Beyond greenwashing: how the investment market is moving on

Ian Quigley, part of the management team for investment strategy at Brewin, is adamant that technology can help green the world. He feels that some people are stuck in a Malthusian mode where they think economic growth will only result in disaster and world hunger.

“Technological change and progress is the answer, not retrenchment. If we stop expanding then not only are we, living in a developed part of the world, being selfish, but we are also going against the natural desire of humans to want to expand,” he argues.

“This is an opportunity to embrace – and invest – in technology enhancing projects that will move us from a carbon net zero world and ultimately to a carbon withdrawal one. This is increasingly reflected in scientists becoming more vocal and for world leaders such as Biden adopting more progressive policies.”

Quigley references Carlota Perez, the British-Venezuelan scholar writing on technology and socioeconomic development, who points to the technology that allows the world to make better choices.

“There is a movement, helped by Covid, to push European governments into more active roles, stimulating environmental sectors, supporting the players and helping to produce strong economic returns. This is an opportunity,” says Quigley.

Development

He has seen the development over the past number of years where Brewin clients have begun expressing interest in investing in sustainable assets. “Europe had tended to lag behind, it didn’t have the big tech giants of the Americas, but the landscape is starting to change.”

The investment team at Davy Private Clients has an investment selection team in which Eileen Rowsome specialises in looking at investment for its SRI portfolio, or socially responsible investing, which began life as a way of excluding investments rather than searching for new ones.

As Rowsome explains: “Many of the clients in this section might be religious orders, charities and not-for-profits. Traditionally they would like us to exclude investments in known problematic industries featuring alcohol, weapons or tobacco, for example.

“Increasingly we find that this cohort is joined by our private high-net-worth individuals looking for better choices, not just in excluding the old ‘sin shares’ but actively looking for ESG [environmental, social and corporate governance] focused companies.

“It goes beyond just avoiding fossil fuel companies but looks at other elements such as labour policies, supply chain transparency or violating human rights as laid out by the UN,” she says.

Rowsome points to the work undertaken by AB Foods, the parent company of Primark. When a BBC Panaroma programme unearthed child labour in three Indian factories in 2008, it suffered a swift backlash. AB Foods went on the offensive, dismissing three of its suppliers immediately and now, 13 years later, has an annual responsibility update report, which this year stretches to 60 pages.

Public backlash, heightened public awareness and regulations are all starting to take hold. At Mercer Ireland, Rob Meaney, responsible investment lead, also points to the sustainable financial disclosures (SFD) or green deal, as it is commonly known, introduced by the European Union in 2021.

“I still think we are only at the beginning,” says Meaney. “It’s definitely a step in the right direction and will do much more than eliminate potential greenwashing, it’ll make it easier for investment managers to evaluate companies and projects.

“It’s not an easy piece of work but it will eventually make our job easier.”

Meaney works with broad asset classes and publicly quoted shares, but, increasingly in the sustainability investment sector, Mercer Ireland is looking at private markets.

“It’s such a burgeoning space that our clients are interested in looking at private companies; for example, companies investing in wind farms or renewables. It is niche but there is an opportunity to get involved early on with bigger returns as a result,’’ says Meaney.

Quigley is also faced with the balance between wanting to support meaningful companies and projects and provide real investment advice.

Strong investment

“There’s quite a bit of overlap between what will make investment sense and what will make environmental sense. The good news is that there is increasingly a strong investment rationale for investing in the environment,” he says. “This can be seen in the recent MSCI index where SRI indexes tracked other indices between 2013 and 2019, but then in 2021 leapfrogged to a 163.1 per cent return, almost three times higher than the FTSE All index.”

Rowsome welcomes the growth as she acknowledges it is a balance between finding SRI companies, while also providing a return on the investments.

“When tech giants such as Microsoft or Apple are pledging to be carbon neutral that has a knock-on impact on their suppliers which encourages development and investment in carbon neutral companies. Covid actually provided a headwind for energy related companies which outperformed other sectors this year. This is only going to go further as regulators and governments start to prioritise sustainable policies and rules from things like enforcing smokeless fuels, grants on installing renewables to the push towards electric transport.”

This helps Rowsome and her dual mandate.

“It’s marrying their passions with a return. And often these clients are working in the philanthropic space so when they earn returns, they can use it directly for their causes,” she says.

It’s a journey, according to Meaney.

“There are big companies out there that might be fossil fuel players and it will take time for them to turn green. Sometimes it is important to hold them to account and that may include buying their shares. Any company not playing ball will be coming under serious pressure from their shareholders, many of which are big asset managers.

“What’s important is that we have big expectations for 15, 20 or 30 years from now.”

Quigley agrees: “There are even oil companies represented in ESG indexes because they are heavily investing in renewables – they are in the business of generating energy after all.

“There is now an alignment in the environmental perspective and technology that allows altruism and economics to work together and it’s only going to accelerate,” says Quigley.