Young investors are championing the “S” in ESG investing, so what does it mean?

ESG investing means considering environmental, social, and governance issues when investing. While ESG encompasses a wide range of issues, there’s often a focus on the environmental aspect, from climate change to plastic pollution.
However, that could be about to shift.

According to a report in FTAdviser, young investors are placing more importance on social factors.

In a survey, 57% of investors under the age of 45 said their preference was social impact investments rather than environmentally motivated ones. Among the under-25s, this rises to 67%.

There are plenty of reasons why younger generations are keen to focus on the social aspect of ESG investing.

Improvements in technology mean people are more aware than ever of the issues others are facing, including those they may not cross paths with day to day. This is likely to have played a role in investors wanting their decisions to have a positive effect on people and communities.

It’s an extension of a trend that’s already seen in retail. You may choose fairtrade products when you’re in the supermarket because you want to ensure farmers receive fair compensation for their work. Considering social issues when making investment decisions can mean you invest in companies that reflect your values.

As younger generations begin to accumulate wealth and invest, their attitudes and priorities could lead to a shift in the ESG challenges that are most discussed.

Social issues in ESG investing cover a wide range of complex topics

When investing, considering the social issues means assessing how a company manages its relationships with its workforce, the communities it operates in, and the political environment.

Much like environmental issues, the social aspect of ESG covers numerous, complex challenges.

Investors focusing on the “S” may have very different views about what the most important topics are, and which companies are responding appropriately to them.

The FTAdviser report asked investors which issues were a priority for investment, including:

• Health and wellbeing

  Homelessness

  Domestic violence

  Social inequality

  Racial inequality

• Income and financial inclusion

  Youth unemployment

  Childhood obesity

  Community resilience.

How a company manages relationships with people and communities can have a direct effect on how it operates and its profitability. For example, could poor labour conditions mean that a company could face a boycott, reputational damage, or struggle to retain skilled employees?

How a company responds to global and local events may also fall under social issues.

A recent example of this has been how companies responded to the conflict in Ukraine. Those that offered support to Ukraine or quickly limited or halted operations in Russia were often praised in the media, while some of those that didn’t react faced criticism that could have a knock-on effect.

Social issues don’t stand apart from the other two pillars of ESG either. Poor environmental practices, for instance, could harm communities. Governance covers how a business is run, which can directly affect social issues.

So, considering social issues when investing isn’t always straightforward.

How to make ESG part of your investment portfolio

If you have any questions about how to make ESG issues part of your investment portfolio, we’re here to answer them. We’ll help you understand what your options are and how you can build a portfolio that not only reflects your values but will support your financial goals too. Please contact us to arrange a meeting.