Responsible Investment Advice in Tunbridge Wells.

What is the PRI?

The Principles for Responsible Investment (PRI) is the world’s leading proponent of responsible investment. Supported by the United Nations, it works to understand the investment implications of environmental, social and governance (ESG) factors and to support its international network of investor signatories in incorporating these factors into their investment and ownership decisions.

The PRI acts in the long-term interests of its signatories, of the financial markets and economies in which they operate and ultimately of the environment and society as a whole. Launched in New York in 2006, the PRI has grown to more than 3,000 signatories, managing over $103 trillion AUM.

In implementing the Principles, signatories contribute to developing a more sustainable global financial system.

The Six Principles:

1. Incorporate ESG issues into investment analysis and decision-making processes.

2. Be active owners and incorporate ESG issues into our ownership policies and practices.

3. Seek appropriate disclosure on ESG issues by the entities in which we invest.

4. Promote acceptance and implementation of the Principles within the investment industry.

5. Work together to enhance our effectiveness in implementing the Principles.

6. Report on our activities and progress towards implementing the Principles.

A positive contribution to society and the environment.

The terms responsible investing and sustainable investing are often used as a catch-all to describe investments made with social, ethical, environmental, or other responsible or sustainability criteria in mind.

The terms are interchangeable and are used alongside others, including ESG investing, ethical investing, exclusion-based investing, green investing, impact investing, socially responsible investing, thematic investing, and values-based investing.

Investing in this way means different things to different people, depending on your principles, values and beliefs. In essence, it describes the practice of an investor using their money to make a positive contribution to society and/or the environment.

Investors increasingly want their investments to reflect their views on environmental and social issues, but naturally investors still want to generate positive returns. In the past, it has been thought that one cannot achieve both. However, over recent years there is a body of proof which shows that investors can have both principles and profits.

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Helen Carey FPFS

Helen Carey is a Chartered Financial Planner (IFA) and a Fellow of the Personal Finance Society. Helen is also our Compliance & Operations Director. Helen has a wealth of experience and knowledge of investing. She has a particular interest and specialism in Responsible and Sustainable Investing, holding the Certificate in Sustainable Finance from the University of Cambridge.

Helen’s technical knowledge and experience is extensive, enabling her to drive our business towards our sustainable finance goals, including:

• Taking action as a company to reduce our carbon footprint.

• Being experts on the subject and engaging with our clients to encourage capital towards sustainable investments.

• Contributing to wider sustainable finance initiatives and the evolution of regulatory obligations.

Useful Responsible Investing & ESG Links

• Sir David Attenborough’s summary of the scientific consensus on the impacts of climate change.

• The Investment Association (IA) Responsible Investment Framework.

• The Principles for Responsible Investment (PRI).

• The Paris Agreement for climate change.

What is the impact of climate change?

The world economy and our global society were built on the foundation of a stable climate and a natural environment with the ability to regulate itself and to provide people with the services and resources they need for a healthy life.

However, the extraordinary economic growth of the past 50 years has come at a price: an unprecedented depletion of the natural resources needed to fuel this growth, increased pollution levels, loss of biodiversity and rapid, human-induced climate change that is already beginning to have a direct impact on many business sectors.

These environmental pressures will fundamentally change the shape of the economy, the types of investment that will flourish and the assets that will be stranded.

Increased risk of floods, droughts, natural disasters and ecosystem collapse is already having an impact on resource availability and cost. New regulations requiring companies to disclose their climate-related financial risks are putting pressure on asset owners and asset managers, and litigation liability risks will most likely undermine the future viability of companies and jeopardise shareholder value.

Watch Sir David Attenborough’s summary of the scientific consensus on the impacts of climate change.

Why is responsible investing important?

Investors have the power to drive change in the world. Investors can use their money to support companies that are making good things happen through the products and services they provide, the way they do business, or how they give back to society.

Today, with a growing awareness of the social and environmental impact of financing decisions and in the context of climate change and resource scarcity, this idea has begun to shape the investment landscape.

The Global Sustainable Investment Alliance (GSIA) estimates that a total of 30 trillion US dollars in assets under management qualified as sustainable investment in 2018, according to their own broad definition of “funds applying environmental, social and governance criteria to decision-making”. It represents an increase of 34 per cent over two years. This data does not, however, include major economies like China and India.

But to meet the goal of limiting the global temperature increase to 1.5°C (2.7 °F), about 90 trillion US dollars of investment is needed by 2030. There is still a long way to go.

If you would like your money to make a positive contribution to society and the environment, responsible investing could be for you. However, all investments carry risk, values can go down as well as up and you could get back less than you invested.

What does ESG stand for?

ESG stands for environmental, social and corporate governance. These are three main factors investors should consider with regard to a firm’s ethical impact and sustainable practices.

