Background

Last month, world leaders gathered at COP26—the 2021 United Nations Climate Change Conference—and reached a new global agreement called the Glasgow Climate Pact.  

The pact will set the world agenda on climate change for the next decade. Under the agreement, countries will aim to keep temperature increases within 1.5 degrees Celsius which scientists say is needed to prevent a climate catastrophe; reduce coal use; support developing countries’ clean energy transition; among other pledges.  

Trillions of dollars in investments are needed in the next few decades to fund the global transition to a green economy. Therefore, investors—both institutional and retail—are taking note of the green opportunities ahead.  

What are ESG products?

In recent years, environmental, social and governance-focused (ESG) products have ballooned in popularity. In 2020, sustainable exchange traded funds (ETFs) for instance, saw record inflows of $75 billion—triple the amount seen in 2019—according to MSCI. Since 2015, sustainable ETFs have grown 25 times from $6 billion to over $150 billion assets under management (AUM) at the end of 2020.  

An ESG investment product is those that are screened for their environmental, social and governance criteria—alongside traditional business metrics like revenue, profitability and more.  

ESG funds, such as ETFs or mutual funds, are bundles of equities and/or bonds in which ESG factors have been integrated into the investment process. This means that the securities in the portfolio have all passed certain criteria pertaining to these measures.  

According to MSCI, Europe is a leader with “50% of all ESG ETFs [in the world]. European ETFs also had higher ESG ratings than other regions.” Thirty-nine percent of global ETFs meanwhile are domiciled in North America; 6% in Asia and 3% in Australia.  

The lowest carbon intensive ETFs are those that had a higher exposure to financials, banking and insurance; while extraction-based sector funds, like mining or energy ETFs, hold the highest carbon intensity levels, says MSCI. “Carbon intensity shows a fund’s exposure to carbon-intensive companies: it’s an important metric in measuring climate risk,” says the firm.  

How can I start? How can I invest?

Investing sustainably may seem like a daunting process. However, it’s not so intimidating if you follow a few key steps.  

The first step is just to get started. To begin with, outline your financial priorities and what you want to achieve with your investment portfolio. Are you saving for a retirement fund, a down payment on a home or a general nest egg?  

Then, it’s key to understand what’s important to you when investing in a company or fund. For example, is it important for you to ensure that your portfolio is free of any coal mining investments? Or you may want to specifically target high-tech, clean energy firms focused on wind, solar, nuclear and hydrogen energy regardless of their location or other factors. Knowing what you want—and don’t want—in an investment portfolio makes it easier to decide which investments to include, or exclude. Winson Capital’s advisers regularly help our clients through this process.  

Once you’ve outlined your personal financial and sustainable investing goals, it’s time to start building your portfolio. It’s possible to build an ESG portfolio on your own—through opening a brokerage account and purchasing individual shares of a company or ETFs and mutual funds.  

Still, many investors decide to enlist the help of Winson Capital. A knowledgeable advisory—who understands your goals and values—will help your portfolio grow and impact the world positively. Ultimately, ESG investing needs to be conducted with a clear agenda in mind; an investor’s own research with up-to-date information; and a stark understanding of the challenges involved and where needed; expert guidance from Winson Capital.