This summer’s heatwave provides more evidence that action is needed to control climate change. Despite recent backlash against the ‘woke capitalism’ investors do have a part to play. This doesn’t mean they have to be worse off as a result.
If you’ve spent the summer chained to the pool trying to avoid the searing heat, or even just seen the headlines of wildfires in southern Europe, the impact of climate change seems pretty clear – inescapable even.
The heatwave puts into focus efforts to get a grip on global warming: curbing carbon emissions across industry, greater adoption of greener transport solutions and, in the investment world, moving more money into sustainable and responsible investment strategies.
Even so, despite the rising temperatures (and warnings that this sort of weather will eventually become the norm) there’s been pushback in some quarters at the move towards ‘mission-driven’ investing, especially the theme of ESG (environmental, social and governance). In the US, as reported in the Financial Times, 49 anti-ESG bills have been introduced this year alone.
For the critics, this kind of investing is too ‘woke’ – and focusing on sustainability only compromises financial returns.
What the critics get wrong
It has to be said, this negative slant hasn’t been the response from our clients.
We’ve had very positive conversations with clients who want to know more about the changes they can make to their investments, how they can make a positive impact – and the services we provide that will help them do that.
We think the main reason for that positive interaction is that, yes, we’re serious about sustainability, and yes, our approach is firm wide (more on that in a moment) but, above all, we believe in taking small steps in the right direction – without putting financial returns at risk.
In short, we never lose sight of our primary objective: helping our clients grow their money.
So how can sustainability help?
Sustainability is a very broad topic, and the term ESG has become something of an over-used buzzword. While we don’t ignore social and governance as factors that can impact the profitability of an investment, we’re primarily concerned with where we can make a difference in making the portfolios we offer (and our behaviour as a company) greener.
The table below from our sister company FPM, sets out the benefits that focusing on ESG factors can bring for managing your investments.
||Looking through the sustainability lens can be a useful way for companies to identify potential areas where they can reduce resources and enhance efficiencies. McKinsey has estimated that this can improve operational profits by up to 60%.
||There’s fresh drive for firms to consider their long-term impacts from Millennial and Gen Z customers and investors. Companies that neglect sustainability are losing their younger employees, who are opting instead to work for more sustainability-conscious organisations.
|Reporting and regulatory compliance
||Failing to comply with tougher and more widespread reporting requirements can leave companies with significant fines. In the UK, the Taskforce on Climate-related Financial Disclosures require UK-registered companies to report on their financial exposure to climate risk.
|Access to finance and insurance
||Sustainability-focused financing is on the rise. Companies that consider reputational risk factors and mitigate concerns may be able to access funds more readily than those who fail to embrace ESG.
Find out how ESG can safeguard your future.
Our approach to sustainability
We last discussed our approach to sustainable investing in March 2022. We’ve also written to clients setting out how we’re embracing the drive to create a more sustainable world, making changes that lead to a real difference.
There are two key aspects to this:
The sustainability choices we make won’t come at a cost to returns. Our default portfolios are evidence, not ideologically driven. So, our portfolios will leave out the worst-offending polluters, for example, but may still include the more carbon-conscious oil and gas companies.
Sustainability is firm wide – not just an optional extra
Some firms treat sustainability as an ‘addition’.
Clients can choose an ESG-focused fund in much the same way they might select a fund that’s focused on a particular sector or country. Even if that fund is classed as ‘dark green’ (those investment products classed as having the highest sustainability standards), other customers might as easily be carrying on as normal.
Instead, we’ve made our pragmatic but sustainability-focused approach the default option. Just as a rising tide lifts all boats, we believe having sustainability a common thread through our investments allows us to make more impact.
Making your money count
There are many ways you can help make little contributions to a more sustainable world. It could be thinking more carefully about your travel options (such as more caution over taking long-haul flights or switching to electric car), conserving electricity or water use, or increasing the amount you recycle.
The biggest impact you can have is through your capital.
Pooling your money into shared investments like pension funds, which have millions of pounds under management, means you are adding your voice to influence change at a company level. This can have a greater longer-impact than driving a Tesla for a few years.
Our approach to sustainability is still baby steps in the right direction, but it’s one that we’re proud to be taking our clients on with us.
Speak to us to find out more about your sustainability investment options.
 Source: Ropes & Gray, as reported in the Financial Times