Ethical Investing  

Ethical investments still on trend

Ethical investments still on trend

Good Money Week might be over, but the drums of ethical investing continue to bang loudly.

 

Last month, fashion giant Gucci made known its intention to stop selling fur by 2018 – committing to a sustainable fur-free future.The company is owned by publicly traded company Kering, which featured in the 2016 Global 100 Index, which ranks the world’s most sustainable corporations.

Gucci’s resolution is just one example in a line of many, showing the rising popularity of companies wanting to show they care about environmental, societal and governmental (ESG) issues as much as they care about making money. This trend is big in mainland Europe and America.

 

Sustainable investing

However, in the UK the take-up of sustainable investment strategies has been slower than anticipated, according to fund manager Liontrust.

This is despite the UK being a leader in developing sustainable investment as a service and an industry.

As a concept, sustainable investing generally refers to buying stocks and bonds, but carefully selecting companies that match a criteria based on their impact on stakeholders, or de-selecting companies that contravene this. It can, however, be defined in different ways by different people and encompasses more esoteric areas such as ESG, ethical and impact investing.

Peter Michaelis, who leads the Liontrust sustainable investment team, said: “In the UK we have seen it grow more slowly than we would have anticipated, particularly when compared to regions like [mainland] Europe, where we have seen really rapid growth and the take-up of sustainable strategies by institutions and pension funds.

“In the past few years we have seen a rapid increase in the US, where the ideas behind sustainable investing has gained traction and there is big growth there. The UK has been a leader in developing sustainable investments as a service and an industry. The growth has been positive and every year it has grown, but it has not taken off to the same extent.”

Key points

  • The UK is a leader in developing sustainable investment.
  •  CFA is reviewing ESG content in course curriculum.
  •  The challenge for investors is how to decipher whether a fund truly incorporates an ESG strategy.

Investors are often hesitant towards sustainable investing owing to concerns about performance. Many believe returns have to be sacrificed.

Mr Michaelis added: “There is a perception among many people, particularly financial advisers, that sustainable or ethical investments do not give you enhanced investment returns. But that will change the more it is demonstrated through performance.”

Mr Michaelis’s team compares its funds with peer groups or mainstream benchmarks. Its £681m multi-asset Sustainable Future Managed fund sits in the IA Mixed Investment 40-85% Shares sector, and is first quartile over all time periods. On a five-year view, the fund has returned 80 per cent versus a 54 per cent sector average, according to FE Analytics.

“There’s a growing amount of evidence from fund performance that sustainable funds do deliver superior investment returns, and it is not just in equities. Our corporate bond fund has performed over a 10-year period,” Mr Michaelis said.