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Why all investors should think green

Why all investors should think green

The deputy manager of the Hermes Global Equity ESG fund has said all long-term investors should invest their money according to environmental, social and governance principals.

Lewis Grant, who is also deputy manager of the Hermes Global Equity fund, also explained the stocks making up the two funds did not differ from each other as much as investors might expect because he felt ESG investments were better long-term bets, regardless of whether his fund had an ethical focus.

He said: "It comes back to value. Do we think this idea of sustainability will impact a business's cash flow? For example we wouldn't buy tobacco, even if we weren't thinking about ESG, because it is in the vices of regulators.

"I understand the attraction for investors and there have been moments when tobacco companies have outperformed, but ultimately the regulators are coming.

"I think investors should have ESG in all of their investments. You need to think about sustainability. The climate is going to impact a lot of companies and any investment is going to face this risk.

"That doesn't mean you should have a portfolio entirely in solar panels or wind farms but the question is 'why wouldn't you think about this?'."

Mr Grant said an example of this was the Delta Airlines, which was one of the ESG fund's largest holdings.

Though admitting jet fuel is the biggest source of carbon emissions the airline aims to offset its carbon footprint by allowing people to view the environmental impact of their travels and make a donation to support forest protection projects such as The Nature Conservancy.

He said: "The truth is we as a species will not stop flying. I don't see it as a way of stopping climate change, but we need to ask which airlines are going to survive the transformation to a low carbon economy."

The £289m ESG fund invests 57 per cent of its assets in North America while the average fund in its sector, the Investment Association Global, only invests 47 per cent of its assets in that region.

Mr Grant explained the fund was overweight North America despite the US government's scepticism about climate change because of the long-term trend towards combatting climate change.

He said: "It would be easier if there were more positive signals coming from the top of the US but one of the positives of the Trump administration, as well as great economic numbers, is that the states such as California and New York have stepped up, as well as companies, which need to think longer than one or two terms of a president."

Over the past three years, the Hermes Global Equity ESG fund has returned 48 per cent while its sector has returned 47 per cent.

Meanwhile the Hermes Global Equity fund, which also sits in the IA Global sector, returned 52 per cent over the same time period.