real estate, commodities, or hedge funds. Now given all the buzz about ESG investments, I suppose nobody wants to feel left behind and it is worth exploring? We dive into the latest ESG news as well as ask offshore expert, Luigi Wewege his opinion.
Imagine one that could achieve the same results as a traditional investment without all the risk. That’s where ESG investments come in. ESG stands for Environmental, Social, and Governance.
What is ESG investment?
Well, here we’re still investing in stocks and businesses. ESG refers to companies with strong sustainability practices and a positive impact on society—both environmentally and socially. Businesses with good ESG practices score high in terms of their reputation and therefore have less risk due to their core value being in sustainability.
ESG investing is therefore a great way to demonstrate a companies’ ethical business practices, and dedication to making the world a better place. With the rising cost of living, and the looming threat of global warming and climate change, it shouldn’t be negotiated why companies’ and people who have the financial means shouldn’t be investing in sustainable business practices and environmental activities.
What do people think about ESG investments?
In one of our recent reports on consumers’ and employees’ attitudes towards ESG, 83% of consumers thought companies should proactively influence ESG best practices. And that 86% of employees felt they could support and work for companies that shared their values and vision. 91% of business leaders also felt that companies are responsible for ESG-related issues. Even more pressing is that 76% stated they would not support companies who did not care about their employees and the environment.
It would perhaps then be safe to assume based on this data that companies who are involved in ESG investing also have a competitive advantage when compared to their competitors since customers and investors appear to prefer those who are ESG aligned. Overall, it is great for preserving the environment and a strategic move in boosting the reputation of one’s business and attracting prospective customers, employees, and investors.
Hedge Funds that are Pro-ESG investing
A hedge fund is a limited partnership of private investors whose money is managed with the objective to earn profitable investment returns. In recent years, ESG investing has become one of the most talked-about strategies in the investment world, particularly with an increased number of fund managers integrating Environmental, Social, and Governance (ESG) into their investment planning.
There are multiple ways that a hedge fund can engage in sustainable investing such as through borrowing or trading on non-traditional assets. Hedge funds can also motivate companies to improve their ESG risk management and develop sustainable business practices, which could partly be due to the high reputational risk that is imposed on companies who are not ESG aligned.
A recent interesting case on ESG is Belize Blue Bonds and Luigi Wewege, President of Belize’s Caye International Bank headquartered on Ambergris Caye, said the bond was successful on several different fronts. ““The Blue Bond, in my opinion, has been and will continue to be successful if viewed through the correct perspective. It fits perfectly into an ESG portfolio, diversifying towards marine conversation which generally gets little to no traction. Its issuance has brought the plight of the Belizean coral reef very much into the public eye, as well as having a significant impact on the Belizean national debt and its macroeconomic outlook. However, that is not to say the Blue Bond fits the needs and requirements of an average retail investor, it very nicely fills the niche for which it was intended.”
However, motivations for ESG investing are not always clear-cut due to the varied reasons people may want to invest. For example, a recent survey by the Forum for Sustainable and Responsible Investment revealed that 80 percent of fund managers who address ESG issues did so only because they had received pressure from their clients rather than due to genuine interest in the conservation and protection of the environment.
Ignoring ESG issues in investment could result in obstruction, social dishonor, and losing the license to operate, which is why fund managers’ attitudes and general working environment qualities are equally important.
Here are some of the top hedge funds that are pro-ESG investing:
- Inclusive Capital, the San Francisco-based hedge fund with a portfolio value of $1.35 billion, is one of the top hedge funds focusing on ESG and investment with impact. The fund works with Exxon Mobil Corporation (NYSE: XOM), a firm that has made an impact on moving energy businesses away from fossil fuels.
- Triodos Investment Management is a Netherlands-based fund focusing on impact investing with a portfolio value of over $631 million. The fund invests in sustainable enterprises, particularly involving renewable energy.
- Parnassus Investments is another investment firm based in San Francisco with a portfolio value of $41 billion. With over 35 years of responsible investing, this hedge fund is steadily committed to driving sustainable investing that exercises a social responsibility for the environment.
- Engine No. 1 LLC, also based in San Francisco with a portfolio of over $273 million, currently sits on the board of Exxon Mobil Corporation, which has been advocating for cleaner energy sources.
So why should I consider ESG investments?
- ESG investments can boost your portfolio and reputation.
- They promote sustainable practices and help protect the environment.
- They benefit society as a whole.
I would never advocate any form of investment fad that could risk your portfolio or pension fund, nor one that would risk too much exposure to potential future bail-ins as that could be on the cards for Europe in particular. However, ESG crossed a crucial tipping point and now requires the attention of most prudent investors.
In summary, ESGs help support positive environmental practices like the CIB President, Luigi Wewege mentioned as well as social justice issues that matter because they come with just as much (if not more) return on your investment! One could argue in view of the recent success BlackRock had with ESG, that some groundbreaking results were achieved: ESG is no longer seen as a huge risk, but rather as a necessity.