You would be hard pressed to find someone who doesn’t know about Greta Thunberg and Extinction Rebellion as they represent two of the major news stories of the year. It seems that 2019 has seen the sharpest increase in focus on climate change and how the public is responding to it. According to a recent Irish Times/Ipsos MRBI poll, 55% of Irish voters agree that ‘climate change is the most serious issue facing the world’.
This issue affects every aspect of our lives, what we buy, how we travel and what we eat, and also how we spend or invest our money. The notion of ‘doing well by doing good’ has been around for some time and this includes corporate responsibility programmes (CSR) and ethical investing. The latter involves knowing what your money is doing and what it is funding.
Ethical Investing incorporates environmental and social factors when selecting funds for an (ethical) financial return. These funds seek out companies that are positively impacting society and the environment and screen out businesses that have a negative impact. This can mean the inclusion of the likes of wind turbine and energy efficiency operators, companies with strong labour standards /human rights policies and the exclusion of oil and gas, tobacco, arms etc. Each fund has a different set of criteria so variations are wide and investors are urged to do their homework in order to choose the best alignment to their values.
According to Bloomberg, Global Socially Responsible investments grew by 34% from 2017 to 2019 with a key contributor being growing concern with climate change. Europe is the largest region for sustainable investors with €12.5 trillion dedicated to these funds.
They go on to report that global money managers ‘were increasingly asking for sustainable strategies and that climate change became a leading issue for investors this year.’ Retail investors bought up more ethical funds and now account for about 25 percent of assets, up from 20 percent in 2016.
Ethical Investing In Ireland
Compared to the rest of Europe, Ireland is a little behind however consumer demand is driving increased choice.
The Stewardship Fund by Friends First was one of the first funds to hit the Irish market back in 1997. Its ‘Responsible Investment Philosophy’ involves investing in companies that make a positive contribution to society & the environment and avoids companies with damaging or unsustainable business practices. In addition, they ‘use influence as an investor to encourage best practice management of ESG (environmental, social, governance) issues through engagement and voting’. So the ‘doing good’ piece is covered, how about the ‘doing well’? According to the Aviva Friends First website the fund has achieved 11.67% per annum over the last ten years which would be considered successful by any measure.
Standard Life offers the European Ethical Equity Fund which complies with a strict set of ethical criteria as agreed with the SL Ethical Funds Advisory Group. They regularly carry out investor surveys to ascertain areas of most importance including animal welfare, forest sustainability and human rights abuses.
The Indexed Ethical Global Equity Fund is available from Irish Life. It avoids investment in tobacco, defence and nuclear power companies and invests in organisations that meet globally recognised and accepted criteria for socially responsible investing.
Future Outlook
Looking further ahead, it would seem that the market will only increase substantially – Gen- Z (aged up to 24 years) have ‘deeply formed perceptions and beliefs about anything related to being planet friendly, sustainable and eco-friendly’ according to Forbes. By 2021 they will make up 31% of the world’s population and their beliefs and behaviours are already disrupting major industries including food (one quarter 18-24 have gone vegan over the last year and 79% planning to go meatless at least a few times a week). As this generation matures and they enter the investment market, the demand for ‘sin stocks’ will be impacted and a wide suite of ethical funds will be required to meet their investment appetites.