People can form extreme opinions when talking about seemingly any topic these days, whether it be politics, sport, or anything else. So why should the world of investing be any different?
Perhaps the most contentious topic in the industry is that of ethical investing. To start with, whether you can even call it ethical, or sustainable, or be forced to use the rather convoluted phrase environmental, social and governance – better known as simply ESG.
Whatever you want to call it, the area has boomed this year, as evidenced by the latest Calastone data showing that since the turn of the year the contrast between non-ESG equity funds and their ESG counterparts was “stark”. The former has suffered net outflows of £3.7bn this year, while the latter had inflows of £2.8bn.
As a result of their popularity, ESG funds seem to be popping up everywhere, so Square Mile’s Anna Mercer helpfully detailed five funds that she liked most in the space. So did Tara Clee, Hargreaves Lansdown’s ESG analyst.
The catalyst for all of this attention was the World Environment Day, which took place on 5 June, largely being overshadowed by the Platinum Jubilee (the phrase ‘Platty Jubes’ is an irk I shall save for another day).
As Mercer wrote, this year marks the 50th anniversary of the United Nations Conference on the Human Environment (the predecessor to the World Environment Day that we all seemingly missed).
Looking at it from an investment perspective, our options have changed dramatically since then. No longer limited to exclusion funds, which avoided investments in harmful industries such as armaments, fossil fuel extraction and tobacco, we now have a plethora of portfolios to pick from.
These can range from ethical exclusion funds to sustainable and environmental specialists, with just about everything else thrown in the middle.
Indeed, James Sym, manager of the River & Mercantile European fund, called investors in this area hypocrites last week, arguing that those who avoid the tough discussions with “dirty businesses” and choose to put their cash in stocks that are only (for example) carbon neutral are doing sweet nothing for the environment.
“A business going from five to zero units of carbon is very commendable but the materiality of it is much lower than a company going from 2,000 to 1,000,” he said.
It might make you feel good and may even win you the smug competition among friends, but it may not unfortunately be much use to the planet.
Of course, there are a range of thoughts on this, only some of which are outlined above. ESG remains crucial to the future of the planet, but how you go about it matters differently.
With the range of options out there, it is hard, but investors need to know what they are putting their money into and whether their fund is doing the good that they want it to do.