ESG investments – what are the best options out there ?

ESG Investments

What is ESG?

ESG stands for Environmental, Social, and Governance. Today I am going to look at the best ESG investment opportunities in the market place. ESG investments are becoming increasingly popular as people want to invest in areas that have positive impacts on society and the environment. I am going to abbreviate for clients this table of what I perceive are the 3 best ESG funds (lump sums) and also regular premium savings through Zurich.

ESG opportunities

ESG table

ESG Investments

Even though 2021 has a very tough year for everyone and more so for some, there are some interesting lessons to learn from the year that was.  Because of the pandemic, our day to day lives have become very futuristic.  From home working, socializing on Zoom and Instagram gym classes, it seems we live our lives online.  Another thing that has been propelled into the future is sustainability investing. The area of ESG (Environmental, Social, Governance) has seen a sharp rise in demand in recent years with climate change driving a significant part of the overall agenda for investors. 

In the United States, ESG funds experienced inflows of $64.3 billion in Q2 2021. ESG investing has now become mainstream. In 2020, carbon dioxide emissions grew the least amount in 30 years as a result of lock downs. Developments in solar power have been radical, and seem to have passed by many investors. Buying solar energy stocks last year worked out very well. Despite concern over climate change, they had been in the doldrums almost without a break since 2007. What makes the current rally more remarkable is that it has co-existed with a fall in oil prices. Generally, solar stocks need higher oil prices, as this sharpens the incentives to find an alternative. A rally while oil prices are low is suggesting genuine optimism about the solar industry.

Will investing in ESG affect my returns?

I speak to a lot of people about getting better returns from their savings. Whilst conscious about the effect of sustainability and the environment, the concern is that they won’t get a better return for their money if investing in a narrower market which can carry more risks.  Traditionally this was the case but there are more options out there some of which are lower risk.  Also the key thing is back to basics of knowing where your risks are and ensuring your investment is suitable for you.  

The best options in the market (In my opinion)

Aviva

Firstly, launched in 1984 and the oldest fund in the Irish market is the Aviva (previously friends first) is the Stewardship fund. It is managed by BMO Global Asset Management and holds companies such as Apple, Thermo fisher and Accenture as they all meet the criteria of the fund.  It is almost entirely invested in shares and mainly in North America (60%).  Its annualised returns over 5 and 10 years are an impressive 14% p.a. (not including fees or taxes).  It can be invested in an easy access contract without any penalties to withdraw but we would recommend a 5 year plus outlook given the nature of the fund. Downside of this fund is that suffers from Exit tax on profits which is currently a hefty 41% on the gains.

Cantor Fitzgerald Green Effects Fund

Another option is the Largest ESG fund in the Irish Market which is the Cantor Fitzgerald Green Effects Fund. The differences are this fund doesn’t have a 1% government levy and returns are equally impressive. +42.74 % for last year and Cantor just celebrated the 20th anniversary of the fund.  The Green Effects Fund was originally set up as a response to the demand for a more ethical and socially responsible investment approach. This was for clients who wanted to make a difference with their investment portfolios. The stocks are taken from the Natural Stock Index (NAI) index which is listed in Germany. The constituents within this index provide the investment universe for the fund and are the only stocks in which it can invest.

The index was established in 1997 with an initial list of ten stocks and has now grown to 30 constituent members. The NAI index criteria employ both a negative and positive screening bias within its selection methodology. A wide range of companies with a commitment to either supporting the environment or demonstrating a strong corporate responsibility ethos are represented. Sectors such as wind energy, recycling, waste management, forestry and water-related business all feature prominently. Negative screening ensures that companies are excluded from the index should they be involved in sectors of industry employing unethical practices. 75% of the companies listed have an annual turnover of more than $100 million. Issue with this fund is that it is also high risk.

Cantor Fitzgerald 85% Protected Fund

Another option in the Cantor stable is a low risk  85% secure investment called the Cantor Fitzgerald 85% Protected Fund.  The 85% capital security rising as the fund increases. It is liquid as the other 2 funds are and also benefits from no government levy. .  It also has the advantage of being taxed under Capital Gains which is currently 33% on profit and investors may avail of a personal allowance of the first €1,270 gain tax free.  Investment strategy linked to Robeco Sustainable Global Stars Equities Fund and Allianz Euro Credit SRI Fund.

Why is Zurich a great option?

Lastly, what options are there for regular savings?.  Aviva’s Stewardship fund offers a regular savings facility but it is quite expensive and also carries early encashment penalties. Personally I favour Zurich’s easy access savings.  Whilst they have no ESG funds per se, Zurich purport to be an ESG company.  It is in the ethos of the company Zurich’s website states they believe that proactively integrating sustainability risks and opportunities. This is expressed in Environmental, Social and Governance (ESG) factors in thier investment decisions is inbuilt in their philosophy.

The summary of this is that advice is that it is vitally important and controlling your risks as well as your costs are really the two factors that are within your control. 

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