A business’s environmental, social and governance (ESG) credentials are increasingly driving Scottish High Net Worth investors’ (HNWI) decision-making according to new research from Rathbone Investment Management.
Over a quarter of Scottish HNWI’s currently base their investment decisions on a business’s impact on the environment (27%).
As the UK seeks to ‘build back better’, and with the rise of ESG reporting and standards, investing with these values in mind is becoming an increasing priority for investors.
In fact, when looking at what would make investors more likely to choose a particular company to invest in over another, ESG factors played a significant role. 26% say that they would choose a company over another based on their good treatment of their employees.
This is also something that is more highly valued among women compared to men (32% vs 22%).
25% of Scottish investors said that a company’s behaviour during the pandemic to its staff and customers/clients would also have an impact on their decision to invest or not.
Sustainability and action on climate change have also played a role in boosting the Scottish economy according to many investors.
When asked what has had an impact on the Scottish economy, 42% say the move away from oil and gas to sustainable alternatives has been significant.
A further 38% of Scottish investors said that the declaration of a climate emergency had a positive impact on the economy.
Scotland will also be centre stage of the climate conversation as Glasgow hosts COP 26 later this year.
Ultimately, however, investors continue to be driven by performance (27%) when choosing an investment.
Just over a quarter (26%) of HNWIs say that they would also choose a company to invest in over another if the business was local and based in Scotland.
Personal recommendations from a family member or friend (26%) also influenced investor’s decisions.
HNWIs’ investment appetite is relatively high at the moment.
When asked how they would describe how much risk they were willing to take, 75% say they are happy to take on risk when investing.
Of this, 47% say they are happy to take on a certain amount of risk and 28% say they are happy to take on significant risk when investing.
One in five (19%) say that are moderately cautious when investing.
A majority (68%) of HNWIs also said their risk appetite has increased in the last 12 months in light of recent economic events.
Simon Dewar, Regional Director at Rathbones comments:
“Environmental and social concerns are high on the agenda for individuals, businesses and governments as we seek to ‘build back better’.
“Evidence also suggests that the pandemic has focused our minds on creating a healthier and more sustainable world, not to mention targets we’ve been set as a country to reach goals like Net Zero by 2045.
“Investors have a crucial role to play in reaching this goal, and it’s encouraging to find that ESG principles are being factored into their investment decisions.
“Through their investments, they have the ability to enact change by directing capital to companies that are working to have a positive impact on the environment.”
For those considering how to get started investing ethically, Simon Dewar shares his top tips.
1.) Think about why you’re investing
Like any investment, it’s important to think about why you’re investing and if it’s the right option for you to help achieve your goals.
Is this for your retirement, a property purchase, or for your children or grandchildren?
When it comes to more ethical investments, there are additional points for consideration which can help determine how much of an activist you want to be and therefore what investments can help you reach your goals.
For example, are you investing for change in your lifetime or for the next generation?
Speaking to your investment manager will help you to assess the strategy that will fit your circumstances and values.
2.) Match your investments to your principles
You will hear many different terms when it comes to investing responsibly, such as ESG, responsible investment, ethical, and impact investing.
Work out what is important to you.
An investment manager can help navigate what type of investor you want to be, but some questions to ask yourself include: do you want to be strict about what you do or don’t invest in, such as tobacco or oil; do you want to invest in companies that are developing solutions to make their industry greener and more sustainable; and do you want to focus more on moral and ethical judgements than investment considerations?
3.) Decide on your investment vehicle
There are multiple ways to invest, so it’s important you have a look around to see what investment vehicle would suit best and it can fit with your environmental principles.
Investing in a ready-made portfolio means that your assets are managed by someone else, which can make it easier for you personally as it means less work, but you’d need to be happy with the investment manager’s ethical choices.
Alternatively, you could choose your own shares and funds yourself, but this can involve some risk.
Though not difficult to achieve yourself, it can be easier to be more diversified through an actively managed portfolio owing to the breadth of stocks included in an investment manager’s fund.
Another option is investing through a ready-made stocks and shares ISA or your pension which shelters investments from the taxman.