Recent discussions with a range of our clients confirm that some are worried. They are worried about the effect of rising interest rates, and inflation on markets, worried about the ongoing effect of covid on economies and the burden of the debt that has been used to stimulate them, and worried about the potential for major conflict in the Ukraine.
…and then we have the climate change issue. Some progress was made at November’s COP26 in Glasgow, however we have a daunting task ahead. Aligning with a 1.5 degree Celsius (1.5C) world requires that we halve emissions in the next 9 years, and that we achieve net zero emissions in just under 30 years. We will need to mobilise up to $3.5 trillion (USD) per year until 2050 to achieve net zero, according to a new study by McKinsey. ‘Business as usual’ will simply not deliver within this timeframe, or with the scale required for this transition.
Things can start to seem pretty grim for investors, especially when world leaders are obviously struggling to find answers!
Therefore it’s important to reflect on the fundamentals of ethical investing, and what it means to create positive impact. It’s about taking a measured approach to risk and return (as with any portfolio), but with the overlay of providing a benefit to the environment and society.
Our client portfolios invest across a broad range of sectors and themes, complemented by different management styles. When meeting with our clients to review their portfolios, we often cover a broad range of topics. We might discuss innovations in diagnostic healthcare, regenerative agriculture and electric vehicle car components all in the same conversation, and that would only be scratching the surface in summarising the activity taking place within the portfolio. When our clients hear about the progress being made in various sectors, it’s not hard to be optimistic about what the future holds.
Regarding climate change, it’s not simply about avoiding investments in fossil fuels. We position our portfolios to seek opportunities in the transition to a low carbon global economy. Knowing that business as usual will not be enough to achieve net zero is a good starting point, because it allows us to be solutions focused. We search for companies who are innovating and disrupting the status quo in order to take leaps forward, rather than small steps.
Similarly, it’s not just about investing in renewables. It’s about facing the challenges in hard to abate sectors such as heavy industry (for example cement, steel, chemicals, and manufacturing) and transport, and finding solutions to those challenges. The sectors which are the most difficult to decarbonise have largely been ignored, but they are now being addressed. The fund managers that we work with are assisting by mobilising large amounts of capital to invest in companies providing solutions, including the provision of finance via impact bonds.
Investors with ethically aligned portfolios are encouraged to turn down the short term ‘noise’, stay focused on long term goals and take the time to appreciate the amazing positive impact that is being created behind the scenes in their portfolios.
James Baird
Director of JustInvest Financial Planning, Member of Ethical Advisers’ Co-op
Authorised Representative 322583
Ethical Investment Advisers AFS Licence 276544
