by Helene Winch*
At this time of year we are constantly asked to spend our well-earnt cash - Christmas lists, food and wine for the festive period as well as requests to give to those less fortunate than ourselves. This Christmas there is a different feeling with Iceland’s noteworthy anti-palm oil advertisement and the Christmas dinner debate – meat or no meat!
Consumer preferences are changing. According to Unilever (1), a third of consumers are now choosing to buy from brands they believe are doing social or environmental good. Additionally, there has been an increase in demand for vegetarian /vegan choices: Waitrose(2) claims 33.5% of people are now choosing this option over meat. These changing behaviours mean organic and vegetarian/vegan food, recycled and natural fibre clothes, and anti-plastic products are all rapidly growing markets.
More than 5% of London’s population (that's nearly half a million of us) works in financial services, so how does this growing shift towards sustainability manifest itself in the City? Investment funds have been slow to respond but sustainability is increasingly appearing in products from mainstream providers. The crucial difference now is that sustainable and ethical investment products no longer require investors to accept lower returns. In fact, sectors like renewable energy are actually outperforming conventional energy(3) and the green bond universe is developing rapidly into a well-diversified and strongly performing market with $500 bn currently outstanding.
And with the launch of the 2015 Sustainable Development Goals, as well as the more famous Paris Climate Agreement, sustainability and the preservation of our planet has never been higher up the global agenda. Following on from the impact that Sir David Attenborough and Blue Planet had on discussions on plastic use in the House of Commons, Sir David is now pleading for stronger government action at this year’s climate talks in Poland(4) (COP24). As the campaign banners say: “there is no planet B”… despite Elon Musk’s proposed move to Mars, this isn’t yet a realistic option!
However, sustainable investing is a wide and often confusing market, not least when it comes to terminology. It encompasses green (often meant to mean lower carbon impact), social (using finance to create jobs, improve supply chains, support diversity) and ethical (the buyer/investor’s personal moral standpoint - such as anti-tobacco, alcohol) investing. With an estimated market size of £1.57 trillion and the range of sustainable investment products and returns often in line with non-sustainable peers, the question becomes why invest and finance non-sustainable businesses and products, especially when they are not in-line with the investors preferences as a consumer? Why refuse to use and buy plastic and then invest in companies that are doing very little to reduce plastic waste? Likewise, there’s a contradiction in making an active choice to buy organic or vegetarian foods in the supermarket, but then investing in companies that support excessive antibiotic use in food supply chains and meat producers that significantly add to climate warming. Why buy recycled clothes yet continue to finance consumer product companies using child labour or polluting developing countries’ rivers?
While working hard to build a pension pot and preserve the capital already saved, the potential end of fossil fuels could seriously damage valuations. Global agreements such as the Paris climate agreement have 195 governments across the planet actively working to reduce emissions through the provision of billions of dollars of climate finance, subsidising renewable energy and legislating for the end of coal and reduction of oil and gas consumption. With these risks to the sector, should investors continue to actively invest in the high carbon energy sector?
These are some of the questions that investors are increasingly asking their fund managers. The provision of increased fund level disclosure on sustainability topics should help fund managers share their holdings and investment views with their more sustainable minded clients. Continuing to foster sustainability in finance should help ensure that your investments are as green as your Christmas!
* Helene has worked in the investment industry for over 20 years and has extensive experience of considering sustainability into investment portfolios.