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What is ESG investing and why does it matter?

FOLK2FOLK

We take a look at the increasing role environmental, social and corporate governance (ESG) considerations play in investment decisions and how Marketplace lending (MPL) supports this trend.

Financial returns have traditionally been the dominant decider when it comes to investment selection. However, it’s increasingly commonplace for investors to include other criteria when choosing which businesses to invest in – taking into account ethical factors such as whether the company is sustainably run, what impact it has on society, and whether it’s involved in activities they feel comfortable funding.

More broadly across society there has been a general trend towards consideration for environmental and ethical factors, as recently evidenced by the controversy over Shell’s sponsorship of Science Museum Group exhibitions about climate change.

Previously, ‘impact’ or ‘social’ investing was viewed as worthy but delivering weak returns. But times are changing as more investors seek out investments that align with their personal beliefs.

It’s arguable that a rise in awareness of – and hence a closer emotional connection with – social and environmental issues, coupled with investor and consumer realisation that money talks, has resulted in a shift in priorities regarding where to spend or invest. Consumers can boycott brands whose practises or behaviours they don’t condone; and investors can choose to invest in companies whose impact (or lack of) aligns with the change they want to see in the world.

Today there are more opportunities to make money while contributing to the social good. The creation of the ESG framework has enabled potential investors to evaluate the environmental, social and corporate governance impacts of publicly traded companies they may wish to invest in. Financial markets now provide ESG relevant ratings indexes such as the Dow Jones Sustainability Index and the FTSE4Good Index making it easier to dig deeper into the non-financial aspects of a business.

Investing in opportunities with a positive impact no longer requires sacrificing profits for principles. This ethos neatly aligns with Marketplace lending (MPL), which can be financially rewarding while also naturally supporting a more direct link between investor and the business/cause.

With a fixed interest rate of 6.5% p.a. and land/property as security, FOLK2FOLK offers compelling investment opportunities where investors can select investments that suit them, whether that’s:

  • Renewable energy

    Our Investors have used their money to support their environmental concerns by investing in renewable energy projects.

  • Affordable housing

    Investors can contribute to solving the housing crisis by investing in development projects which include affordable housing.

  • Helping to sustain viable local economies and communities

    Investments via our platform often have a wider human impact – felt far beyond the business they are helping – which we call FOLKONOMICS™.  Flow on local benefits may include bolstering local supply chains, job creation, attracting new people and visitors to the area, and other businesses benefitting as a result.

  • Helping to redress the economic imbalance across our country

    The economic ‘levelling up’ of rural and urban Britain is topical, but something we approach without political agenda. We support the viable but underserved niche of businesses outside the large cities, enabling our investors to make a real impact in regional Britain.

It’s not about altruism – investors still require a return – but a balance is struck and ESG related factors may more often form part of that total equation. FOLK2FOLK allows investors to meet that balance of fair returns while making a difference with their investment.

Change begets change and this trend is likely to accelerate. Imagine if all investors invested with purpose as well as for profit.  A shift along these lines could make a dramatic difference.

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If you’re interested in this subject, you may like to read our blog about Investing With Purpose

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