With regard to ESG investing, examples of ESG criteria include a company’s impact on climate change, carbon emissions and their conservation efforts (as part of ‘Environmental’), human rights, equal employment opportunities and community development (as part of ‘Social’), and anti-corruption policies, board member diversity and executive remuneration (as part of ‘Governance’).

Investing in a fund that looks at ESG factors in its investment process is one of the least restrictive ways to incorporate your values into your investments.

When analysing a company, a manager of an ESG integrated fund will consider environmental, social and governance factors as part of their wider research. This is not just so they can label a fund as ESG integrated, but because they believe ESG factors play an important part in the long-term performance of a company.

Fund managers will seek out those companies they believe have the best prospects, and they will often also engage with companies to encourage changes where necessary, which is an example of positive stewardship practices.

Does sustainable investing cost more?

Our research shows that investing responsibly or with an ESG focus can be done in a cost-efficient way. There are hundreds of responsible investment funds which have been in existence for many years, which have proven track-records of positive relative performance over a long period of time, and which in many cases (although not all) we believe represent good value for money. There are also a growing number of sustainable investment funds available which are competitively priced, including those which are actively managed.

We believe cost is an important factor when it comes to investing, but it is not the only factor. Of equal importance is the fund’s objectives, the level of risk being taken and volatility which is targeted, the investment strategy employed by the fund manager, the sustainability credentials, the financial strength and reputation of the fund manager, and their track record. These are all important elements which we factor into our advice and due diligence processes when recommending suitable investments for our clients.

How do sustainable investments perform?

In June 2020, Morningstar published a report on the outcome of research they conducted which measured the performance of nearly 4,900 sustainable funds versus traditional peers.

They compared average returns among the sustainable and traditional fund cohorts over the past one, three, five, and 10 years through December 2019, as well as during the coronavirus crisis (in the first quarter of 2020).

Their key findings were as follows:

• Average returns and success rates for sustainable funds across seven Morningstar Categories suggest that there is no performance trade-off associated with sustainable funds. In fact, a majority of sustainable funds have outperformed their traditional peers over multiple time horizons.

• Over the 10 years through 2019, nearly 59% of surviving sustainable funds across the categories considered have beaten their average surviving traditional counterpart.

• More sustainable funds have survived in the past 10 years, in relative terms. Of sustainable funds available to investors 10 years ago, 72% have survived, compared with less than half (45.9%) of traditional funds.

• Sustainable funds held up better than their traditional counterparts during the COVID-19 sell-off, delivering superior returns in all but one category.

• Fees are a crucial consideration when selecting a sustainable fund. Lower-cost options tend to have greater odds of success.

This is just one piece of research we have highlighted here and the reality is that there are many different factors that will affect a fund’s performance over time.

The Forum for Sustainable and Responsible Investment (USSIF) provides further information on analysis of responsible investments performance.

Please remember, investments can go down as well as up and you could get back less than you invested.

Is sustainable investing a fad?

Governments around the world are increasingly recognising the financial risks from issues like climate change, poor treatment of the workforce and poor behaviour of company executives. They’re encouraging pension fund trustees, fund managers and companies to consider these issues, viewing them as too important to ignore.

Millennials are more interested in sustainability than any generation before them and they have enormous buying power. They have the potential to reward sustainable companies while punishing those that fall short of what's expected.

But it’s not just millennials who are interested. More seasoned investors are embracing the idea that sustainable preferences, environmental and societal concerns, can and should form the basis of a forward-thinking investment strategy. We have seen evidence of this with our own clients, who span multiple generations.

What is greenwashing?

Greenwashing is a troubling strategy that either deliberately or inadvertently seeks to present an initiative or approach as sustainable or ESG focussed, without any evidence to back up these claims.

A similar term, ‘greenwishing’, refers to where fund managers implement ESG strategies with the belief or wish that their actions will generate impact, when, in reality, they are not sufficiently transformative to deliver any real outcomes.

It can be hard to detect when these practices are at play, however, we have thorough due diligence processes we undertake to do everything we can to eliminate these types of investments when giving advice to our clients.

What are green bonds?

Green bonds are fixed income securities issued by companies to raise funds in the same way normal bonds do, but with the proceeds being used to finance activities targeted at climate change mitigation, adaptation or wider environmental goals. Historically, the discussion around sustainability-themed investment has largely been about equity (shares) rather than fixed income products such as bonds, but since the first green bond was issued in 2007, the interest in green bonds, climate bonds, sustainability bonds and SDG bonds has increased significantly.

What is divesting?

Divesting is the opposite of investing, in that it is the practice of removing your money from a specific area. In terms of responsible investing, this would be the idea of closing any investments that do not match your values, beliefs or sustainability preferences. Examples include removing capital from companies involved in firearm production and sales, fossil fuels and alcohol.

Careful planning is needed when considering divestment from non-sustainable investments, taking into account factors such as short, medium and long term needs, charges, market volatility, and the broader economic environment. Our investment experts will consider all of these factors when building a financial plan to meet our clients’ individual needs and goals.