The majority of our clients hold traditional investment portfolios through their Pensions, ISAs and other investment ‘wrappers’. However, more and more are opting to place some or all of their funds into ‘sustainable’ investments.

Sustainable investing has been gathering momentum in recent years as Discretionary Portfolio Managers (DPMs) have launched model portfolios to the mass affluent market through the largest pensions and investment platforms. Why? According to research by Scottish Widows:

  • 81 per cent of those surveyed thought that ‘we all have a responsibility to make the world a better place’
  • almost half would accept slightly lower returns to make ethical choices
  • more than 60% said sustainability was an important issue to them

The sustainability shift gathered further momentum through the global coronavirus pandemic in 2020/21 as the convergence of political and regulatory pressures, technological advances and people preferences have forced sustainable investing into the mainstream.

Yet only a tiny fraction of our global wealth is currently invested sustainably.

What is Sustainable Investing?

At the time of publishing this piece, Sustainable Investing still did not have a clearly defined generally accepted definition from the regulator, the Financial Conduct Authority (FCA). Investment managers and commentators have been grappling with definitions, but the truth is, it can mean different things to different people.

Broadly speaking, sustainable investing encompasses:

  • Believing in and supporting our shared societal evolution and planetary progress.
  • Creating momentum to encourage more and more people to ‘opt in’ to a better future for all.
  • Recognising that companies solving the world’s greatest challenges can be well positioned to grow and investing in them.
  • Supporting and investing in companies that are pioneering sustainable future technologies and better ways of doing business.
  • Investing in companies that are striving to mitigate their environmental (E) impact, improve their social (S) impact and implement strong and ‘fair to all’ corporate governance (G) policies. Environmental, Social & Governance (ESG) practice is becoming a key driver that will define the leading corporations of the future and is here to stay.

Furthermore, whilst the above are key considerations when investment managers are researching  companies in which to buy shares or corporate bonds, they may also have regard to a number of the United Nations Sustainable Development Goals in their decision making process.  These are:


Where do sustainable portfolios sit?


Typically, portfolio managers will apply the following approach to their fund procurement process:

  • Exclusions – funds that seek to exclude companies involved in areas such as tobacco, arms, fossil fuels, gambling and adult entertainment.
  • ESG Leaders – funds investing in companies that are industry leaders in integrating ESG factors into investment decisions and stewardship activities.
  • Impact – funds seeking out the companies that contribute positively and measurably to social and environmental challenges.

At Watermark we have no ties or allegiance to any investment fund managers or DPMs.  We utilise numerous across the UK market and for sustainable portfolios, although still in its infancy, we have access through companies such as Brewin Dolphin, Hawksmoor, LGT Vestra and Tatton.

In the video below, Phoebe Stone of LGT Vestra explains more about sustainability and some compelling investment opportunities:

Listen to a sustainable portfolio manager explain more in this video.

How can we believe a fund or portfolio is truly sustainable?

Being a qualified investment analyst as well as a financial adviser, our Managing Director, Mark Woods, maintains a healthy scepticism of any new theme and actively looks for the flaws and pitfalls.  The key issue as he sees it is companies exaggerating their ‘green credentials’ in a process known as ‘greenwashing’.

For example, you could invest into a company which, in itself is 100% green, has a positive environmental impact with tremendous ESG practices, yet it generates 100% of its income from highly pollutant companies.  Therefore, some fund managers may limit the amount of a company’s income from secondary polluters to perhaps a maximum of 5%.  And so on.

So, we don’t believe many solutions are truly 100% sustainable at the moment when you consider all the possible sources of revenue generation and suppliers to large organisations, but the model is developing and pressure is on supply chains and customers to adopt their own ESG & Sustainability Policies.

In time, the investment management industry will become more and more granular in reporting such data to inform decisions and build greater trust with investors. For the time being, we have a number of DPM partners that are delivering what we believe to be reliable sustainable investment portfolios for our clients.

Of these, the longest standing option is the Tatton Ethical Portfolio range which was launched in 2014.  The chart below illustrates performance of the Balanced portfolio (risk rated 5 out of 10) from its launch date to 4th June 2021 and it compares well with some of the more traditional portfolios our clients have also invested in over that time frame.

The next chart includes the LGT Vestra Sustainable Balanced and the Hawksmoor Moderate Sustainable World portfolios from November 2018 when the former was launched.  This takes in almost 2 ½ years of performance and crucially the major global stock market disturbance caused by the pandemic in 2020:
All three of the sustainable options compare well to the traditional options shown. This good relative performance may not continue as past performance is not a guide to the future. Perhaps, however, we may not have to accept worst performance over the longer term by investing with our hearts and in line with our moral compasses.

Our Environmental, Social, Governance (ESG) Sustainability Values

At Watermark, we recognise that we are a small business and our impact will therefore be limited, but we strive to make a difference in the part of the world that we can influence to improve our footprint and legacy.  We have developed a number of core sustainability values to which we hold ourselves accountable:

Mitigating our environmental impact

  • Recycling all office waste - plastic, paper, card, metal & food.
  • Eliminating single use plastics.
  • Reducing energy consumption.
  • Adoption of video based meetings to reduce travel where possible.
  • Getting involved with the local beach clean.
  • Moving towards electric vehicles where practical.

Enhancing our social/community based impact

  • Investing locally and creating jobs and training for local people.
  • Offering apprenticeships with structured career progression with the local secondary school.
  • Getting involved with and supporting local charities, clubs and associations.
  • Supporting the local Chamber of Trade to have a positive influence on our town.
  • Lobbying local councillors to make the town a better place.
  • Conducting ad hoc pro bono and reduced fee based work for less fortunate people and charities.

Delivering strong corporate governance and a culture of 'fairness to all'

  • Strong leadership which embraces the regulatory environment in which we operate.
  • Developing a people culture that puts client interests before profit and embraces what we stand for.
  • Rewarding our people based on knowledge development through professional qualifications.
  • Treating our people equally.
  • Ensuring fair treatment and equal pay for equivalent roles of our people irrespective of gender or ethnicity.
  • Strong employee engagement giving them a say in the future of our business.