These days it’s easy to feel overwhelmed – by the news, the condition of the planet, the outlook for our children and our grandchildren. With constant information coming at us from more sources than ever before, it can feel like we’re seeing all the world’s problems at once (along with our inability to do anything meaningful to help).
But trying to tackle everything at once isn’t the answer. More than two millennia ago, philosopher Lao Tzu, noted that long journeys begin with a small step, and that wisdom holds true today. At Citywide we’ve just launched our brand new ESG portfolios, designed to help us all improve the world a little bit at a time, without changing our whole way of life.
There’s much to put right in the world, but if enough people make enough small steps in the right direction, it’s possible to drive real change.
Sustainable investment – snappy label, but what does it mean?
Nowadays the term ‘sustainable’, when applied to investment, fills a similar niche to what’s been called ‘ESG’ (Environmental, Social and Governance) for many years. It’s a catch-all for the way firms approach the major, often morally divisive issues of the day, from greenhouse gas emissions, destruction of habitats and plastic-filled oceans through to bribery, corruption, weapons and slavery.
If those issues seem diverse, they are, but they’re all part of the darker side of capitalism, which in itself is a big moral quandary. Capitalism’s hat is neither black nor white, but distinctly grey – in a few short decades it’s lifted two billion people out of poverty and cut infant mortality in half, but it’s also brought corruption, pollution, and child labour.
Those issues lay heavy on the heart, so heavy in fact that the response can be to shut down and think about something else. While we’re busy with reusable coffee cups and trying not to buy cheap clothing, it’s deflating to realise countries like China and the USA, despite some progress, are still pumping out vast quantities of carbon.
What can you do about it?
Like us, we know our clients want to make a difference, many of us spend time putting the right items in the right recycling boxes, offsetting longer flights and trying to figure out whether almond, oat, or soy milk is less destructive to the planet. But we often overlook that we can amplify and project the impact of our sustainability choices by the way we approach investing.
Being choosy about the companies that make it into your portfolio isn’t a new idea. It goes back to the 1970s when the first sustainable funds simply screened out or ‘excluded’ companies that produce things with a detrimental effect on the health of people or the planet – weapons, tobacco, oil and the like. But in the decades since those binary beginnings, sustainable investment has become more sophisticated, which we’ll look at in a moment.
These days, data about the business practices of companies around the world has improved too. It’s not perfect and there’s still work to do, but as investors become more demanding in their requirements for transparent feedback, that feedback goes into ‘ESG metrics’, such as CO2 emissions, governance policies and how employees are treated. It means fund managers can use these metrics to inform the structure of client portfolios.
Investing, like life, is a balancing act
If you’ve ever gone cold turkey on smoking, thrown yourself into a brutal exercise regime or embarked on a diet that centres on celery, you’ll know that such endeavours are often short lived. Trying to live life to the extreme of any particular value is really difficult, it’s mentally exhausting and it’s practically challenging too. The reality is that in many areas of life we make trade-offs. We embrace a vegan diet, but we holiday in Cyprus. We cycle to work, but we drive half a mile to Sainsbury’s to do the big shop.
We can make similar trade-offs in the way we invest and because the breadth of what’s available to investors today in the area of sustainability is much greater than it once was, approaches can be much more pragmatic and tailored.
Tailoring your sustainable portfolio to you
As investors we’re looking to grow our wealth as much as we can in the long term. That’s really the point, so if we restrict our scope so much that those returns fail to materialise, then the exercise becomes fruitless. But it’s possible to temper the way we invest to combine returns with a socially responsible strategy.
For example, what’s known as ‘impact’ investing seeks to generate returns, but pays close attention to the principles of the investor in question, putting them first wherever possible. It means accepting more in the way of concentration risk and uncertainty about the returns they might expect, but it keeps principles at the forefront.
Meanwhile, ‘Systemic’ investing, shifts the balance more towards building returns, treating the ability to do it sustainably as a desirable bonus. That might mean exposure to things like energy and airline stocks, accepting them as ‘necessary evils’ while also noting that raised awareness is already seeing large companies in some sectors setting out carbon-neutral visions of the future.
Then there’s ‘Thematic’ investing which zeroes in on say, wind farms and renewable energy, accepting the risk of more moderate returns as a trade-off for a portfolio that closely aligns with the investor’s principles. The point is, sustainable investing isn’t a matter of turning one way or the other, it’s a spectrum upon which the ideal portfolio can be tailored to your needs.
Taking steps in the right direction
Moving to a more sustainable approach to investing often starts with good intentions that gradually fall away because it can seem as though the change required is insurmountable. But that’s not true – you don’t have to go to the ends of the earth to make a difference to it. Where embracing sustainability once meant missing out, today’s market allows a much more flexible approach. It may still involve compromise, but a tailored portfolio that fits your needs means the compromise is within your control.
New products in the ESG space are being introduced all the time and as the market grows so does the scope to build a portfolio that’s the perfect blend of strategy and scruples. We’ll always apply our strict quality assessments to any new fund before engaging with it, so you can rest assured that only carefully vetted options will end up in your portfolio.
It’s an exciting time for investors who want to make a difference and even though righting the world’s wrongs is a long journey, you don’t have to walk the whole thing yourself. Climate change, inequality and championing welfare over profit are all big issues, but a few small steps in the right direction will help you feel better about what matters to you, and with enough people making those small steps together, real progress can be made.
If you’d like to know more about our sustainable portfolios, just get in touch. We’d love to talk about what matters to you and how we can build that into a portfolio that brings you peace of mind along with your investment returns.