Investments  

ESG trends translate from US to UK assets

UK-based investment advisers agree. According to Chelsea Financial Services’ Ryan Lightfoot-Brown, senior analyst at the company, younger people in particular are voting with their feet in-store and with the money in their portfolios.

In an FTAdviser podcast, Mr Lightfoot-Brown commented: “Greta Thunberg’s generation is more media-savvy nowadays, so any standards not acceptable to ESG investors are going to be highlighted much more, and disseminated quickly on social media.

“This has a double effect — from consumers who want to distance themselves from companies with poor ESG, and at the board and director level, as they don’t want to be in charge of a company called out in the media.”

His view is that people don’t want to invest in a company that could put itself at risk of being on the wrong side of the climate change argument.

 

Additionally, ESG strategies and funds specifically investing along ESG lines in the UK have strongly outperformed their peers this year.

According to data from Morningstar, as shown in the graph, the top five UK retail ESG funds have shielded investors from the market falls experienced during the Covid-19 outbreak.

This outperformance was helped by the fact they missed out on the sharp oil price drop that saw the West Texas Intermediate drop into negative territory, briefly trading at almost -$40 on April 20.

The oil price shocks that started in February with a price war between Russia and Saudi Arabia brought blue-chip fossil fuel companies’ share prices crashing down. Having traded above £5 last November, BP share fell to £2.33 on March 18, before climbing back up to £3.20 as at the time of writing.

Mr Lightfoot-Brown commented: “I would say ESG is becoming mainstream investing these days. There are ESG slides in every presentation now.

“But with regards to relative performance, yes — for example, when we see an oil crisis like we are now, there will be a big underweight to that sector in ESG funds, so they will operate better on a relative basis.”

Advisers on the case

Regardless of sentiment shifting on both sides of the pond, there will soon be regulatory obligations coming into force that will force advisers to determine clients’ ESG preferences before any investment portfolio is drawn up.

Impending changes to Mifid II regulations will oblige advisers to incorporate ESG considerations within their suitability assessments, to best identify appropriate investments for investors that take into account the clients’ own ethical views.