After COVID-19, Ethical Investing Will Reign. Here’s How Businesses Can Prepare 

Companies must embrace both principle and profit as Asia and the Pacific recover from the pandemic. Responsible, ethical, and impact investing are all terms used to describe it. Investing in the pursuit of both financial return and socially desirable outcomes, or at the very least avoiding undesirable outcomes, has gained a lot of traction in the last decade or so, whatever name it goes by. It is expected to become even more popular in the COVID-19 era and its aftermath.

To use its most technical moniker, environmental, social, and governance (ESG) investing is gaining traction among governments and businesses, owing in part to a growing global recognition of the need to protect the environment—particularly by mitigating and adapting to climate change—through socially responsible and accountable business activities.

The emergence of ESG also reflects escalating debates about modern capitalism, which has been accused of prioritizing the interests of stakeholders (consumers, employees, and communities) over the interests of shareholders. To assist with such investments, global institutions such as MSCI and Thompson Reuters issue indexes. Reports on ESG are being published by large firms not just as a financial record, but also as a public relations tool. To fulfill the rising market need for firm-level diagnosis, globally renowned consulting companies are developing or extending their ESG channels.

Due to collapsing demand, employees’ inability to come to work due to lockdowns or illness, and supply chain disruption, COVID-19 has exposed numerous public and private enterprises to unprecedented dangers. Although the financial market impact was controlled in March thanks to central banks’ rapid and large interventions in treasury, mortgage, municipal, and even high-yield corporate bond markets, this has prompted a global stock market slump.

Traditional investments have fared worse than ESG funds. According to Bloomberg, the typical ESG fund has lost approximately half of its value this year, compared to the S&P 500. This outperformance has been aided by the drop in oil prices as a result of unclear consumption and demand predictions.

ESG funds have limited exposure to fossil-fuel industries like oil and gas, as well as energy-intensive industries like airlines and maritime transport, by their very nature.

This funding also put additional money towards renewable energy, telecommuting, distance learning, and telemedicine. They also focus on organizations that have a high level of transparency and a socially conscious approach to their employees and communities, connecting with the need for stronger social protection to safeguard people and society from the pandemic’s worst effects.

Many businesses are dealing with the pandemic’s aftermath by reducing employment losses and paying their suppliers—mostly small and medium-sized businesses—with their own cash. Not every business is so forward-thinking. Some businesses have free cash flow but don’t use it to help their employees and suppliers.

Ethical investing is already a big deal. Smart businesses will seize the opportunity to add more ethical investing options than are available from their current providers, who are missing out on an emerging trend.

 

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by Rachel Buscall

by Rachel Buscall

Co-Founder & Managing Director at New Capital Link. Having started her career in the financial sector, Rachel demonstrated a natural flair for entrepreneurship.

New Capital Link

Alternative investment specialists offering structured opportunities across the UK & Overseas.

New Capital Link is a boutique London-based introducer that offers unique UK & global investment opportunities worldwide.

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Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be very complex and high risk.

What are the key risks?

1. You could lose all the money you invest

If the business offering this investment fails, there is a high risk that you will lose all your money. Businesses like this often fail as they usually use risky investment strategies. 

Advertised rates of return aren’t guaranteed. This is not a savings account. If the issuer doesn’t pay you back as agreed, you could earn less money than expected or nothing at all. A higher advertised rate of return means a higher risk of losing your money. If it looks too good to be true, it probably is.

These investments are sometimes held in an Innovative Finance ISA (IFISA). While any potential gains from your investment will be tax free, you can still lose all your money. An IFISA does not reduce the risk of the investment or protect you from losses.

2. You are unlikely to be protected if something goes wrong

The business offering this investment is not regulated by the FCA. Protection from the Financial Services Compensation Scheme (FSCS) only considers claims against failed regulated firms. Learn more about FSCS protection here. https://www.fscs.org.uk/what-we-cover/investments/ or

Protection from the Financial Services Compensation Scheme (FSCS), in relation to claims against failed regulated firms, does not cover poor investment performance. Try the FSCS investment protection checker here. https://www.fscs.org.uk/check/investment-protection-checker/

The Financial Ombudsman Service (FOS) will not be able to consider complaints related to this firm or Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA-regulated firm, FOS may be able to consider it. Learn more about FOS protection here. https://www.financial-ombudsman.org.uk/consumers

3. You are unlikely to get your money back quickly

This type of business could face cash-flow problems that delay interest payments. It could also fail altogether and be unable to repay investors their money. 

You are unlikely to be able to cash in your investment early by selling it. You are usually locked in until the business has paid you back over the period agreed. In the rare circumstances where it is possible to sell your investment in a ‘secondary market’, you may not find a buyer at the price you are willing to sell.

4. This is a complex investment

This investment has a complex structure based on other risky investments. A business that raises money like this lends it to, or invests it in, other businesses or property. This makes it difficult for the investor to know where their money is going.

This makes it difficult to predict how risky the investment is, but it will most likely be high.

You may wish to get financial advice before deciding to invest.

5. Don’t put all your eggs in one basket

Putting all your money into a single business or type of investment for example, is risky. Spreading your money across different investments makes you less dependent on any one to do well. 

A good rule of thumb is not to invest more than 10% of your money in high-risk investments. https://www.fca.org.uk/investsmart/5-questions-ask-you-invest

If you are interested in learning more about how to protect yourself, visit the FCA’s website here: https://www.fca.org.uk/investsmart

For further information about minibonds, visit the FCA’s website here.https://www.fca.org.uk/consumers/mini-bonds