Ethical investing has risen rapidly up the agenda in the past year, but this won’t be a passing fad: investment managers and financial advisers need to take this sector seriously.
On the day when American President Donald Trump was calling environmental activists “prophets of doom” during his speech at the World Economic Forum, Intelligent Partnership’s VCT Showcase in Cheshire again saw the question of ‘ethical’ investing come up.
The Mere in Knutsford may not be Davos, but the fact that financial advisers want to discuss the ethical merits of fund managers demonstrates the growing importance of environmental, social and governance (ESG) considerations to today’s investors – regardless of what Trump might think.
“It’s important to have a diverse management team,” responded Matt Johnson from Octopus. “[For example,] 45% of our investments are with female leaders.”
Puma’s Rob Bickerstaffe agreed, and suggested that things are changing rapidly in this area. “We don’t run with an ESG mandate as such, but I can see that happening in the future.”
And it wasn’t just people in Cheshire who are interested in ESG. In London, too, it was a hot topic, with Charlie Winward, from the Northern VCTs, pointing out that it is not only about wanting money to ‘do good’ – it is quickly becoming the best way to grow your money. “There is data more broadly showing that if you use an ethical approach, you can maximise your returns,” he explained.
Octopus’s Nick Bird suggested that VCTs are well-placed to take advantage of this burgeoning opportunity. “Let’s encourage behaviours,” he said. “VCTs have been incredibly successful at getting investment into small businesses, so we need to use that for ethical investments.”
This was a theme taken up by Nick Britton, from the Association of Investment Companies, who also pointed to the good that VCTs can do.”VCTs create jobs and growth in the economy, so they already do a lot of good, even if you can’t put an ESG ‘badge’ on them.”
As the demand from investors grows, there is clearly a need for advisers and wealth managers to provide the products and opportunities to meet those demands. Tax advantaged schemes such as VCTs and EIS can be well placed to help in this effort, because they focus their investments on small, young businesses that are keen to grow. As new and innovative ways to tackle the growing climate emergency are developed, many such small companies are at the forefront of these efforts and therefore may present themselves as ideal candidates for VCT or EIS investment.
Meanwhile, the negative connotations of failing to take account of environmental issues as part of any business have also been seen in recent weeks.
In January alone, climate change activists Extinction Rebellion protested outside Baillie Gifford’s Edinburgh offices after the firm increased a pension fund’s exposure to fossil fuels, while protestors from the same group also blockaded the entrance to Shell’s Aberdeen headquarters.
Such activism is only likely to grow over the coming years, so as we head into a new decade it may make sense to realign the investment community with the growing demands of a new generation of ethically minded investors.
Ethical investing and the rise of ESG are likely to be key topics for future generations and will therefore form a significant theme at Intergen 2020, a new conference focusing on the changing world of wealth planning as we face the largest ever intergenerational wealth transfer. To find out more about this groundbreaking new event, contact Chris White: chris@intelligent-partnership.com