With climate change high on the global agenda, I’ve had an increasing number of clients looking to put their money into companies they believe are doing the right thing for the planet, for example those involved in areas such as renewable energy or sustainable transport, while steering clear of the bad guys, such as those featured on The Guardian’s list of 20 firms behind a third of all carbon emissions released just this week.
While ethical investing used to be considered a bit unrealistic, and often involved compromising on returns, it is very much moving into the mainstream. The ethical market now comprises some 4,000 funds with investments totalling US$1.8trillion which appeal to both consumers and businesses alike. If you need proof of a sea change in attitude to ethical investing, take a look at this statement from Huw Evans, Director General of the Association of British Insurers:
‘Insurers are at the forefront of dealing with the impact climate change has on communities and infrastructure all over the world. They want, and need, to be part of the solution. The biggest thing the industry can do is to use its sizeable investment portfolios to move funding away from things that are polluting the planet and into greener initiatives.’
I don’t think we would have heard a statement like that from such a big hitter even five years ago.
There are many acronyms, abbreviations and buzzwords flying around within this sector. The most widely used of these is ESG investing. In this sense ESG stands for Environment, Social and Governance representing the different filters used by those who invest in the ethical sector to support positive change. Environmental factors include carbon emissions, climate change, water usage and biodiversity, social relates to a company’s policies towards communities and its staff, taking account of areas such as wages and rights as well as human rights in emerging markets, and governance relates to how the management team, CEO and board manage the company taking into account factors such as diversity, executive pay, conflicts of interest, transparent accounting and shareholder rights. Of course, no single company will be perfect on all counts and your choice of investments will reflect the issues that you feel most strongly about.
It’s important for investors to be aware of greenwashing, a phenomenon which has arisen as ethical investing has become more popular. Greenwashing is essentially a marketing exercise in which companies exaggerate their green credentials. Some of the largest oil and gas producers, for example, are accused of giving the impression that they are switching from fossil fuels to renewable energy while in reality investment in renewables is dwarfed by the billions that they continue to pump into oil and gas extraction. That’s one reason why it can be confusing for those looking to invest ethically. How can you separate fact from fiction?
Our investment management partner, Tilney, take this issue very seriously and even have an Ethical Investing Specialist whose job is to sniff out the truth behind ethical claims and what he dubs ‘the green maze’. His advice is pretty direct: ‘Don’t assume they do what they say on the tin.’
Obviously, the gold standard of investment marries good investment return with a positive impact on society and the environment, and with expertise such as that acquired by Tilney constructing a portfolio which combines the two is no longer a pipe dream.
If you want to do some good with your savings and would like guiding through the green maze, why not come and have a chat with me? I would be happy to review your portfolio with you and suggest how you can make some positive changes to align it with your social and moral values and continue to build your wealth with sound investment returns.
I started in the financial services industry back in 1995 and I am now the Country Director of Infinity Financial Solutions (Cambodia) Limited, specializing in corporate and individual medical and general insurance needs along with expatriate financial planning.