The value of investments can go down as well as up, and the investors could get back less than was paid in.

Impact of ESG

The focus on ESG issues and opportunities is greater than ever before, in society and in investments.

It’s an area of investing that’s changing. Different approaches and funds are now available to your clients.

These include ESG integration – something we’re hearing more about. This is an overarching process that can be used for all funds.  Investment managers look at a company’s ESG behaviours, alongside other financial information, to help spot risks and opportunities.

There are also individual funds aiming to achieve specific ethical, social or environmental outcomes alongside a positive financial return.

Responsible investment adds to traditional investment analysis and fund choices. It also opens up a topical and emotive world of opportunity to engage clients in investments.

Here we explain the different approaches used to invest responsibly and the choice this gives to your clients. We also look at the growing interest in these areas from regulators, consumers and investment managers.

What is responsible investment?

As the world of responsible investment has grown so have the words used to describe it – think ESG, sustainable, ethical, impact, green and socially responsible investment (SRI). But looking at it simply, responsible investment is when investment managers use one, or a combination of different approaches to:

  • decide what to invest in
  • analyse ESG risks and opportunities a company may face, to help better manage investment risk and to help their funds achieve sustainable long-term returns (although the value of all investments can go down as well as up)
  • offer funds aiming to achieve specific ethical, environmental or social goals
  • use their role as a steward of investments to encourage better ESG conduct and behaviours within companies

We've produced a guide for our customers, covering the approaches used to invest responsibly. You may also find it helpful to use with your clients. Download Responsible investment – the basics here.

The different approaches

As defined by the United-Nations backed Principles for Responsible Investment (the PRI), the different approaches can be split into two broad categories: ESG incorporation and stewardship. Here’s a summary of the PRI categories, using our own words to help describe each one.

Back to top

ESG incorporation

Investment managers can use a combination of three broad approaches to include ESG in both their overarching investment processes, and in the design of their individual funds.

ESG integration



A process used to analyse a company’s approach to ESG to help spot opportunities and manage risks.

Funds that exclude/include investments based on ethics and values.

Funds aiming to achieve a financial return alongside a specific environmental or social outcome.

Can be applied across all funds

Includes ethical funds

Includes impact funds


As steward of an investment, an investment manager can influence positive ESG change. They do this using engagement and voting rights.

Active engagement

Proxy voting

Regularly talking to companies they invest in to understand their ESG activities and risks, and to encourage better conduct in these areas.

Using voting rights on behalf of investors to encourage good management of matters such as governance, tax practices and climate change.

Growing interest in investing responsibly

From the media, to the investment industry, to regulators, there’s a shift in thinking around investing responsibly:

  • Many of us are making more responsible and sustainable choices in all areas of our lives
  • Investment managers are increasingly using ESG analysis to help determine investment risk and return
  • Regulators are encouraging advisers and pension trustees to take people’s ESG and ethical preferences into account when it comes to investments

This increasing awareness may present an opportunity to engage your clients with their investments.

Back to top

More of us are choosing sustainable options in all areas of our lives

In the UK, there’s growth in everything from green energy to ethical clothing, food and drink. This is also feeding into how we think about our investments. Research shows more people are interested in investing responsibly, while the Financial Conduct Authority (FCA) has also asked advisers to respond to the increasing demand for sustainable and green investments.

Back to top

ESG analysis can help identify risk and return

Investment managers are increasingly looking at how responsible a company is, as this can affect its future performance. There’s growing evidence to show that companies taking ESG factors into account have been more resilient to market shocks and downturns, and may outperform over the longer term.

Back to top

Regulators are taking ESG seriously too

The Brexit transition means that new regulation on the integration of sustainability risks in the advisory process, and considering clients’ ESG preferences, won’t go ahead in planned timescales. However we do expect the UK to introduce a similar regime and the FCA to commence consultation on this in early 2021. Many advisers have already integrated ESG into their investment governance and client suitability processes

Meanwhile pension trustees are already working to meet new ESG requirements outlined by the Department for Work and Pensions. Trustees must disclose the risks of their investments, including ESG factors such as climate change, and their policies around stewardship of investments. They also need to show the extent to which they take members’ views into account when they plan investments.

Back to top

An opportunity to engage your clients with their investments

Growing awareness of responsible investment is good news for advisers. Research shows that it can be a great way to engage more of us in our investments. So with more clarity and communication about its approaches, it will be easier to position with your clients.

Issues like human rights, climate change and environmental concerns are easier to relate to than many investment concepts. So some clients may engage more easily with investments that combine aiming to achieve financial returns alongside encouraging corporate responsibility or targeting specific social or environmental outcomes.

Back to top

More resources for advisers