How the Ukraine war could change how you invest forever – what you need to know | Personal Finance | Finance

Making money isn’t enough anymore. Now company bosses are being charged to save the world at the same time. So are investors. This could change the way you invest your pension and Isa – forever.

ESG investing is today’s hottest investment trend, and the Ukraine war has only made it hotter.

As Vladimir Putin brutalises Ukraine, Western companies have been doing their bit by pulling their operations out of Russia.

Some did it willingly, in protest at the invasion. Others were compelled by sanctions or fear of negative PR and customer boycotts.

There is going to be a lot more of this. Shareholders and social campaigners are putting greater pressure on companies to do good in the world.

That’s going to affect how you invest, too.

ESG stands for “environmental, social, and corporate governance”. If that sounds like meaningless jumble of words, well, it is. One thing the ESG industry is lousy at is describing what it does.

I still prefer the original name, which is ethical investing.

What it means is that when the investment fund managers running your pensions and Isas pick which stock to put your money into, they don’t simply look at the bottom line.

They want to know the companies are clean and green, too.

Which is good, isn’t it?

There’s a problem, though. As Kermit the frog identified years ago: It’s not easy being green.

How do you assess whether a company really is a force for moral good? Everybody has different ethical criteria, after all.

Some analysts get around this by screening out the bad guys – such as companies involved in fossil fuel exploration, tobacco, pornography, child labour or weapons.

That sounds easy enough, until you think about it. Yes, BP, Shell and the rest are polluting the planet but right now, we can’t do without them.

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Another problem is that many companies only pretend to be clean, and are faking it to get the ESG stamp of approval. This is called green washing, and makes choosing ethical companies even harder.

Investment fund managers have piled into ESG, launching fund after fund, to catch this latest trend.

Most have never shown a shred of interest in ethical investing before but are jumping on the bandwagon, for fear of missing out.

It’s not a pretty sight.

I have one final worry. Investing is cyclical. ESG had a good 2020, boosted by pandemic fears, but investors who got sucked in by the hype lost money in 2021.

There’s nothing “good” about that.

ESG will change investing forever. Just not always for the better.