We hear a lot of talk these days about ESG and Impact investing, but do we know what these two terms mean and how they differ?
* Unbiased reported in April 2021 that socially responsible investing is predicted to double in 2021. Nine out of 10 investors are beginning to move their capital into ‘greener’ investments in response to the threat of climate change.
So, as investors take control of where their money is invested and how it is making a difference in the world, which investment to choose, ESG or Impact?
ESG investing refers to the environmental, social and governance practices of an investment. Fund Managers will analyse the ESG practices of an investment to identify risks or opportunities that could have an impact on a company’s share price. Some examples of common ESG factors that a fund manager will consider when carrying out this analysis may be: –
Environmental: – Pollution, waste management, energy efficiency, carbon emissions etc
Social: – Employee relations, health and safety, community engagement and diversity etc
Governance: – Quality of management, transparency and disclosure, shareholders rights etc
It’s great to see that ESG is becoming important to fund managers when selecting investments and that companies are improving their business practices by transparent accountability. However, a company that reports on their ESG may not necessarily be producing a product or service that impacts such things as climate change or carbon reduction, etc.
Impact investing refers to companies that for example, are creating new technologies to address clean energy, electric cars or sustainable agriculture.
An example of this is a business called MacRebur – The Plastic Road Company. MacRebur, who are based in Lockerbie, processes waste plastics destined for landfill or incineration, and adds them into asphalt for road construction. * Their mission is to “help solve two world problems, to help solve the waste plastic epidemic, and to enhance the asphalt used to make our roads surfaces around the world”.
They achieve this by taking waste plastic and breaking it down into pellets, before blending with asphalt. There are a number of benefits to this technology, one being that it reduces the amount of waste plastic going to landfill. The other benefit, according to MacRebur, is the improved quality of the road surfaces. Using plastic within the asphalt gives better resistance to contraction and expansion due to changes in the weather, which in turn helps to reduce cracks and potholes. The process also reduces the amount of bitumen used, therefore reducing the use of fossil fuels and carbon emissions.
MacRebur is a good example of a company that is making an impact with its product while also reporting ESG. For example, MacRebur has set up a foundation to help solve the waste plastic epidemic by supporting the efforts of litter pickers across the country, and in 2019 won the Social Responsibility and Environmental European Business Award.
So, shouldn’t we be looking to invest in companies that are achieving both aims? Absolutely!
If you would like to know more information on ESG and Impact investing, contact Sean Fisher on 0800 161 5052 or email
* Source: – https://www.unbiased.co.uk/news/financial-adviser/socially-responsible-investing-predicted-to-double-in-2021
* Source: – https://www.macrebur.com/
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