Investors go for woke
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AS CONCERNS about global warming and the damage we are doing to the planet continue to grow, investors are being encouraged to do something about it.
Growing numbers say they plan to increase their exposure to companies with strong ethical policies, with the young particularly keen.
There is a long way to go, though.the UK’S first ever ethical investment fund, Friends Provident Stewardship, was launched in 1984, but the sector remains a tiny proportion of the investment world.
Amid concern for everything from cruel farming practices to plastic in the ocean, are we about to witness a sea change?
Almost half of UK investors expect to increase their exposure to companies prioritising environmental, social and governance (ESG) over the next three years, according to research from online investment platform Charles Stanley Direct.
However awareness remains low, as many investors admit they are still not even aware of ESG.
Any confusion is forgivable, given that the sector goes by a number of names, variously called ethical, green, and another acronym, socially responsible investing (SRI). More than four out of 10 have at least some exposure, rising to almost two-thirds for those aged 44 and under, with the over 55s more sceptical.
Charles Stanley Direct has launched an Investing with Conscience knowledge hub to raise awareness, and its investment analyst Rob Morgan said the industry needs to demonstrate the positive impact it can have: “People want to invest their money safe in the knowledge that it is delivering for their financial future, as well as the global good.”
Patrick Connolly, chartered financial planner at Chase de Vere, said the belief that ethical investors have to sacrifice performance is changing: “Many ethical and ESG funds are now performing well and there is an argument that sustainable businesses doing the right things should deliver better long-term returns.”
Ethical companies are more likely to be smaller, by nature, and tend to outperform markets when large energy stocks such as oil companies struggle, as they are today, although this may not always be the case.
If interested, Connolly tips investment fund BMO Responsible UK Income, which targets quality growth companies with a clear commitment to sustainability.
He also flags up Janus Henderson Global Sustainable Equity, which invests in companies rising to the challenge of climate change, population growth, resource constraints and ageing populations. “It is one of the best performers in its sector,” he said.
Connolly highlights Rathbone Ethical Bond fund: “It shuns armaments, animal testing, tobacco, nuclear power and predatory lending, instead targeting, say, disabled charities, companies employing ex-offenders, and sports centres in deprived areas.”
Chelsea Financial Services managing director Darius Mcdermott said 2019 was the year the world woke up to climate change and this is fuelling interest in ESG and SRI: “Having morals does not mean sacrificing investment returns, as many ethical funds have outperformed global markets for some years.”
Mcdermott tips Pictet Global Environmental Opportunities and the recently launched Investec Global Environment, which invests in companies that can work to keep global warming in check.
“I would also recommend Edentree Amity UK, as the group is one of the pioneers of responsible investing, and its research capabilities are second to none.”