For the last year or two, I’ve been managing the doubts other people have about sustainable investing.
I’ve crafted responses to objections, solutions to problems, and championed the positive benefits to anyone listening. It’s a pursuit I’ve trained a lot for.
If you think this dedication to the cause is underpinned with an unerring conviction that sustainable investment will save the world like a knight on an EV charger, you’d be wrong. Even I sometimes hit the wall. Here are a couple of the questions I’ve experienced recently, and my responses.
Can we get past negative returns?
In recent months, rampant inflation and Russian aggression has created a storm for your average sustainable portfolio vis a vis its less clean and green peers. It was very easy to advocate sustainable investment in 2020, when strong performance was the icing on the cake to all the other reasons to consider investing in this manner.
In these tougher times however, I see some sustainable fund managers talking about trade-offs and ways to diversify their portfolios. Some investment houses seem to be highlighting their more diversified, less exclusionary ESG-light portfolios over their more selective sustainable options. Others are adding sustainable value or income funds/stocks to portfolios to dilute the tilt towards growth stocks, while others talk of using AI to pick the ESG holdings, as perhaps that might work better than human choices.
This is an observation more than a criticism and, in some ways, I am glad that we have had this downturn to deal with. I share the concern about delivering value and good results to clients and seriously consider risk and diversification when weighing up funds from the spectrum of sustainability.
When the short-term red numbers rattle me a little, I think of the green and of the longer term. I don’t need to tell anyone reading this that all asset classes and sectors have their day in the doldrums and their day in the sun. Moreover, I have always advocated that a sustainable portfolio investing in themes that strive towards a better world are a long-term commitment (lets’ set the timer at 7 years minimum?). If we can only make money from oil and tobacco, there isn’t a lot of long-term hope for man or market.
Can sustainable investing really make a difference?
My enthusiasm about the possibility that finance might fund serious climate action is what gets me up in the morning. This hope is however under frequent attack from many directions. On the one side, you have those people actively fighting a climate emergency who say finance is just about profits and maintenance of a system that is breaking all planetary boundaries. On the other, you have current or former ESG professionals (Tariq Fancy, ex BlackRock perhaps the most notorious) who pretty much say the same thing.
If you adhere to their views, then the whole issue changes. You don’t make a difference by nudging as many people as possible into sustainable investment funds, you need instead to change what sustainable funds are investing in.
Listening to impact-seeking potential investors and to my own gut, I don’t see investment in Microsoft, Nestle or Paypal as the most obvious way to do my bit for the environment and society. I do however believe it’s necessary to encourage best practice in the corporate world and to help direct the flow of the huge sums of capital invested in public companies along a positive channel. The transition to a low carbon economy and a UN SDG aligned society is an ultra-marathon for humankind to run. As advisers or investors in funds, we are the bystanders, clapping and cheering the runners along. We have to show up and shout loudly.
Every time I have a concern about the sustainable credentials of a company held in a fund or the wooliness of a claim to be achieving change through engagement, I show up and I shout. I ask questions about the whys and the wherefores and on most occasions, I get very prompt, honest, intelligent responses. These are like a water stop, they don’t get me to the finish line faster, but they sustain me enroute.
Will clients be interested in sustainable investing?
Well, many surveys say yes, although my personal social media and everyday conversations suggest that many people don’t want to be the first to put their hands up or to compromise too much on their usual habits and benefits.
Recently however, I had a conversation with an adviser that I found very reassuring. The majority of clients in their firm have not yet seen the green light, but this particular adviser has seen an increasing flow of interest in sustainable investing. I asked why this was and the answer was simple, the adviser askes the right questions and makes the client feel comfortable talking about their values. Knowing this adviser well, I believe she will instil trust and be seen as a person with strong values, who is not shy about sharing them or acting on them. I think this empowers the client to express their own preferences.
These are clients who have worked hard all their lives to accrue wealth and are now enjoying the fruits of this in retirement. Their race is already run, and they are happy to apply their wealth to help set a better course for the next generation.
It’s important to remember that investing for growth is a marathon, a long-term endeavour, but feeling good about yourself and your financial intentions and actions is instantaneous. That’s an immediate benefit we can offer our clients.