- Investors have deposited cash in ethical funds in anticipation of a positive impact
- But Too Many Funds Are Technically Heavy, Or Just Avoid ‘Sin’ Stocks
- Investment experts pick the top funds that invest in companies that do real work on sustainability
When it comes to climate change and responsible investing, images of flooding across Europe, California’s wildfires and Hurricane Ida have been the focus this summer.
ESG – which stands for Environmental, Social and Governance – has become a buzzword and many funds screen stocks of sin in the tobacco, alcohol, gambling and pornography industries.
But this focus on ‘avoid’ rather than ‘advance’ has inevitably led to an influx of tech funds as a responsible investment option.
Climate change: Too many so-called sustainable funds investing in companies that have little impact
Yet there are ample opportunities to invest in companies taking a proactive approach, be it agriculture, energy or healthcare.
We look at whether the fund you’re investing in is as green or sustainable as it is designed to be, and has a tangible impact for investors looking for a home in specific areas.
Are the funds just a sham for ESG investment?
One of the biggest problems for investors when it comes to ‘ethical’ funds is the rapid growth of the term over a period of a few years.
The focus on a company’s influence comes from the beliefs group’s priorities in the past generally accompanied the exclusion of weapons, alcohol, and tobacco.
This has since been changed to ethics as defined by the ESG, meaning that holdings in older ethical funds are mismatched and largely in sync with what investors want, as they are still in the form of an active durable. instead operate on an exclusion basis.
David McDonald, former director of SJP, launched Path Financial in 2019
Added to this is the lack of an industry standard measurement tool that makes labeling funds even more difficult.
‘We don’t have measuring instruments on E, S or G to measure what’s happening. I call this the question of the 50 shades of green. How green is green? It depends on your definition,’ says David McDonald, a former partner at St James’s Place that launched Path Financial, an ethical financial planner in 2019.
He adds: ‘What you might see as a thematic fallacy may not actually be. Apple is a classic example of this. reason to include [in ESG funds] That’s because the technology enables less carbon if FaceTime didn’t exist.
‘On the other hand, you could say it’s a manufacturing company that puts out a lot of stuff to make batteries and they’ve become inherently obsolete.’
Duncan Grierson, founder of impact investment app Klim8, says: ‘There are a lot of funds that have been badged or rebadged as ESGs and are really just investing in Microsoft and Facebook, and this is having a huge impact on the environment. Is.’
An individual investor has to set his own limits when it comes to his ethics, and decide how many companies he is investing in when it comes to the environment.
Royal London Sustainable Leaders ESG has become a somewhat preferred industry for investment, and its holdings include finance firm Prudential, energy giant SSE and consumer goods company Unilever.
Royal London says it focuses not only on the environmental credentials of companies but also on the social aspects. It says Prudential provides ‘socially positive products in countries without government safety nets’ and Rentokil is the world leader in pest control as well as COVID prevention services.
Apple deals heavily in a lot of ESG funds but some experts question its green credentials
Meanwhile, the world’s first vegan ETF – the US Vegan Climate ETF – has little focus on food or farming and its top 10 holdings include Microsoft, Tesla, Nvidia, PayPal and Google’s parent company Alphabet.
Claire Smith, chief executive of Beyond Investment, issuer of vegan ETFs, says its high exposure to the technology is largely because of its large-scale exposure to other areas such as screening health care (due to animal testing) and consumer discretionary (due to animal products). takes part. in products).
‘We strive to provide an index of companies that are available on the market that allows those who care about animals and the environment, invest according to their values and avoid the risks they see in these. Don’t want to keep due to the damage done by. Companies, while maintaining a portfolio creation methodology that minimizes tracking error against the market.’
What other funds can you consider?
The Impax Fund focuses on clean energy and energy efficiency, water treatment and pollution control, waste technology and natural resource management, and sustainable food.
Jupiter Green also invests in companies that solve environmental problems. Some of the companies it supports include RenewCell, which breaks down and recycles used textiles, and Hoffmann Cement, which produces low-carbon cement.
How should investors choose funds?
Investors should first decide on their personal limits and ethical values and from there try to find things that fit within that definition.
Some investors may have a genuine interest in environmental issues, while others have a moral objection to investing money in sectors such as tobacco.
Jason Hollands gives his top tips for choosing a good ESG fund.
‘Investors need to look for funds that publish their policies in a transparent manner and not just embellish their marketing materials with hot words and pictures of wind turbines.’