I recently attended a conference in Germany on ESG investing and its potential to have a positive impact on the world. Various issues were discussed and whilst there was agreement on some themes, there was divergence on others. This is unsurprising given the diverse approaches that can be taken to sustainable investing and is in keeping with the point that we often emphasise, that the devil really is in the detail.

So what were the talking points?

Why pay a premium for sustainable products when you could just buy a cheaper one?

One delegate insisted consumers wouldn’t pay a premium for a product just because it was sustainable. I fundamentally disagree with this from a philosophical perspective and evidence suggests that consumers are increasingly conscious of the product impact of the things they buy – especially millennials, who not only want to buy sustainable products but want to buy them from sustainable companies. 

I’m confused, is this sustainable or not?

There was an acknowledgement that sustainable investing can confuse clients… A number of managers then proceeded to give confusing presentations with tenuous stats, like ‘investing in a sustainable fund is 27 times more effective for the environment than cycling to work’ or ‘our portfolio prevented X number of sick days from work’. 

How on earth are clients meant to judge the effectiveness of sustainable investments when they are bombarded with stats like this? Whilst transparency and reporting on material factors is undoubtedly positive, it’s vital to keep these realistic and understandable. We look at the individual merits of each company to judge whether it is making a positive contribution. We might not always be able to measure that in lives saved or tonnes of CO2 emissions avoided, especially since these benefits can be indirect and further up or down the supply chain but by thinking about it holistically like this, we can be sure that each company we invest in is doing things the right way. 

Maybe what we need is more red tape

The idea of more regulation for sustainable funds was floated. There was little support for this other than a high level framework which respects the diversity of the sector.

The European Commission has taken an interest and has suggested that more specific disclosure requirements for sustainable investments are needed, stating “the overall sustainability-related impact of financial products should be reported regularly”. I am cautious on this for the reasons stated in the above section. I am all for transparency and reporting relevant data but setting specified metrics for such a nuanced subject has its dangers.

Throw money at it?

One suggestion was to subsidise sustainable investment funds to encourage people to invest in them… No, no, no. I disagree with this on a number of levels. For a start, it would result in ‘greenwashing’ where funds make a token, tick box effort to appear sustainable to qualify for the subsidy. Having more high quality managers investing sustainably would be a positive – as long as they do this in a genuine way and for the right reasons.

So, lots to take away and mull over. Debate is healthy and the fact that everybody has their own way of thinking about sustainability is part of the beauty of it. For our part, we will continue to focus on the detail and the nuances and share our insights and statistics where possible… Just don’t expect us to tell you that investing in a sustainable fund will save 14,521,325 trees, which will benefit from the 20,942,768 gallons of water saved and which you will be able to appreciate due to being ill in bed 17 fewer days per year.

About the author

Iain Snedden is an investment specialist in the equities team. He has responsibility for representing the firm’s equity capabilities both within and out with the firm, with a particular focus on our suite of global equity products. This involves ensuring colleagues and clients are kept up to date on developments within the funds and the wider market. Iain joined us in 2015 to work in the Client Management team with responsibility for a portfolio of UK-based institutional clients. Prior to that, he worked at Baillie Gifford and held roles within the client accounting and business risk functions. Iain graduated from University of Edinburgh with a first class honours degree in Accounting and Business Studies. He has 8 years’ industry experience (as at 30 November 2018).

 

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