As you might imagine, COP26 has provoked a lot of reflection about responsible investing.
COP26 focussed entirely on the E of ESG (Environmental, Social and Governance), which are the factors which responsible investors tend to look at. That’s understandable, but the three factors are linked – if companies paid more attention to their impact on society and were better governed, then they would automatically consider the environment.
COP26 was notable as it really didn’t invite anybody to represent investors. Members of pension schemes and retail investors were on the outside looking in, as if the big businesses in which they invest operate independently of them (we’re back to the S and G of ESG here!).
What’s the best way for investors to make these companies change their ways?
Most people’s retirements depend upon investments in shares, fixed interest stock, property and cash, and these investments can be used to stimulate change. If you are receiving a pension from an old final salary scheme, you may not hold these investments directly, but your pension scheme is still going to be investing in these assets. Fortunately, you can use your voice to influence these schemes – perhaps it’s time to step up as a member-nominated trustee? It’s your money after all!
But what if you do hold investments directly, through funds or in an investment-linked pension?
The good news is, there’s plenty you can do, by changing the investments you hold, and moving to funds which take a more responsible approach. COP26 has demonstrated that governments are keen to fund green projects, and it does strike me that, if you have come up with a way of capturing carbon or reducing greenhouse gas emissions, you won’t find it difficult to raise money (if you know the right people). So, perhaps adding your investments to the wall of money available for this type of project isn’t the right thing to do.
An alternative, which is attractive, is to invest in “Impact” funds. The managers engage with the companies they invest in, encouraging them to improve their behaviour. This can mean that pressure is applied to an energy company to transition to green energy, or that a fashion company might be encouraged to make changes to its marketing so that its customers might wear the same garment time and again, rather than wearing once and sending to landfill.
It can be difficult to invest in this way, and professional expertise is needed – investment companies’ claims about how they try to use their influence as shareholders can be exaggerated. But influencing today’s successful businesses to improve their ways may give you more than just a financial return.
Contact us if you would like to know more.