Saving the planet and making big companies more responsible are two of the biggest challenges of our lives, which explains why ESG – environmental, social and governance – investing is always at the center of controversy.
The latest squabble, this time at Chartwell, a division of hospitality group Compass, highlights the more assertive mood among those who pursue good returns but also want companies to deliver on ethical and sustainability promises.
Greenwashing, where behavior contradicts claims, will not be tolerated by this group, whose heroes include shrewd investor Warren Buffett, as well as caring environmentalist Sir David Attenborough.
The shockingly meager free school meals that Chartwell provided to underprivileged students brought disapproval from campaigner and footballer Marcus Rashford as well as Boris Johnson.
Now Compass, which has acted on its ESG credentials, is faced with questions about its strategy from fund managers holding its shares, including M&G and Legal & General Investment Management.
This episode follows the announcement that Aberdeen Standard’s ethical funds had interests (now sold) in fast-fashion company Boohoo, whose ties to Leicester’s sweatshops remain controversial.
If, inspired by Attenborough or Greta Thunberg, you were planning to spend some money on ESG this year, you may have a second thought.
It may seem pointless to ensure that your savings are not spent on alcohol, weapons or tobacco, or any other activity that violates your principles, if ESG funds continue to invest in companies with questionable business morals. But here’s why you should keep going.
Against the backdrop of next week’s main Climate Adaptation Summit, in which world leaders will participate, the muscle of ethical managers is expanding, making it more awkward for companies to ignore their views.
Thanks to a strong inflow in 2020, there are now € 1 trillion in these funds across Europe. A poll by US giant Blackrock this week shows that investors plan to double their ESG assets by 2025. ___
Blackrock says this tectonic shift bringing ESG from the niche to the mainstream will be spurred in part by political pressure. Governments, overwhelmed by the pandemic, want to be better prepared for a new emergency.
The UK has pledged to be ‘carbon neutral’ by 2050 (the carbon dioxide emitted from cars, industry and homes will be ‘net zero’; for every tonne produced, one tonne must be removed from the atmosphere).
This clean energy pursuit, along with the Biden administration’s $ 2 trillion eco-policy, adds to the argument that it is more stubborn than idealistic to put money into ethical funds.
Impax’s Environmental Markets Trust owns stocks such as EDP Renováveis (EDPR), a Spain-based renewable energy company, whose stock is up 118 percent in the last 12 months.
Print: Environmentalist Sir David Attenborough
You can build a portfolio of stocks, such as EDPR and NextEra, the clean energy producer, that aligns with your ethics and relies on data from agencies such as the Task Force on Climate-Related Financial Disclosures.
A major company’s sustainability statement should tell you which of the UN’s 17 Sustainable Development Goals it supports.
But this process requires dedication and an assessment of your priorities. Does the desire to avoid fossil fuels mean the exclusion of Shell, which aims to be a net zero emissions company? Electric cars are the future, but throwing away their dead batteries is a problem. Such dilemmas suggest that it is easier to leave the hard work to a fund manager. Darius McDermott of Fund Caliber loves the Impax Trust, the Ninety One Global Environment Fund and the Liontrust Sustainable Future Global Growth Fund (of which I am a holder).
The high-risk options include Baillie Gifford Positive Change and Fundsmith Sustainable Equity. I am also an investor in this fund which, like its competitors, emphasizes its commitment to ‘shareholder engagement’.
Like other investors, baffled by the Compass and Boohoo scandals, I would like all managers to exercise this duty more assertively, be it in dealing with suppliers and employees, or diversity in the boardroom. After all, that’s what we pay them for.
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