The next generation of ESG opportunities and risks

This article is part of
Guide to sustainable multi-asset investing

He also expects issues around the sustainability of food production and the impact of food on human health to be issues that drive the next generation of sustainable investors. 

He says: “We had a client recently who objected to our inclusion of a chocolate company in a sustainable investment fund; they were concerned about the impact of chocolate on human health. But we felt it was justified to include the chocolate company in the portfolio, we cannot please all of the people all of the time.” 

Simon Holmes, multi-asset investor at BMO Global Asset Management, says the task of building a more sustainable economy is enormous and will require billions of pounds of capital from investors and governments, but that many sustainable initiatives will happen that we might not have previously expected.

One example he cites is that of mobile payments, where he says there is a positive health impact for individuals from not using cash, as it means they are less likely to pick up viruses. 

Rachel Blythe, investment manager at Walker Crips, says the lack of definition around sustainable investing makes the adviser's task difficult. 

Defining ESG

She says: “The lack of a clear definition of what ESG or sustainability means creates a marketplace of investments that, when blended together, can create a portfolio that aims to tackle both established opportunities and new ideas.

"However, as clients become more aware and start to generate their own views on particular areas that are of interest to them, it’s important to be mindful there is a risk that by chasing specific ‘trends’ or ‘themes’, diversification within the portfolio could be reduced and therefore the risk increased."

Blythe adds: "Establishing whether the client is passionate enough about their personal views to prioritise them over their investment goals is often the first step. In many cases, the increased risk of focusing on specific goals is unsuitable and therefore there is still a trade-off when it comes to ESG investing.

"However, the wide range of funds available means that managers who share some of the same goals as their clients can be selected, provided the client is comfortable with accepting that their personal goals will be one of many themes within their portfolio.”

Clark Fenton, fund manager at RWC Partners, tends to look at the areas of innovation in the economy, such as the transition to renewable energy, and then apply a sustainable investing process to each of the companies within the theme as a way to find the best performers that are ESG compliant. 

David Thorpe is special projects editor at FTAdviser