For years ‘green’ investing was a fashion fad, seen as thoroughly worthy, but probably not very profitable.
We even had the term greenwash, for companies and investment managers who tried to paint themselves as environmentally friendly on tenuous grounds.
This has now changed. Whether it was the pandemic, the fires in the Americas, the increasing number of tropical storms, the Attenborough and Thunberg effect, or more likely a combination of them all, attitudes have decisively shifted.
Be a friend of the earth: For years ‘green’ investing was a fashion fad, seen as thoroughly worthy, but probably not very profitable
Still need convincing?
Well Mark Carney, ex-governor of the Bank of England and our PM’s adviser at the COP26 climate change conference, has called such investment the greatest commercial opportunity of our lifetime. Green has at last come of age.
What should I do?
The buzz letters are ESG – Environmental, Social and Governance investing – where companies try to do the right thing in their services, their products, their treatment of employees and everyone connected to them. Actually, finding a saintly company that is pure in thought, word and deed is going to be extremely hard.
But this should not stop us from trying to unearth those that are at least striving to do so. For example, not many oil companies would qualify these days, but it would be hard to find any sentient crude or gas producer that has not laid out a plan to become an environmentally aware and carbon neutral company in a given number of years.
Why does it matter?
Because of the company’s valuation. If businesses are not seen to be behaving correctly investors will shun them – and the price and market value will be driven down accordingly. Oil giant BP was greeted with derision only a few years ago when it announced its initials should stand for Beyond Petroleum.
What a change since then as BP has had to come out with a public commitment to being carbon neutral by 2050.
Post Covid, the economy is going to change with a far greater emphasis led by the Prime Minister on both a green and sustainable infrastructure and economy.
This will need investment in new companies and also government funding, with new ‘green gilts’ or government IOUs, a modern version of war bonds for those willing to support the change. If these are offered to retail investors and pay a better rate than deposit accounts, they could be very popular.
Investors need to look beyond the coronavirus pandemic to those companies that can prosper in the new, more environmentally conscious world.
A fund which has proven itself in this area is Liontrust Sustainable Future Global Growth, or if you want to take a risk on a single stock then think of Royal Dutch Shell. It has had to alter its strategy but it is strong enough to change and to adapt to this new investment world.
The message for the future is this. Green isn’t just good – green is going to be vital.
Justin Urquhart Stewart co-founded fund manager 7IM and is chairman of investment platform Regionally.