For The Times They Are A Changing

As a financial adviser my clients expect me to keep abreast of what is happening in the world of investments. I think I have heard the views of about a dozen investment companies so far in 2020 and what has struck me is how many are talking about Environmental, Social and (corporate) Governance (ESG).

A few weeks ago, I attended a meeting in Westbury-On-Trym about the environment crises and one of the speakers was a representative from Extinction Rebellion. We considered the issues facing the world, how some companies are helping the crises, and some continue to hinder it. We are probably all thinking about what we can do, to make a difference. One point of discussion was about ‘making a stand’ and dis-investing from companies hindering the crises.

I have quite a few clients (and it’s something I have done myself to an extent over the years) who have invested in ‘Ethical Funds’. These are funds that use a ‘Negative Screening’ process – i.e. avoiding certain industries, sectors, and companies. Over the last decade or so a new idea has come from ‘Sustainable’ funds or investments. These are companies making a positive impact to the industries they operate in, the staff they employee, the environment as a whole. However, I wonder whether we are now entering a time where fund managers will be considering ESG criteria for all companies they might potentially invest in, in just the same way they analyse the product or service, the directors,  the turnover and profit, the debts and overheads of a company. Sustainability and good business practices is really important for the future of any business, not just those in the ‘Green Space’. We live in a world where adverse publicity and the influence this has on the share price could cripple a company and so perhaps going forward, more issues will become less acceptable.   Occasionally a fund manager will be put on the spot about why they hold shares in ‘XYZ’ and the typically the response will be that as a shareholder, they could influence the company’s board of directors from within, which is true of course. However in the future I think It may go further than that and market forces and people pressure will mean Sustainable, ESG type investments will become more mainstream and companies as a whole will demonstrate adherence to ESG principles.

There is new ‘advice legislation’ in October 2020, where if advisers are not doing so already, they will have to ask more comprehensive questions about what is and what is not acceptable to investors. So, should you be making a stand with your investments by dis-investing from certain sectors or companies? Well that is a personal choice. Will fund managers and advisers be asking more questions about ESG? Yes, for sure and I expect as investors we will do the same. However, I’ll end with an impressive example where a company with a vision for its future, supported by the investment of several major investment companies, changed for the better to show it can happen.

DONG Energy (Danish Oil and Natural Gas) was a company with origins in Denmark in the early 1970’s. An energy company that used Coal and Oil. Since 2006 they cut their use of coal by 73% and will cease using it altogether by 2023, by which time they will have also cut their Co2 emissions by 96%. They changed their name in October 2017 to Ørsted. They are now the global leader in offshore wind, being responsible for more than a quarter of the offshore wind capacity globally. They are fully committed to renewable energy, built the first wind turbine in 1991, the largest in 2017 and in ‘Corporate Knights’ 2020 index of the Global 100 most sustainable corporations in the world, they achieved 1st position. Change has to and can happen.

Author: Phil James, Grosvenor Consultancy Ltd

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