Profit from principles
INVESTING has primarily been about making money but in recent years there has been a big push to encourage people to do so in a socially responsible way too.
In a bid to make the world a better place, ethical investors aim to put their money into businesses with high environmental, social and government (ESG) standards.
They also shun so-called “sin stocks”, companies involved in gambling, alcohol, pornography and weapons, or whose activities damage the climate such as oil, gas and mining companies.
This year’s extreme summer weather has focused minds but the returns from ethical investing are volatile and last year valuations crashed.the MSCIWORLD ESG Leaders Index plunged almost 20 per cent in 2022 as war in Ukraine and the energy shock sent investors piling back into oil and gas, although the index has recovered this year.
Deciding what is ethical and what is not has never been easy and big businesses that have rushed to embrace today’s “woke” agenda have come unstuck.
Sales of US beer Bud Light collapsed after maker Anheuser-busch’s partnership with trans influencer Dylan Mulvaney triggered a conservative boycott of the country’s most popular beer.
The company is looking to distance itself from the campaign but Laura Hoy, ESG analyst at Hargreaves Lansdown,
said: “It is committed to choosing spokespeople to drive social change, so has some work to do here.”
FTSE 100 stalwart Unilever also made noises about being socially responsible until it emerged it has made over half a billion pounds from selling its products in Russia since the Ukraine invasion.
ESG is a particular minefield when it comes to the arms trade, which many investment funds shun altogether.this deprives defence firms of the capital they need to develop weapons that will deter the world’s dictators.
Charles Woodburn, group CEO of UK defence firm BAE Systems, has argued that excluding his company and others from responsible investing portfolios is puttingwestern democracies at risk.
FTSE 100 oil giants BP and Shell come under constant fire from climate change campaigners but last year’s energy shock sent their share prices flying and hammered returns on ESG funds that shun the fossil fuels sector.
Dzmitry Lipski, head of funds research at Interactive Investor, recommends the ishares Global Clean Energy ETF for those who want exposure to renewables, but warned that the sun will not always shine on this sector.while the exchange traded fund has returned an impressive 125 per cent over five years, it has plunged 17 per cent so far this year.
Lipski said ESG funds may not work for those who want to generate income. “They have low weightings to the energy and industrials sectors, which are good sectors for dividends, so make sure your portfolio remains well diversified.”
Juliet Schooling Latter, research director at Fundcalibre, tips JPM Climate Change Solutions, which invests in firms involved in sustainable construction, transport and energy. Launched in June 2021, it has fallen 6 per cent this year.
Laith Khalaf, head of investment analysis at AJ Bell, suggested spreading risk with a diversified international fund such as Liontrust Sustainable Future Global Growth.this has returned 50 per cent over five years, but is down 7 per cent over the last 12 months.
Those who are tired of everything woke may be tempted by an investment fund called the BAD ETF that targets gambling and alcohol stocks.thevice ETF also invests in a portfolio of sin stocks.
Responsible investing is a worthy goal but make sure you understand both the risks and rewards, as your retirement income must be sustainable too.