Sustainable Investing  

Guide to sustainable investing

  • Describe some of the challenges over sustainable investing
  • Identify the reasons for the valuation of companies with high ESG ratings
  • Explain some of the pitfalls with ESG funds
CPD
Approx.50min
Guide to sustainable investing
 Pexels/Tom Swinnen

Introduction

Sustainable investing has become a rapidly growing area of fund management, with hundreds of funds launched last year in Europe.

Investors have changed their stance on sustainability as the full consequences of climate  change are becoming obvious; governments may be slow to enact change, but investors feel they can do something about it, if they have money to invest, by deciding which kinds of companies they are trying to support.

Even some of the big oil companies are trying to change their business model, but while it is now possible to buy an electric car and invest in wind turbines, the majority of cars on the road use petrol, and we are still using plastic bags.

Nonetheless, the shift in sentiment around sustainability – from it being a compromise on financial returns, to investing in a company that is doing good and has a long-term future – has been remarkable.

As a consequence, most fund houses have reconsidered where they sit in terms of sustainable investing, even if, for some, it only involves paying lip service.

The pandemic has also brought to mind sustainable investments – the top big tech companies are considered in large part more sustainable than the average company. Also, the veering away from oil stocks, and consideration of companies that do good, have all made environmental, sustainability and governance-focused investing more popular.

On top of this, financial advisers will soon have to show they are informed on this topic if their clients ask about sustainability in their discussions about investments.

ESG investing has also become very popular with the younger generation – millennials, for example, are considered to take sustainability very seriously. Therefore, advisers trying to appeal to this cohort need to have these criteria as a key part of their advice remit.

For advisers looking to find the right fund for their clients, there is plenty of choice; but the challenge is trying to find the right fund. Performance is no longer the sole credential for investors and their advisers; the bigger challenge is finding a fund that is truly sustainable – and in the absence of a formal set of criteria, this can be more challenging than simply looking at a fund factsheet.

But an adviser that gets it right will have the loyalty of their client.

Melanie Tringham is features editor of Financial Adviser and FTAdviser

In this guide

CPD
Approx.50min

Please answer the six multiple choice questions below in order to bank your CPD. Multiple attempts are available until all questions are correctly answered.

  1. According to the first feature Apple, Amazon and Microsoft have no ESG credentials, true or false?

  2. According to the first feature which of the following is NOT an ESG strategy?

  3. Why,according to Dan Kemp, is it more difficult to build a sustainable portfolio than a conventional portfolio, in the second feature?

  4. According to the second feature which of the following is NOT a problem with research on ESG funds?

  5. According to the third feature, companies with high ESG ratings have very low valuations, true or false?

  6. According to the third feature, why do some experts think companies with high ESG ratings could end up being overvalued?

Nearly There…

You have successfully answered all the questions correctly, well done!

You should now know…

  • Describe some of the challenges over sustainable investing
  • Identify the reasons for the valuation of companies with high ESG ratings
  • Explain some of the pitfalls with ESG funds

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