22nd April 2021 is World Earth Day and now, more than ever, an important reminder that we all need to do our part in driving meaningful action for our planet.
But where do you start? The doom-laden headlines can seem overwhelming and eco-anxiety has become a recognised psychological condition. Given the magnitude of the issues we are facing, it can seem that as one human amongst billions our individual actions are barely worth the effort.
However many individuals making more ethical choices can make a real difference and the investor revolution that has occurred over the last five years is concrete evidence of this.
Green investing has gone mainstream
Five years ago, ethical investors were definitely on the fringe with environmental, social and governance (ESG) issues considered to be a minor concern for the majority of investors, secondary to the primary goal of return. Green and ethical investment options were limited.
Fast forward to today and the investment landscape has changed dramatically with sustainable investing establishing itself well and truly in the mainstream. So much so that in February 2021, our investment management partner, Tilney, held a virtual conference on what it described as ‘the hugely exciting and fast-moving world of sustainable investing.’
Further proof is in the figures. One Morgan Stanley study reported that 85% of individual investors are now interested in sustainable investing, up 10% from 2017. It is worth noting too, that when the pandemic caused investor panic in the first quarter of 2020, resulting in outflows of almost $400bn from the markets, sustainable funds saw global inflows totalling $45.6bn.
Investor behaviour is bringing about change
The actions of individuals moving their money into sustainable funds is bringing about a huge shift in how businesses are operating. In effect, companies are being pushed into adapting to avoid being hurt in the stock market. Stakeholder relations are taking on a new importance and it has become clear that companies can no longer be managed solely with shareholders in mind.
Giants of industry are taking note. As a result we are starting to see headlines such as Netflix’s announcement yesterday that it is aiming for net-zero emissions by the end of 2022.
But can green investments deliver a return?
The short answer is yes! Responsible investment can definitely improve overall returns. A recently published meta-study of over 1000 research papers from the past five years has established a positive link between ESG performance and operational efficiencies, stock performance and lower cost of capital. It states that ‘business strategy focused on material ESG issues is synonymous with high quality management teams and improved returns.’
As an investor, you can be an actor for change without sacrificing return.
If you’d like to discuss how to build a portfolio based on the environmental outcomes that you want to achieve, why not make an appointment with one of our consultants?
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