ESG investment, which incorporates environmental, social and governance factors, is thriving and is largely being driven by female investors.
What is ESG investment?
Since the start of the COVID-19 pandemic, ESG investment has been a leading performer against all other investment strategies. Although ESG investment is not a new concept, its popularity may reflect the growing assumption that long term financial performance is affected by environmental and social factors and that investors' priorities are shifting away from the traditional factor of financial reward only, increasingly towards non-traditional factors, such as investing with a conscience. ESG investment is now proving to have the benefit of both financial performance and impact. For example, recent data has shown that firms with a more diverse workforce, including firms with female CFOs, are generally more profitable than those firms with less diverse leadership. ESG investing is focused on companies which do well and do good.
Women are leading the way on ESG investment
The increasing pressure on companies to invest in ESG and look to the future is largely being driven by a rise in younger investors and women. These cohorts are generally more inclined to make investment decisions based on both their own values and benefits beyond financial impact. Women in particular rank their impact on societal causes above wealth, seeing this as having a higher value on their legacy.
It is estimated that women now control a third of the world's wealth - a share which is predicted to grow significantly over the next decade globally. In the UK, women are expected to own over 60% of the overall wealth by 2025. In the US, this estimate increases to 66% of the overall wealth by 2030.
There is also a generational shift, with wealth passing from "baby boomers" to their heirs and charities. With women more likely to outlive men and taking up two-thirds of roles in the charity sector, a significant amount of wealth is now in the hands of "Generation X" and women.
Reports suggest that women have traditionally been more likely to give to charity than their male counterparts. Whilst male investors are perceived as more likely to prioritise financial performance, according to a recent survey, female investors are almost twice as likely to invest in ESG or to integrate ESG factors into their investments. A recent survey has found that 69% of women believe investing 'for good' is more important than a high return.
A recent survey has also found that men and women prioritise different elements of ESG. Both men and women are likely to demonstrate interest in corporate ethics, regulatory compliance and health and safety. Women alone however are likely to prioritise human rights, climate change, social justice and animal welfare when considering ESG factors.
Women investing in ESG have had such an impact that Investment Week added a new category to its 2021 Women in Investment Awards for "Sustainable and ESG Investment Woman of the Year" for those who can demonstrate how they have championed sustainable and ESG investing.
How do I measure a company's ESG?
It is not always easy to identify and compare which companies are deserved of ESG investment, mainly because the framework and indicators for measuring (and reporting) ESG performance are not consistently applied or even understood. It is necessary to consider the underlying narrative and values of a company and not just the headline figures when considering ESG.
ESG targets also need to be interpreted carefully in the wider context of the company's business in order to understand what they achieve in practice. For example, a company involved with fossil fuels may only be able to set a target to reduce rather than stop this involvement, which may not align with investor's beliefs.
Not all companies will be able to demonstrate excellent ESG standards across the board. For example, a fossil fuel company may have excellent governance, with transparent financial reporting and a fair executive remuneration policy, but not perform well in environmental considerations. A balanced approach, or at least a careful interpretation of ESG data on a company, is required to ensure it aligns with investors' values.
How can we help?
As one of the first law firms to establish a purpose-driven business, Mishcon Purpose, we view sustainability and ESG issues as indispensable in today's world. We are on a journey to achieve sustainability in everything we do and help our clients to achieve the same goal. Our specialist advice and purpose-driven insight assists our clients to navigate key decisions and opportunities, harnessing our expert networks to identify, assess, prioritise and appropriately address risks. We also advise a wide range of clients on these issues, including drawing on our own values when working with impact investors and helping funds fulfil their ESG mandates.