John Authers’ FT article Ethical investing’s rebranding is actually one of substance accurately describes developments in the ethical investment arena. However whilst good sustainability practises and further investor engagement is important, we firmly believe that these advances alone will not be enough to tackle the growing social and environmental issues that we are facing today.
Firstly, we must invest in companies that are actively tackling these growing social and environmental issues. At EQ Investors, our Positive Impact Portfolios include companies bringing new technologies, solutions or services to improve, for example, energy efficiency and waste management or address financial exclusion and obesity. As these companies tend to operate in higher growth sectors than the overall market, we also expect them to outperform over the long term. The strong performance of our Positive Impact Portfolios since launch is, we believe, partly a reflection of this higher growth.
Secondly, as Authers rightly points out, engagement should be at the forefront of all investors’ screening process. Furthermore, we favour fund managers who have their own internal sustainability and corporate governance team. This helps ensure fund managers engage with the invested companies and work alongside the management to address issues which could be detrimental to share price performance. As these issues can take some time to be overcome, we suggest investors in funds invest for the medium to long term in order to receive the fruits of this engagement work.
Moreover, we believe it is the wealth management industry’s duty to regularly engage with fund managers in order to get updates on the progress made as well as question the appropriateness of certain stocks within the portfolios. Whilst we don’t own ExxonMobil in our Positive Impact Portfolios, we have been surprised with the decision of a number of asset managers like BlackRock or Vanguard to vote against a shareholder resolution which would have pushed the world’s largest oil producer to publish the impact of climate change on its business model. We really believe that oil majors are not adapting their business models quickly enough and have decided to engage with these asset managers to better understand the basis for their decision.
Portfolio Manager, EQ Investors
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