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Ethical – what’s important to your employees?

Ethical – what’s important to your employees? alt

Whatever’s important to your employees, we can help them invest in companies that care.

Environmental, social and governance (ESG), socially responsible investing, impact investing, values-based investing, impact investing, ethical investing. Whatever you refer to it as, it’s gathering momentum and it’s not going away.

Our research shows that over 25% of employees would or already do invest in ethical companies that have a positive impact on the world [1]. And with the current Covid-19 crisis, this figure is likely to increase.

But what about when it comes to putting their money where their mouth is?

Setting the scene – a brief overview

ESG is the process of conducting investment analysis and making investment decisions that consider environmental, social and governance factors. A fund manager will look at things like the company’s carbon emissions, labour standards and lobbying activity for example, when choosing whether to invest in this company as part of their fund offering.

Funds can also be defined as ‘ethical’ through positive or negative screening or both. A positive screening approach means seeking out companies to invest in that actively make a positive contribution to society and the environment. Negative screening means they’ll exclude funds based on specific criteria e.g. they might choose not to invest in ‘sin’ sectors such as oil, tobacco or gaming.

Other types of ethical investing include:

  • Sustainability-themed investing: investing in companies with strong ESG performance
  • Active ownership: shareholder engagement on ESG
  • Impact investing: investing in companies that make a positive impact on ESG factors while still earning a return

But why should your workplace savings strategy incorporate ethical or socially responsible investing?

In plain and simple terms, it’s demand. 2019 brought about a huge rise in awareness and outrage about the sustainability of the planet. From the devastating effects of weather brought about by climate change (think about the recent unprecedented Australia bushfires and droughts in Africa) to declining animal populations as a result of the amount of plastic ending up in the ocean and even the rise in sustainable fashion; the movement to slow and reverse these effects continues to grow and demand change.

Research supports the fact that it’s no longer enough to simply reduce the use of plastic or choose organic produce anymore. In recent years, the focus has very much been on companies and their environmental and sustainable impact. Firstly, reducing it and secondly actively doing something to improve it. And this tips over into people thinking a lot more about which companies they invest in.

Only 9% of investors never invest in sustainable funds, with 52% of millennials often or always investing in sustainable funds [2]. Sustainable or ethical investing can mean different things to different people, but the general trend is showing increasing popularity for these types of investments.

Over 67% of employers say the majority of their younger employees aren’t engaged with pensions [3]. But what if employees understood that they could invest for their future in a way that aligns with their personal beliefs? We know the demand for responsible investing is there, so perhaps they’d be more likely to engage with their pensions and wider workplace savings offering if it offered the opportunity to invest in funds that fit their ideals.

What this means for employees is that if they’re able to choose to invest in ethical funds for their pensions and other investments, they benefit from investing in a way that agrees with where they stand on sustainable issues as well as potentially getting better returns. So, actually their personal beliefs might contribute to higher engagement as well.

With only 9% of 18-35 year olds concerned about saving for retirement [4], perhaps appealing to their personal beliefs would increase these numbers and get them actively engaging in investing for the future. What’s even better is offering an additional ‘ethical’ investment option as part of your financial benefits package, such as an ISA, so employees can save for the other life events they’re prioritising before retirement, including buying a first home or just having enough money to comfortably support them and keep them out of debt.

If you’re interested in hearing more about how you can incorporate socially responsible investment options for your employees into your financial wellbeing strategy, get in touch.

While Smarterly can give you plenty of information about the options available to you, we’re not able to give financial advice. Capital is at risk and the value of investments can go down as well as up.

Sources

[1] Realigning the workplace savings offering to meet the needs of millennials, Smarterly, 2019

[2] Global investor study – Global perspectives on sustainable investing 2017, Schroders

[3] Pensions research: A real need for change, Smarterly 2019

[4] Realigning the workplace savings offering to meet the needs of millennials, Smarterly, 2019

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