“The trust in the natural world is changing. And we are totally dependent on that world. It provides our food, water and air. It is the most precious thing we have, and we need to defend it.” David Attenborough
Over the last 10 years we have seen a swing from investing in traditional funds, that have little or no interest in social responsibility, to an era where investors are asking for funds that give back and invest with environmental and social responsibility. Sustainable and ethical investing is no longer niche.
So, when it comes to investing money with an ethical tilt, who has the answers, who do we trust as individuals and what can we do?
Investing ethically can no longer be viewed with a black and white approach. It is impossible for a fund to be 100% ethical so, as with any conflict or problem, the solution is often found in the form of a compromise. Compromise is often a sensible solution as we are not psychologically set up or prepared to give up something completely. Investing in an ethical or sustainable fund needs to be viewed as a spectrum or a sliding scale. For example, a fund may invest in a company that seeks to be socially responsible by choosing to invest in cleaner energy, however, still continues to produce oil as its main profit generation.
It is perhaps the view that capitalism will always win compared to making the greener decision. To counteract this, like any investment decision, we should instead look to the longer term and consider investing in something we believe in, something perhaps that we forge an emotional connection to. American business magnate, investor and philanthropist Warren Buffett, who is renowned for his capitalist view, suggests:
“Why not invest your assets in the companies you really like?”
As actress Mae West also said;
“Too much of a good thing can be wonderful.”
If you believe in the company and its morals, you will always be happy to hold it despite market movements i.e. you should hold a company over the long term. This time also allows the company room to adapt and grow with the ever-evolving economy.
Investor demand alone will not turn the shade of investing from the colour of money to the colour of a green planet. Investors, governments, scientists and environmentalists will all need to work together to unify and become more vocal to help change and support larger corporations to follow the trend of smaller businesses which are currently leading the way. These forward-thinking smaller companies are far better at innovating and identifying opportunities to develop and invest in, that will one day forge a large part of our future. The solutions to a more sustainable way of living are being reached each and every day. Recognising and financially supporting these solutions is the challenge we need to accept and strive to obtain.
With the above in mind, investing in funds that in turn invest in companies that align with your outlook has become easier and there is now a varied choice of solutions. It is estimated that investors now have the choice to invest in somewhere in the region of 1,200 ethical, sustainable and socially responsible funds.
Historically, ethical/sustainable funds were said to be more volatile and higher risk due to the limited amount of companies they could invest in. However, this landscape has dramatically changed, with many ethical funds sitting alongside their conventional and established peers in terms of performance and volatility.
With Governments committed to carbon emissions targets and the Paris Agreement now firmly in place, the race has become more serious in combatting climate change and preventing global temperatures from rising by more than 1.5 degrees. With this in mind, is it more of a risk to not invest in sustainable funds given the increased focus on preserving our planet for future generations?
When considering ethical investments, it is important to really think about what matters to you most. As ethical investing becomes more prominent, it is important to pick out the companies that are making ethical decisions versus companies or funds that are seeking to become more socially responsible. Neither are right or wrong, however you may find that you are more attuned to one strategy over another.
Investing ethically, sustainably or with impact will continue to evolve and integrate into our everyday thoughts, plans and our pockets. Can we create a greener version of capitalism? Creating financial support for our scientists, economists, environmentalists and our children to sit together in one room to create a working solution is essential. For if we don’t work together, the ability to accumulate wealth will be irrelevant in a world where we have no clean air or green space to enjoy it.
Due to the depth of information and reading available when considering ethical or sustainable investing, this is the first in a series of three articles. My next article will include a closer look at the different offerings available whether it be ethical, sustainable or impact investing and the ratings commonly used for individual companies and funds.
“Many individuals are doing what they can. But real success can only come if there is a change in our societies and in our economics and in our politics.” David Attenborough
General Disclosures: This article is based on current public information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. The information, opinions, estimates and forecasts contained herein are as of the date hereof and are subject to change without prior notification. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. The price and value of investments referred to in this research and the income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur.