The rise of the green tide
Tom Corneill
Tom is a writer, musician and watchmaker based in Bath. When not playing with words or watches you might find him in his daytime alter ego as an Investments Consultant. Follow on Instagram or Twitter @tomcorneill
In recent decades there’s been an increase in certain buzzwords flying around the planet – ethical, sustainable, mindful, responsible, green – and they’re positive, wholesome things. Better still, they’ve found their way into the world of investments, a realm so often written off as one of greed and selfishness. That’s got to be good, right? But what does it actually mean?
At the time of writing, I have been working in the investment sector for over a decade and this phenomenon seemed more than worthy of discussion.
‘Investments’ – putting your money somewhere it’s likely to grow in value, perhaps substantially – have been around since the early eighteenth century. Essentially: you lend your money to someone for a while, they use the money to buy things cheaply and then sell them at a profit, then when they give you your money back there will be more of it than you started with. It’s a fairly simple concept and it has performed well, creating a multi-billion pound industry and changing the face of whole cultures.
Traditionally, investors have entrusted their money to Financial Advisers (FAs) who pass it to Fund Managers (FMs) who aggregate that money into different areas ranging from retail companies to coffee to gold to weaponry and the money is used to buy and sell these commodities with a share of the profit ultimately going back to the investor. This type of investment comes in several forms – stocks, shares, bonds, funds – so for the sake of this article let’s talk about funds; groups of commodities wrapped up into units that can be easily bought and sold.
Before we go any further though… weaponry. Did that word grab your attention? That’s just one of many things which has been an underlying component of many funds for decades that may cause you to question the ethics behind said investment. Be honest though: if you have a workplace pension or a regular ISA (one that isn’t just sitting in cash) do you actually know where your money is invested? We all expect to see our investments grow but how many people can truly say they know exactly what is being bought and sold on their behalf? Some of the biggest, best-known fund managers deal in weaponry as well as oil, tobacco, alcohol, meat, dairy and a host of other products that won’t suit everyone’s ethical palette.
“Be honest though: if you have a workplace pension or a regular ISA, do you actually know where your money is invested?”
Right now though there’s a new kid on the block, the sort of kid your mother would love: the fastest growing investment type is something called ESGs – ethical, social and governance funds – and they’re getting to be something of a giant. According to Forbes, ESG investing began in 2004 with the term actually being coined in 2005 and it simply covers the concept of investments being managed more ‘responsibly’. That could purely mean that the items purchased within the fund are ethically sound but it generally extends to things like the fund manager’s approach to tackling climate change, how well their workers are treated and the resources they use in running their business. You could be forgiven for re-reading the last two paragraphs and asking “Did we not care about this stuff before?” But no, sadly, it seems the majority of investors (that’s the majority, not all) paid little attention until relatively recently. When I started working with Investments in 2010 there was one particular FA who would often talk about ‘ethical funds’. But he was – and remained, until recently – in the minority, because virtually no one was asking those questions back then. It seems that relatively few investors really cared where their money was going as long as their cash baby came back all grown up.
Is there such thing as a good weapon?
I’ve spent time over the last few months talking to investment managers such as LGT Vestra, King & Shaxson, Whitechurch Securities and Royal London Asset Management and while I won’t attempt to deep dive into each of their strategies here (stay tuned, I might do in future), the fascinating thing was the layers of difference that ‘being ethical’ has now introduced. In the less principled ‘bad old days’ the criteria for an FM’s menu were simply growth and stability (fairly binary stuff) but looking at the same market through an ethical lens means having to first decide what actually constitutes an ethical approach. For example, maybe you think alcohol is irresponsible and maybe you don’t. Likewise with tobacco. And I thought that arms trading would be an easy call right up until a fund manager asked me how I would feel if we didn’t invest in defensive arms in the UK; it turns out some FMs divide weaponry into ‘good weapons’ and ‘bad weapons’. So, well intended as it may be, our beautiful new sea of green investment contains a whole lotta grey areas.
Arguably the biggest challenge for green investors at the moment is ‘green-washing’, the questionable marketing undertaken by some fund managers in which distraction is used to divert investors’ attention away from some of the less pleasant. But there is hope: during a recent visit to the LGT Vestra offices I asked whether my LGTV chums thought the green bubble was in any danger of bursting and was heartened by the response that ‘On the contrary; in the future this will just be the way all good investing is done.’
Our status as a newly ‘woke’ population is fraught with traps and decoys it seems but perhaps we can take comfort in knowing that we’re moving in the right direction.