It’s not so long ago that sustainable investing was a niche interest, with a handful of funds easing the consciences of green and socially-aware investors while everyone else got on with maximising their returns.
That’s no longer the case. Environmental, social and governance (ESG) issues are increasingly mainstream and professional and private investors alike are realising that sustainability is a key part of the investment process.
Financial and social returns are no longer viewed as an ‘either/or’ choice. More than that, doing the right thing by your employees, customers and, indeed, the planet is seen as a key indicator of future commercial success too.
Today’s announcement by the UK government of a new green finance strategy is an important part of this shift in the City’s thinking. The government is to set expectations for listed companies and large asset owners to report on their climate risks by 2022. It’s not been decided yet, but that might go as far as making climate disclosures mandatory.
The best investors - Fidelity included - have already built ESG considerations into their analytical process. They have twigged that a company on the wrong side of fast-changing environmental, social or governance norms is unlikely to be a good investment in the long run.
As my colleague Emma-Lou Montgomery said recently: ‘today we are all more aware of how our lifestyles impact the world around us. There’s a growing demand for accountability and sustainability’.
She interviewed Ned Salter, head of shares research at Fidelity International, who told her: ‘we think of sustainable investing as a set of principles that we’ve added into the investment process to help investors make better decisions to deliver financial return together with total social return.’
So ESG investing is not just a nice to have. It is essential to successful long-term investing.
Persuading investors to back companies making a positive contribution is a key part of the government’s commitment to reducing the UK’s carbon footprint. Ministers on both sides of the House are committed to cutting carbon emissions to ‘net zero’ by 2050. Meanwhile Sir Ed Davey has made climate change a key element of his pitch to lead the Liberal Democrats.
As the Chancellor, Philip Hammond, said this week: ‘meeting our objectives will require unprecedented levels of investment in green and low-carbon technologies, services and infrastructure.’
We are not starting from scratch, of course. Many companies already include some disclosure of climate risks in their reports. And many investors are pushing them to go further. The pensions regulator described climate change as ‘a core financial risk impacting broadly across business.’
At Fidelity Personal Investing, we are getting behind the new way of thinking about our investments. We recently launched an ESG hub on our website to help investors navigate the growing universe of funds which explicitly aim to invest on the basis of environmental, social and governance criteria.
Our latest edition of the MoneyTalk video series also had a focus on sustainability in its broadest sense. We believe that sustainability is about much more than green issues, important as these are. Sustainability is about finding investments that will last, able to navigate the changing world we live in and capable of seeing us all through longer working lives and, hopefully, longer retirements too.
The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. The Investment Manager’s focus on securities of companies which maintain strong environmental, social and governance (“ESG”) credentials may result in a return that at times compares unfavourably to similar products without such focus. No representation nor warranty is made with respect to the fairness, accuracy or completeness of such credentials. The status of a security’s ESG credentials can change over time. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.