Responsible Investing: Ethics or Returns?

Is responsible investing a new rage? Or are we looking to be responsible with how we invest our money? Do we achieve the returns we would want, or are we sacrificing that for our ethical attitudes, based on the impact of fossil fuels, armaments, or tobacco companies? Or do our beliefs and thoughts align to a more sustainable environment?

For example, in September 2021, green and ethical sectors saw £1.6 billion invested in just that month. It came from savers, also pension saving money where individuals wanted some responsible investments.

We often think that responsible investing such as green or ethical investments cost us more money; this may only be small in what the fund manager charges, but over time it can make significant differences to the value of these investments against other more run-of-the-mill types.

The main reason for their costs being higher is the amount of research required to sign off on the due diligence of these companies; that in itself is where the majority of the additional charges come from.

There is no definition of terms companies use to ascertain where the best companies or funds are for Environmental, Social, Governance (ESG) or Socially Responsible Investment (SRI), green, and ethical; that’s why the costs are slightly higher. So research teams have to dig deep to determine who is good and who does good and look at those considered harmful. Passive funds tend to use this method and have a light approach to green and ethical investing.

The good news is that there are options to reduce investment costs with ESG & SRI thoughts in mind. We can achieve all this with index trackers reflecting an index of companies that have this approach to doing business.

There are also options like Exchange Traded Funds (ETF’s) that could allow you to invest in specific themes, like clean energy, solar energy, or battery production, to name a few.

We would always explain to any client asking our advice on this subject to research and understand what’s underneath the bonnet. Then look to see if there are any companies you disagree with, based on their involvement in areas that are not considered environmentally friendly or generally against your beliefs. For example, some big-name funds, like Vanguard ESG, still have holdings in Shell, BP, Rio Tinto and Diageo. Then look at Blackrock, their ESG based fund invests in Gazprom, China Steel, Chevron and British American Tobacco.

It is not always easy to do the right thing, and we do not have any specific funds on our recommended and approved range. However, due to the arena for these funds constantly changing, we tend to research when asked; that way, we can offer what is best at the time regarding responsible investing.

So do you ever sacrifice your ethics or morals to get a better return on your investments? It takes some planning to get both right, so when talking to Corestone, don’t forget that informed decisions are the best and stay true to your beliefs.

 

 

 

 

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