Ethical Investment
Helping you invest for the future while making sure that your investments complement your ethical values.
Ethical Investment - Ethical, Sustainable, Impact and ESG investing explained
It’s really all about doing good things with your money – doing right by the world by investing into areas such as renewable energy, pollution management, waste management and recycling or sustainable transport – and equally by excluding those that you believe are detrimental to our planet and a sustainable way of life.
The received wisdom has been, up until now, that investing ethically was ‘niche’ and an area where you would inevitably have to compromise investment returns – but all that has changed.
Many vital themes associated with sustainability have become mainstream for individuals and businesses. Capital invested into ‘ethical’ funds has trebled over the past 10 years as UK investors pour their money into green, socially responsible and environmentally aware companies.
Recent figures revealed that the assets held in ethical funds rose from £4.5bn in 2008 to £16.7bn in September 2018 and furthermore, according to the Investment Association, more than £600m from individual investors flowed into ethical funds in the first half of 2018, compared to only £180m in 2008.
Contemporaneously, this boom in investing ethically followed a string of high-profile governance failures, ranging from the VW diesel emissions scandal to a series of shareholder and investor driven protests over excessive executive pay levels and remuneration packages at FTSE 100 companies.
The language of Ethical Investment
There is an overabundance of different jargon, abbreviation and buzzwords surrounding this subject – ethical, ESG, Sustainable, SRI, impact investing – what do they mean?
Here is our ethical investing jargon buster:
» Ethical Investment?
Ethical investing concentrates solely on avoiding investments into sectors such as gambling and tobacco – known as negative screening.
Companies which damage the environment, for example coal extraction, mining, oil & gas industries as well as controversial weapons manufacturers are often excluded.
These Ethical funds do have the potential to perform well over the longer term but their performance will inevitably diverge from that of more conventional ‘non-ethical’ funds.
This type of fund will invest more in ‘cyclical’ businesses, like those in the technology, banking or other financial sectors and their performance therefore tends to mirror the health of the economy. Ethical funds generally tend to invest more in small and medium-sized companies than other funds. That’s because many large companies operate in areas which an ethical funds will naturally screen out such as oil and gas. By their very nature, smaller companies can be more volatile and therefore higher risk than their larger competitors but that doesn’t preclude excellent long-term growth potential.
» ESG investing
ESG investing stands for Environmental, Social and Governance and these factors are considered alongside financial returns as part of ESG investing.
In the ‘ethical’ world, investing in a fund that looks at ESG factors in its investment process is one of the least restrictive ways to incorporate your values into your investments.
That said, some ESG orientated funds will still avoid investment into certain areas, such as mining and tobacco, despite the fact that ‘technically ‘they could invest there. The fund manager of an ESG integrated holding will always consider environmental, social and governance factors as part of their wider research when analysing a prospective company share.
Taking ESG factors into consideration can help fund managers avoid potential issues. So, for example, a mining company might be less likely to face bad PR if they have strong environmental, and robust health and safety, policies in place. In addition, it will be less likely to face industrial action if it treats its workers fairly.
» Sustainable or SRI
SRI stands for Socially Responsible Investing. It focuses on best in class investments based on Corporate Social Responsibility reporting.
Sustainable funds will try to make money by investing in companies which have a positive effect on the world. No area is specifically off limits and instead, the manager will look for companies acting responsibly.
Different Fund managers will define sustainable in different ways. Some will look at how responsible a company is – they might look at whether its products can be recycled or if it engages with the local community and social projects. Some managers might solely invest in companies which actively try to improve our future world, such as green technology developers or clean energy providers.
» Impact investing
Impact investing is about making sure the investments generate an environmental and social impact, as well as a financial return.
Companies within these Impact funds will go a step further in trying to generate a social or environmental benefit which can be measured. The underlying companies might that save a quantifiable amount of water, or avoid producing a certain amount of carbon dioxide.
This will clearly result in the funds being more constrained in where they can invest than say, sustainable funds, but each investment has a direct, quantifiable impact on society.
According to UN studies, the global population will grow more than 20% to 9 billion by 2050.
We will have to make major advancements in areas like clean water, sanitation, energy generation and healthcare.
We believe that funds investing with sustainability at the very core of their process will benefit from these trends.
Can investing ethically make me money?
As we said earlier in this piece, there was a belief that investing ethically meant ‘compromising’ on returns. In more recent years, however, we can show you many, many examples of funds in this special and specialist ‘sector’ performing at least in line with non-ethical or non ESG investments and, in some cases, doing significantly better.
Ethical Investment - Ethical risk warnings
Of course, as with every investment you make, you will need to choose wisely and to understand that past performance is not, and never will be, a guide to future returns.
You should also note that ethical funds may, by definition, have a limited investment universe and this could affect performance.
How do I start investing ethically?
Negative screening is where you avoid investments into companies that do environmental or social harm, such as tobacco companies, adult entertainment, gambling companies or coal and oil extractors – the original ethical investing.
