Friday Highlight  

Time to start pointing clients to ESG funds?

This is a key example of how ESG strategies including climate change risk mitigation, are now more than ever being looked on as an essential aspect of assessing the viability of a business. It is clearly a growing area and one to watch, but there remain complexities around choice. 

These complexities are explored by Tim Cockerill, investment director of wealth management firm Rowan Dartington.

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“Whereas exclusion of business such as tobacco, armaments and gambling are still important, funds need to have an investment policy that positively identifies businesses helping to build sustainable futures.

"These can be found in a wide range of sectors, from building to agriculture. This is why investors have to do a little digging into how funds select their stocks”, says Mr Cockerill. 

Pragmatism needed

He thinks that investors also need to be pragmatic because business is complex and so are the challenges people face. “Should you invest in a mining company? Mining does damage to the environment, yet if motorists are to switch to electric vehicles, raw materials are needed to build them.”

But this also is where pragmatism does a U-turn back towards ethics. Mr Cockerill adds: “Investment groups who are serious about sustainability get involved in engaging with companies they own and bring pressure on them to improve what they do.

"We may not like the idea of a mining company, but far better to invest in one that has strong environmental credentials and helps build social projects in the countries it operates in such as schools and hospitals, than one that doesn’t.”

Making such choices is about ethics as much as sustainability.  These are two very positive pillars holding up ESG investing rationale. ESG investing helps transform the world, and at the same time it creates better all-round sustainability. 

Ms Zandbergan says: “It is true to say that ESG funds have outperformed in volatile markets, including the crisis of 2008-2009, and turbulent periods in 2015 and late-2018.” 

She concludes: “There are powerful drivers to sustainable investing that suggest that it is here to stay. Societal awareness of environmental issues [together with] regulatory efforts to drive capital towards green investments are set to continue.”

Anita Boniface is a freelance journalist