What’s the impact of sustainable investing? Choosing where your money is invested is 21 times more effective in reducing your carbon footprint than going vegetarian, swapping flights for rail travel and switching to a renewable energy provider all put together (Make Money Matter, 2021).
There’s a positive movement to consider the environmental, social and governance (ESG) issues when choosing companies to invest in. We believe integrating ESG considerations when investing is important to manage risk within your investment portfolio, and to aim to make the world a better place. Click here to see a one page summary of the differences between an ESG integrated and a traditional approach to investing.
ENVIRONMENTAL. A company that strives to reduce CO2 emissions is less likely to suffer from additional tariffs and taxes based on poor environmental practice.
SOCIAL. A company with a diverse workforce and maintaining high labour standards has better foundations to succeed than one that doesn’t.
GOVERNANCE. A company with reasonable board compensation packages and a clear audit committee structure will score higher on the G of ESG and could show better long-term performance.
We understand that everyone has their own beliefs and preferences when it comes to what they consider good or bad practice in companies. We also accept that almost any investment portfolio could be criticised in some way.
At MUVADO, our core investment philosophy is to avoid the worst offenders (tobacco, weapons, thermal coal production and violators of UN Global Compact) and to overweight companies with higher ESG scores. We believe retaining a highly diversified portfolio is important to help our members meet their own personal goals and objectives.
EXAMPLE – The issue of Russia
A recent BBC article about companies continued business activities in Russia was released last week. Unilever and Procter and Gamble were highlighted as offenders for continuing to provide their items to the Russian people, making a profit. Therefore, contributing to Russia’s economy and the Kremlin’s funds being used to wage war with Ukraine.
It would be easy to say ‘we should exclude all companies doing business in Russia from our portfolios’. Nobody could argue with that from an ESG perspective. Is it as easy to say we should all stop purchasing Dove soap, using oral-b toothpaste, eating Domino’s pizza, going on TikTok, taking medicine made by GSK, drinking Pepsi and Bacardi? Not quite.
With every investment decision there are trade-offs and additional considerations. Excluding companies that continue to operate in Russia would take out c.1,382 companies from the investment universe, (Leave Russia, 5/7/23). This would lead to a less well-diversified portfolio and could lead to lower investment returns meaning you may not meet your investment objectives.
The issue of ESG investing will continue to divide opinion as everyone has their own values and preferences. The most important thing is to ensure that you are comfortable your investment portfolio will meet your own personal objectives, whilst also considering your values.
As MUVADO is an independent adviser, we can offer a range of investment options to our members. We will always strive to put you in an informed position over where you’re currently invested and seek to understand your investment objectives and values.