Positive screening is where you invest positively in companies that contribute to society, irrespective of which industry they’re in. This could be businesses which treat their employees well or those business creating ‘clean energy’ via wind or solar power.
You might not have the time or the knowledge to research individual companies and apply these screening techniques yourself, so you could invest in ‘funds’ which are managed by a professional investment team in a way that fits your views. Funds are a super way of buying ‘diversification’ and ‘scale’ which you couldn’t otherwise afford, as they invest in many businesses of many different sizes, in many different industries right across our planet.
A huge ‘knock on’ benefit of investing in funds is that the fund managers visit and talk to the Boards of companies they invest in to encourage them to become more sustainable or socially responsible. They become shareholders in these Companies and their votes at AGMs and Shareholders Meetings can be pivotal.
Pembroke’s Prestige Better World model portfolios – investing with your head as well as your heart!
In 2009, Pembroke created and then actively managed an Ethical investment portfolio which over the decade of its lifetime performed every bit as well as its non-ethical counterpart, our Balanced portfolio. According to FE Analytics, Pembroke’s Ethical portfolio produced a return of +144.63% (31/07/2009 to 07/11/2019 total return, net of fund charges) – that’s a 10-year annualised return of +8.54%.
Now working in partnership with LGT Vestra LLP, we have further enhanced our Ethical offering to create the Better World range of investment portfolios for you.
For the investor with a more circumspect outlook on investment risk we have the Prestige Better World Cautious portfolio; for those with a Balanced risk outlook we have Prestige Better World Balanced and for the more adventurous we launched Prestige Better World Growth in November 2019.
In conjunction with our Investment Partners, LGT Vestra LLP, we choose and manage all the investments in our portfolios – so all you need to do is choose the one which most accurately reflects your personal attitude to Investment risk and we do the rest.
Investing can, and certainly will, be about so much more than just trying to make money. You can choose to use your investments to benefit the planet, society, as well as yourself.
And there are lots of ways to go about it. We can help.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.
Stephen, Hove
10% increase on our investments
Just received the latest 6 monthly valuation statement from Standard Life (a 10% increase!), and so wanted to say thank you to Keith and to you all on the Investment Committee.
Kate
Orchestrating gains amidst turmoil!
I just received the review and haven’t read it yet but am extremely pleased with the results over the past 6 months on my account – especially in view of the pandemic and crazy, constantly evolving economy we are experiencing recently. Many thanks and congratulations to you and the team for orchestrating gains amidst turmoil!
Ethical Investment
Helping you invest for the future while making sure that your investments complement your ethical values.
Ethical Investment - Ethical, Sustainable, Impact and ESG investing explained
It’s really all about doing good things with your money – doing right by the world by investing into areas such as renewable energy, pollution management, waste management and recycling or sustainable transport – and equally by excluding those that you believe are detrimental to our planet and a sustainable way of life.
The received wisdom has been, up until now, that investing ethically was ‘niche’ and an area where you would inevitably have to compromise investment returns – but all that has changed.
Many vital themes associated with sustainability have become mainstream for individuals and businesses. Capital invested into ‘ethical’ funds has trebled over the past 10 years as UK investors pour their money into green, socially responsible and environmentally aware companies.
Recent figures revealed that the assets held in ethical funds rose from £4.5bn in 2008 to £16.7bn in September 2018 and furthermore, according to the Investment Association, more than £600m from individual investors flowed into ethical funds in the first half of 2018, compared to only £180m in 2008.
Contemporaneously, this boom in ethical investing followed a string of high-profile governance failures, ranging from the VW diesel emissions scandal to a series of shareholder and investor driven protests over excessive executive pay levels and remuneration packages at FTSE 100 companies.
The language of Ethical investment
There is an overabundance of different jargon, abbreviation and buzzwords surrounding this subject – ethical, ESG, Sustainable, SRI, impact investing – what do they mean?
Here is our ethical investing jargon buster:
» Ethical Investment?
Ethical investing concentrates solely on avoiding investments into sectors such as gambling and tobacco – known as negative screening.
Companies which damage the environment, for example coal extraction, mining, oil & gas industries as well as controversial weapons manufacturers are often excluded.
These Ethical funds do have the potential to perform well over the longer term but their performance will inevitably diverge from that of more conventional ‘non-ethical’ funds.
This type of fund will invest more in ‘cyclical’ businesses, like those in the technology, banking or other financial sectors and their performance therefore tends to mirror the health of the economy. Ethical funds generally tend to invest more in small and medium-sized companies than other funds. That’s because many large companies operate in areas which an ethical funds will naturally screen out such as oil and gas. By their very nature, smaller companies can be more volatile and therefore higher risk than their larger competitors but that doesn’t preclude excellent long-term growth potential.
» ESG investing
ESG investing stands for Environmental, Social and Governance and these factors are considered alongside financial returns as part of ESG investing.
