There has been a lot of talk and momentum about Environmental, Sustainable and Responsible investing over the last two months. In a forthcoming event (date to be announced) organised by Jonathan Kattenberg about benefiting the consumer/investor and on how collectively we can all make a difference, it will also tie- in with the theme ‘What Does It Take For The World To Bring Change'.
Here, Jonathan speaks with investment consultant Sophie Norman and her role focusing on responsible investing.
There is a lot of talk and debate about Ethical and Responsible investing. Sophie, can you explain the difference and idea of responsible verse ethical investment approaches?
Sophie: Responsible Investing is the incorporation of ESG factors into the investment process. The manager will be thinking about the company’s environmental, social and governance impact when choosing to invest. Ethical investing is a bit different – this is much more specific to the individual and depends on that person’s principles and beliefs. For example, some may view investing in alcohol as unethical, whereas others may disagree. Ethical investing is investing with that individual’s principles in mind. Generally, ethical funds exclude common sectors viewed to be unethical.
What are the different types of screening for ethical, sustainable, and responsible companies invested in the investment world? Why is this important?
Sophie: Screening can be negative or positive. Negative screening could be looking at investment opportunities and choosing not to invest in companies with certain characteristics, such as choosing not to invest in oil companies. Positive screening is the opposite – this is selecting companies based on them adopting certain factors, e.g. contributing towards clean energy. Both are approaches to investing responsibly. However, negative screening is more focused on reducing the harm done by your investment portfolio, whereas positive screening is more focusing on doing good.
Is there such a thing in your opinion as a completely ethical fund, or is there a balance to be found?
Sophie: Ethical means something different to every investor, depending on their beliefs and principles. One fund may be completely ethical to one person, but if another person has slightly different principles, it might not be completely ethical to another. It gets quite subjective!
Historically ethical investing, whilst providing sentiment to the investor, has not always provided results to meet the client's needs. Is there a balance of an ethical approach to investing in the environment within a Sustainable and Responsible approach to investing? And why?
Sophie: Ethical investing in the past has focused on negative screening, i.e. screening out companies with certain characteristics. Historically, this meant that lots of the sectors that did perform well were screened out, e.g. tobacco. The SRE fund takes more of a responsible investing approach, focusing on companies with strong ESG credentials, which is a different approach to ethical investing.
Following on from the previous question, how does supporting fund managers commit to Responsible and Sustainable investing benefit those who truly care about the community, planet, people, and our future generations?
Sophie: All our fund managers meet our minimum responsible investing standards – they are all signed up to the United Nations Principles of Responsible Investing (UNPRI) and integrate ESG factors into their investment process. This indicates a commitment to responsible investing.
SJP actively monitors and engages in how our managers integrate ESG into their investment process and look at the carbon footprints of their funds.
Why do you think there is a shift in the investment world's approach to ethical, sustainable, and responsible investing?
Sophie: The climate emergency is critical here, in addition to all the media attention it's getting. People can really see the damage being done and understand the urgency of the situation better than ever before.
In our next article, we will be covering matters around the Environmental, Sustainability and Responsible Investing in the global community and why this can be so beneficial for our planet and people. Whilst the audience will have to wait to see your lovely heart-warming smile in March, that said, why should someone read our next article?
Responsible investing is such a broad topic, I think we have only touched the surface here! We will be diving more into the detail, how does it actually make a difference and focusing on our Sustainable & Responsible Equity fund.