Investors vote with their money before Cop26
Anyone who still believes that climate change is anything but fundamental in our financial lives should probably look away now.
From commodity values to current account choices and everything in between, the preparation for Cop26 and Good Money Week came with a clear message: claiming that a strong environmental, social and governance position is somehow a good thing to have is not only worryingly obsolete, it is actively damaging.
And the country’s investors know it.
Today, more than 80 per cent of adults have some kind of pension, either an automatic workplace affiliation scheme or a private scheme. That’s over 42 million people ordering on average just under £ 43,000 each, according to comparison site Finder.
Collectively, it’s a lot of money – £ 2.6 trillion in silver. And 90 percent of that group want their money invested in companies with strong environmental, social and governance records, according to a new study by another comparison site, Nerdwallet.
Importantly, eight in ten also said they would dispute their pension being invested in an unethical fund or company, even if it offers a good return.
Meanwhile, providers like Hargreaves Lansdown report that inflows to responsible funds on its platform have increased by 6,000 over the past five years.
“2020 has been a record year for [cash] is pouring into sustainable, ethical, ESG and impact funds, ”says Emma Wall, head of investment analysis at Hargreaves Lansdown.
“Strong relative and absolute performance has helped push funds into the eyes of previously skeptical investors, while the pandemic and associated lockdown have put environmental and social issues high on the current agenda.
“Opponents call it a bubble, but many companies held in responsible investment funds – both active and passive – are the beneficiaries of long-term structural trends. Yes, the past 18 months have accelerated some social and economic movements, but the new normal of e-commerce, low-carbon households, flexible working, reuse and repair is here to stay – and so are investors. holding companies accountable for their actions and impacting. “
But the huge gap between intention and reality looms on the horizon. According to the Nerdwallet study, only 11 percent of retired investors have specifically chosen ethical funds and 85 percent have no idea where theirs are invested at all.
Much of the gap is mistrust.
While consumers are keenly interested in the potential power of their investments to effect positive change, many are cautious of the lack of clarity from banks and financial institutions on how their money is being used, warns ethical bank Triodos.
Seven in 10 investors want more knowledge and transparency about where their money is invested, up from 65% in 2020, while eight in 10 think all banks and financial providers should be more transparent about where they are going. people’s money.
Most consumers now think vendors are not helpful when it comes to revealing what their money is being invested in.
“[W]ith many different investments labeled as ‘ethical’ or ‘sustainable’ it can be difficult to sift through greenwash to find funds that actually deliver the impact investors expect, ”says Gareth Griffiths, head of the bank of retail at Triodos Bank UK.
“Looking at freelance websites and researching which companies a fund invests in can really help you understand how sustainable the product really is and what aligns with your values.
“To overcome consumer skepticism, fund managers also need to draw clear lines and limits on what is sustainable and what is not – for example on fossil fuels, weapons or food and water. ‘Agriculture. In the absence of clear product labeling or guidelines, they must be transparent about their approach and align their investment choices with the United Nations sustainable development goals. An active engagement in the management of the fund is also essential to really show the positive impact of the investment.
Investors, as well as savers and consumers, can begin to avoid greenwashing by looking for companies, funds and products with a strong ESG track record, a high proportion of ESG oriented products and services, and high levels. investment in sustainable research and development.
Melissa Scaramellini, head of ESG fund research for investment manager Quilter Cheviot, likes the BMO Responsible Global Equity Fund, Regnan Global Equity Impact Solutions of the Future World fund and legal and general strategy.
“The [BMO] The fund seeks to avoid companies that have harmful or unsustainable business practices, and instead favors companies that make a positive contribution to society and the environment. The team also encourages the adoption of best practices for managing ESG issues through engagement and voting.
“BMO has a large and well-staffed responsible investment team that works alongside the Global Equities team and engages on behalf of BMO’s Responsible Engagement Overlay service. We believe that there is a rigorous approach to ESG integration in the analysis and valuation of investments, as well as in engagement with companies. “
She likes the Regnan Fund for its investment in “mission-driven businesses that have a positive impact on people and the planet”. The team seeks to identify emerging growth opportunities and take advantage of market inefficiencies in pricing long-term system changes.
“The portfolio is concentrated in 20 to 50 global companies that provide a solution to one of the Sustainable Development Goals (SDGs). We like the thoughtful approach taken to assess positive and negative impacts and the fund’s focus on social and environmental issues.
Meanwhile, although some have criticized Legal and General Investment Management’s Future World strategy for including companies that other sustainable funds exclude, it underscores the policy of naming and humiliating the companies it engages with. to highlight both those that take action and those that fail. do this. Latecomers can be excluded from their Future World strategy and voted against on behalf of all of LGIM’s assets under management.
“We believe this allows LGIM to engage with more companies to improve their ESG practices, with the potential to be left out of the Future World strategy being used as an added incentive for those who don’t want to change,” adds she argues, “you can’t engage with businesses if you don’t own them”.