Our Managing Director Mark Woods, shares his thoughts on the importance of Ethical and Sustainable Investing.
Ethical investing requires screening your investment universe (funds, shares etc.) against a series of factors that meet your ethics or values as an investor.
Screening has historically been ‘negative’ in that you might screen the options to eliminate companies that are involved in fossil fuels, tobacco or arms for example. Ethical investors may also be prepared to accept lower returns to invest with a clear conscience. But here’s the problem…
Negative screening can create an absurd situation that is difficult to reconcile for many investors. For example – BP, Shell, Chevron & Exxon Mobil are oil companies that would invariably be screened out of an ethical portfolio, yet they are some of the largest investors in new renewable green energy in the world.
This dichotomy has led to the birth and growth of Sustainable Investing.
Sustainable investing is about meeting the needs of the present without compromising the ability of future generations to meet their needs. In short, it’s about taking the long-term view, with regard to returns, risks, environmental and social impacts. It does not assume that investors should have to accept lower long term returns.
There is considerable overlap between Ethical & Sustainable Investing but the latter tends to sit well with the forward thinking investor.
Environmental, Social and Governance (ESG) investment principles straddle both codes and institutional investors are driving the change in culture required within companies to adopt these principals. They simply screen out the companies that don’t adopt their principles and don’t invest in them.
The tide of change has momentum in this area and that will be strengthened by the excellent performance of Sustainable Portfolios through the COVID-19 pandemic relative to traditional investments. Global governments are also committed to spend trillions of US dollars to help their economies recover and a large proportion of these funds will be heading into sustainable investments.