This recent infographic from the good folks at Visual Capitalist sparked our interest, it shows the huge shift from ‘normal’ to some form of sustainable investing. They estimate that $21billion flowed into sustainable investments in the first half of 2020, as much as the whole of 2019.
There are some things that you can criticise this research for; source of information, sample size, quality of questions and it is still a small amount in the context of the wider investment market. However, it is a trend that we are also seeing with our own clients.
If you ask clients if they are ethical, they will often say no, based on a perception of what an ‘ethical’ person looks like (let’s not reherse the stereotypes here). If you ask them if there is anything that they care about that they would like to reflect in their investing, or list some of the classically unethical areas such as armaments, fossil fuels, tobacco etc then the answer is often different. This has been the case since we have been asking these questions.
More recently though, two things have changed.
Firstly clients are asking for sustainable options as a part of their portfolio, their intention being to use sustainable investing as a diversifier. A portfolio that excludes tobacco or oil may avoid the potential share price issues in these sectors in future better than an indescriminate portfolio.
Secondly investment managers are starting to include sustainable practices within their core investment portfolios, thereby slightly improving the sustainability of the whole investment market whether the client has asked for it or not. This could be seen as just sensible risk management. (This podcast is worth a listen to hear from the ex-sustainability head for Blackrock – now key Biden appointment)
Indeed some of our fellow advisory firms that we have recently spoken with about this are planning to make their default proposition more sustainable by screening out the controversial companies and offering ‘positive impact’ portfolios to their ethical clients.
For the cynic there is much to criticise here (not least the greenwashing) but any improvement in the overall sustainability of the investment universe is to be welcomed as we start to have to transition to a different world. A good independent adviser will not have a single internal range of funds for their clients to invest in but be able to build more and more bespoke portfolios for clients catering to their individual beliefs and desires, including the client who wants a ‘sin’ fund that invests in all of the ‘nasties’.
So if one of our clients is looking just to exclude the bad companies we will use a negative screened version of one of the mainstream investment solutions that would otherwise suit the client.
If the client is looking to do some good in the world with their money (social impact), which is the next step along the sustainable path, then we will often use a solution from our fellow BCorp, EQ Investors.
For anyone with a specific desire to invest into/avoid a specific sector or company, we work with a wide range of managers who can build bespoke portfolios to cater for the individual.