In the ‘ethical’ world, investing in a fund that looks at ESG factors in its investment process is one of the least restrictive ways to incorporate your values into your investments.
That said, some ESG orientated funds will still avoid investment into certain areas, such as mining and tobacco, despite the fact that ‘technically ‘they could invest there. The fund manager of an ESG integrated holding will always consider environmental, social and governance factors as part of their wider research when analysing a prospective company share.
Taking ESG factors into consideration can help fund managers avoid potential issues. So, for example, a mining company might be less likely to face bad PR if they have strong environmental, and robust health and safety, policies in place. In addition, it will be less likely to face industrial action if it treats its workers fairly.
» Sustainable or SRI
SRI stands for Socially Responsible Investing. It focuses on best in class investments based on Corporate Social Responsibility reporting.
Sustainable funds will try to make money by investing in companies which have a positive effect on the world. No area is specifically off limits and instead, the manager will look for companies acting responsibly.
Different Fund managers will define sustainable in different ways. Some will look at how responsible a company is – they might look at whether its products can be recycled or if it engages with the local community and social projects. Some managers might solely invest in companies which actively try to improve our future world, such as green technology developers or clean energy providers.
» Impact investing
Impact investing is about making sure the investments generate an environmental and social impact, as well as a financial return.
Companies within these Impact funds will go a step further in trying to generate a social or environmental benefit which can be measured. The underlying companies might that save a quantifiable amount of water, or avoid producing a certain amount of carbon dioxide.
This will clearly result in the funds being more constrained in where they can invest than say, sustainable funds, but each investment has a direct, quantifiable impact on society.
According to UN studies, the global population will grow more than 20% to 9 billion by 2050.
We will have to make major advancements in areas like clean water, sanitation, energy generation and healthcare.
We believe that funds investing with sustainability at the very core of their process will benefit from these trends.
Can investing ethically make me money?
As we said earlier in this piece, there was a belief that investing ethically meant ‘compromising’ on returns. In more recent years, however, we can show you many, many examples of funds in this special and specialist ‘sector’ performing at least in line with non-ethical or non ESG investments and, in some cases, doing significantly better.
Ethical Investment - Ethical risk warnings
Of course, as with every investment you make, you will need to choose wisely and to understand that past performance is not, and never will be, a guide to future returns.
You should also note that ethical funds may, by definition, have a limited investment universe and this could affect performance.
How do I start investing ethically?
Negative screening is where you avoid investments into companies that do environmental or social harm, such as tobacco companies, adult entertainment, gambling companies or coal and oil extractors – the original ethical investing.
Positive screening is where you invest positively in companies that contribute to society, irrespective of which industry they’re in. This could be businesses which treat their employees well or those business creating ‘clean energy’ via wind or solar power.
You might not have the time or the knowledge to research individual companies and apply these screening techniques yourself, so you could invest in ‘funds’ which are managed by a professional investment team in a way that fits your views. Funds are a super way of buying ‘diversification’ and ‘scale’ which you couldn’t otherwise afford, as they invest in many businesses of many different sizes, in many different industries right across our planet.
A huge ‘knock on’ benefit of investing in funds is that the fund managers visit and talk to the Boards of companies they invest in to encourage them to become more sustainable or socially responsible. They become shareholders in these Companies and their votes at AGMs and Shareholders Meetings can be pivotal.
Pembroke’s Prestige Better World model portfolios – investing with your head as well as your heart!
In 2009, Pembroke created and then actively managed an Ethical investment portfolio which over the decade of its lifetime performed every bit as well as its non-ethical counterpart, our Balanced portfolio. According to FE Analytics, Pembroke’s Ethical portfolio produced a return of +144.63% (31/07/2009 to 07/11/2019 total return, net of fund charges) – that’s a 10-year annualised return of +8.54%.
Now working in partnership with LGT Vestra LLP, we have further enhanced our Ethical offering to create the Better World range of investment portfolios for you.
For the investor with a more circumspect outlook on investment risk we have the Prestige Better World Cautious portfolio; for those with a Balanced risk outlook we have Prestige Better World Balanced and for the more adventurous we will launch Prestige Better World Growth in November 2019.
In conjunction with our Investment Partners, LGT Vestra LLP, we choose and manage all the investments in our portfolios – so all you need to do is choose the one which most accurately reflects your personal attitude to Investment risk and we do the rest.
Investing can, and certainly will, be about so much more than just trying to make money. You can choose to use your investments to benefit the planet, society, as well as yourself.
And there are lots of ways to go about it. We can help.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.
Tharin Johnson, East Grinstead
Thank you for your continued good work
Dear Keith, It was a pleasure to catch up with you today and thank you for the in depth report on our investments with you. Thank you for your continued good work.
Mr & Mrs Eleini, Shoreham by Sea
Thank you and the team for all of your efforts and good advice
I just wanted to let you know it was a good to meet you last week, and to thank you and the team for all of your efforts and good advice in looking after our savings. We have great confidence in you and Pembroke.
