When it comes to making a positive social impact, turning a profit is often seen as muddying the waters. Traditionally, many investors have seen the ethicality of their portfolios as an afterthought at best and a non-factor at worst. According to a study by Stanford University, however, there has been a notable generational shift in consensus regarding the importance of assets that reflect one’s ethics and address key social issues. More specifically, this study revealed the following:
- 70% of investors between the ages of 18 and 41 said they were very concerned about environmental issues compared to 35% of older investors.
- 65% of investors aged 18-41 said they were very concerned about social issues compared to 30% of older investors.
- 62% of investors aged 18-41 would give up moderate or large amounts of capital to increase diversity in companies they’re invested in.
- 64% of investors aged 18-41 would pay moderate or large amounts of capital to have companies they’re invested in reach net zero by 2050.
- On average, investors aged 18-41 with large levels of wealth would give up approximately 14% of their wealth to advance Environmental, Social and Governance (ESG) issues.
The newest generation of investors is increasingly aligning its investment priorities with its ethical principles. This trend is known as ‘ethical investing’ and it may offer those investors more than just moral and social benefits.
Are you an aspiring or established investor interested in giving ethical assets and industries a more important position in your portfolio? Here are three good reasons to put your money where your heart is, courtesy of the team at Concept Capital Group.
1. The Ethical Investment Market is Growing
Ethical investing may be largely motivated by non-financial factors, but market forecasts and data suggest that there may be more profit for investors who turn their attention to the market than ever before.
According to a survey by professional services firm Deloitte, millennials are predicted to make up 75% of the workforce by 2025, and more than 80% of those surveyed believe that business has the potential to address climate change and resource scarcity. While those surveyed generally had a positive view of business, most felt that businesses were generally not living up to their potential to positively impact society and that their success should be measured in terms of more than just financial performance. This not only suggests that there will soon be a shift in the amount of pension investment capital in the market as older investors are phased out of the workforce but also that spending power could increase in general and take on a more ethical slant. Additional research by ethical bank Triodos reinforces this notion, with almost 20 million British citizens stating that they planned to be more ethical with their money post-COVID.
The growth in investor awareness regarding social responsibility, sustainability and other ESG issues has already been reflected in the market with the promise of further focus going forward. The Financial Conduct Authority’s (FCA) most recent Financial Lives Survey showed that 81% of surveyed adults in the UK wanted the money they invested to have a social impact while providing a financial return. In response to this demand, the market for UK-domiciled responsible investment funds grew by 64% over 2021 to reach a total value of £79 billion. This far exceeded the 11% growth of UK-domiciled funds overall. Broadridge Financial Solutions has also predicted that the global market for sustainable investment products will likely reach a value of $30 trillion by 2030, painting a very real prospect that ethical investing could be as financially rewarding as it is morally rewarding in the near future. With 57% of respondents to Schroders 2022 Global Investor Study stating that the ability to choose investments aligned with their sustainability preferences would encourage them to invest more, it stands to reason that savvy investors may even find more opportunities in ethical markets in time.
2. A Diverse Portfolio is a De-Risked Portfolio
Diversifying your portfolio is an essential element of protecting your assets and potential profits against risk factors. Those following our blogs and other recent news sources are likely already aware of the recent impact rising inflation and mortgage rates have had on the housing market. For landlords and property investors, this year has introduced a gamut of catastrophic losses and motivators to exit the market altogether. While the long-term state of traditional property investment is still very much in the air, this situation makes an ideal case for the importance of diversification for investors, even when it comes to generally stable investments like property.
If an asset type, industry or even an entire market experiences turbulence, casting a wide net with your portfolio will go a long way towards keeping yourself financially secure and poised for the next opportunity you might have at recovery.
Ethical investing can be a particularly effective strategy for de-risking portfolios. This is not only because it typically requires a greater degree of analysis for every choice made, which often results in more reliable decision-making overall, but also because it accounts for social shifts, trends and mass consensus, offering its adherents the opportunity to align themselves with industries, technologies and projects at crucial turning points.
3. More Options Than Ever Before
With the growth of ESG causes among businesses and consumers, the scope for ethical investors to find assets, stocks and funds they resonate with on a moral level is arguably greater than ever.
A 2023 investment survey by global consultancy firm PwC showed that more than 150 global private equity firms believed that effective ESG management could create long-term value for investors, with most using ESG factors to source new opportunities, carry out due diligence and form post-acquisition plans for new businesses and assets. The same survey also revealed the following:
- Over 80% of respondents said that considering ESG performance was ‘in line with the pursuit of returns’.
- 70% of respondents cited value creation as the top driver for ESG activity in private equity, with regulation and impact on exit value rising in importance since 2020.
- 32% of respondents cited ESG goals as a primary driver for value creation in half of their organisation’s recent deals.
- Reputation enhancement, risk mitigation, competitive differentiation and client attraction/retention were cited as the top benefits of ESG for private equity firms.
- 53% of respondents chose not to pursue investment deals because of ESG factors in the last 12 months.
With an increasing number of global governments developing regulations around social and environmental objectives, it follows that equity is increasingly flowing towards ethical industries and investment opportunities. While influential private equity firms are making major business decisions around ethical investing, there are still plenty of opportunities for individual investors to seek out and benefit from the increased market availability of ESG-friendly assets.
Ethical Investing with Concept Capital Group
At Concept Capital Group, we put social impact at the forefront of our investment opportunities. Through the eco-friendly, energy-efficient method of modular construction, we build, place and let high-quality and affordable modular homes for vulnerable tenants.
When clients invest with us, they invest in a socially responsible approach to solving the housing crisis with residential property that provides those in need with the security, safety and amenities they need to find peace in a sometimes chaotic housing market.
As the UK market leader in modular housing investments, we have pioneered a fully managed alternative to traditional buy-to-let property that allows investors to reap all the rewards of owning a buy-to-let home without the hassle, additional fees or mortgage. This gives ethical investors the perfectly accessible opportunity to create a lasting social impact and enjoy a 10% annual ROI for a fraction of the price.
To find out more about investing ethically with Concept Capital Group, book a call with our team today.