What Is Sustainable Investing?

Why invest sustainably? That’s a great question. As this type of investing becomes more popular, here we look at what it is and why you might want to look at doing it.

The current definition of sustainability in the Oxford English Dictionary is “The property of being environmentally sustainable; the degree to which a process or enterprise is able to be maintained or continued while avoiding the long-term depletion of natural resources”

So, what does this mean when you see it mentioned in relation to investments? Well, to answer that we must look at what sustainability relates to, and with all the major events that took place in 2020, it is difficult to find any main story that was not in some way linked to sustainable issues.

It is easy to consider how these factors impact on our daily lives, but how do we then invest into markets that will benefit from these advancements and shift in focus? The answer lies within three letters:

E – Environmental

S – Social

G – Governance

ESG summarises the non-financial factors that can be incorporated into the valuation of a business, or into an investment process. Using ESG analysis alongside financial analysis is a more holistic way of assessing risk and opportunities. Within ESG, there are many individual metrics or data points, examples of which are shown below:

What is Sustainable Investing.

Sustainable investing is a broad overarching term, incorporating both ESG analysis, to understand the operational sustainability of a company, and analysis to assess the positive contribution the business makes through the goods and services it produces.

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Did you know...

Taking Flight: 968kg

Flying from London to New York and back generates about 968kg of CO2. In countries such as Burundi and Paraguay the average person emits less CO2 in a whole year.

Forest and Trees: 178m

The world’s forest area has decreased by an estimated 178m hectares since 1990 – that is roughly the size of Libya²

Disappearing Ice: 600bn tonnes

Greenland lost 600bn tonnes of ice in 2019 alone more than double the Island’s average losses between 2002 and 2019.

12 Years

A UN report in 2018 warned that we have just 12 years to avert a “potential climate disaster” when temperatures would rise beyond 1.5C.³

Global Heating

Average UK temperatures have risen by 1C over the past century. In July 2019 the UK recorded its highest ever temperature of 38.7C

Job Creation

The UK government’s plan for a “green industrial revolution” forecasts the creation of 250,000 jobs in industries including offshore, nuclear, and electric vehicle manufacture.

How are global policymakers committing to sustainable investing?

The latest US President looks to deliver altogether more ambitious and detailed climate goals for the US, one of the greatest emitters of carbon dioxide. Biden hopes to commit the US to becoming carbon neutral by 2050, and for the economy to be both more resilient and more sustainable. In President Joe Biden’s first day in office, he signed the US back into the Paris Agreement, although this is likely to be the easy bit.

To deliver his carbon neutral ambitions, Biden is targeting $2 trillion of infrastructure. If approved, the spending will be focused across a range of sectors:

• Infrastructure
• Transit
• Power sector
• Buildings
• Innovation
• Agriculture and conservation

Biden is also planning the creation of a new Advanced Research Projects Agency for Climate; this new cross-agency looks to target affordable, game-changing technology to get the US to their 100% clean energy target.

Similarly, China is planning for carbon neutrality by 2060, which will mean reducing carbon emissions by as much as 90% and offsetting the rest through natural systems or through technology that absorbs carbon. Whilst China is the world’s largest producer of carbon, the country is also by far the largest investor, producer and consumer of renewable energy.

Meanwhile, recently, Putin formally ordered the Russian government to cut Greenhouse Gases by 30% by 2030, from 1990 levels. Whilst Russia is economically dependent on fossil fuels – with energy being the country’s largest export – climate change is a threat to Russia. Sixty-five percent of Russia’s landmass is the Arctic, representing 10% of Russia’s GDP, according to The Arctic Institute.

Why should you care about Sustainable Investing.

It seems only right to now ask the question ‘Why invest sustainably?’. We believe that all companies wishing to achieve long-term success should consider their impact on the environment and society.

In our opinion, tackling the issues that our global community faces, is one of the key responsibilities of all businesses, across all industries. We believe that financial markets need to play an integral part in the global transition towards a more sustainable future for our society and the environment.

One of the major investment themes we see in sustainable investing is that of the ‘green revolution’. There are many investment opportunities across the entire lifecycle of the green transition – from electrical vehicle manufacturing to lithium recycling plants to renewable energy.

Since the start of the year, momentum behind the green transition has continued to gather pace. We believe this is part of a sustained long-term trend that will continue to attract attention from policy makers and an increasing number of investors, according to LGT Vestra’s Sustainable Model Portfolio Service4.

Is Sustainable Investing a good idea?

Whilst we have an Investment Committee responsible for researching the marketplace independently this is a sector of investing that cannot be ignored.

We strongly believe that by investing in these areas, clients will capture these major multi-decade trends that are part of policy maker’s announcements.

Climate and sustainable growth are at the heart of their strategies and by investing, with a consideration of these global issues, will undoubtedly continue to add a lot of value for portfolios for years to come.

We have an independently reviewed range of funds that we actively advise our clients upon and consider sustainability at all levels within our core proposition. Sustainability should not start and end with an investment process. Investment houses offering sustainable portfolios to clients should also have business-wide environmental and social initiatives in place, to minimise the negative impact of operations, and even generate positive impact.

Businesses should be using their resources and talent to generate a positive impact, be it offering specialist in-house expertise to other industries or allocating profits to organisations in desperate need of funding.

For us, it is important that sustainability is embedded within our company culture and ethos.

Written by Debbie Packer Dip CII, MCSI, Founding Financial Adviser, Integrity365.

Customer service is at the heart of everything Integrity365 do, from the early days of pensions and ISAs to investments and lump sum decisions, through to retirement and later life planning, they are here to support you through the key stages of your life with a holistic approach to financial planning.