Taking meaningful steps towards sustainable investing

Recently, the eyes of the world have been on Scotland. More than 25,000 delegates, including world leaders and environmental campaigners, recently gathered in Glasgow for COP26 – the UN Climate Change Conference. For many, it’s the last chance to agree... Read more

Blog23rd Nov 2021

Recently, the eyes of the world have been on Scotland.

More than 25,000 delegates, including world leaders and environmental campaigners, recently gathered in Glasgow for COP26 – the UN Climate Change Conference.

For many, it’s the last chance to agree the practical steps to prevent dangerous rises in global temperatures. The message from COP26 is that all of us, every country, company, financial institution and individual, must change their behaviour before it’s too late.

At AAB Wealth, we’re looking at the small but meaningful changes that we can make. In this article, we discuss what COP26 means for your investments and how we’re aiming for sustainability without compromising on performance.

One minute to midnight

The stark warnings ahead of COP26 (such as Boris Johnson’s message that the world is at ‘one minute to midnight’) are more than mere hyperbole. It’s clear more action is needed to keep climate change under control.

COP26 has four goals: mitigating
the impact of climate change (limiting temperature rises to between 1.5–2°C); helping communities and natural habitats around the world adapt</strong>; unlocking billions of dollars in climate finance to support developing countries; and encouraging collaboration between all nations to tackle the problem.

Central to these goals is reaching net zero (not putting more greenhouse gases into the atmosphere than can be removed). The UK’s strategy to do this, released in the last few weeks, includes banning sales of new petrol or diesel cars by 2030, switching to clean power by 2035, grants for homeowners to switch away from gas-fired boilers, and making the country a leader in ‘zero-emission aviation’.

In the first few days in Glasgow, as well as more nations signing up to a net-zero future, leaders have agreed to end (and reverse) deforestation by 2030 and curb methane emissions.

Investing your way to net zero

How to pay for the net-zero transition is a major part of COP26. This is particularly the case for emerging and developing economies, which suffer the most extreme impacts from climate change.

To ‘unleash trillions in private finance’, every financial decision needs to take climate into account. Everything from government stimulus packages to individual investor decisions on where to put their money.

The COP26 Private Finance Hub (headed up by former Bank of England governor Mark Carney), has set out a framework to help all investors put climate at the heart of their decisions, including:

  • Reporting – giving investors more information by improving the quality of climate-related disclosures (details of exposure to climate-related risks).
  • Risk management – ensuring the financial sector is able to accurately measure and manage climate-related financial risks.
  • Returns – helping identify the potential investment opportunities in transition to net zero.
  • Mobilisation – increasing flows of private finance to developing economies, by encouraging new market structures and connecting available capital to investable projects

What we’re doing

We last wrote about sustainability back in March, focusing on how your pension can support a more sustainable world by taking account Environmental, Social and Governance (ESG) factors.

We’ve looked carefully at what we do from a sustainability perspective and, in particular, how we can incorporate ESG more into the investments we offer our clients. We’re not claiming to be greener than green, but we’re moving in the right direction.

This means looking at our core portfolio’s environmental impact (for example, the greenhouse gas emissions of fund holdings), as well as other common ESG and sustainability issues, such as exposure to factory farming, tobacco production, or whether a company’s activities put a strain on water resources and biodiversity.

Small, careful steps

We’re writing to our clients this month to let them know more about what changes we’re making to help make our core investment portfolio more sustainable. The key for us is small, careful steps – but ones that will ultimately lead to making a real difference.

Change doesn’t happen all in one go. In everyday life, we make trade-offs on our sustainability choices. For example, we’ll recycle more, but use air travel for a foreign holiday.

It’s the same approach for investing. That means we’re cautious not to throw out the baby with the bathwater. Our core investment portfolio has a slight tilt towards ESG – a lighter shade of green if you like – making sure not to sacrifice performance or higher charges as a result of any changes.

Other firms will offer ESG investing as an alternative option, or an added extra to their default package. We don’t believe that’s the right way forward. For us, ESG is the default option – we don’t want to give our clients an alternative that might carry additional risk, or higher costs.

Instead, we’re able to stick with the investment philosophy we know and trust, and help move our clients towards greener, more sustainable investments.

Speak to us if you’d like to find out more about our approach to sustainability.

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