I do hope you are all continuing to stay healthy during these unprecedented times and are just waiting patiently for your turn to be called for a vaccination. Our local area seems to be doing very well with the over 70s being vaccinated already, which is great to hear, my turn can’t come soon enough.
Some of you may already be familiar with the concept of ‘Green’ or ‘Socially Responsible Investing’ and I am writing to let you know that our Investment Partners, Evidence Based Investments Ltd (EBI) has just launched a range of Earth Portfolios which adhere to the principles of ESG.
What is ESG (Environmental, Social & Corporate Governance)?
The three pillars of ESG cover a wide range of issues. The following table summarises the main areas covered by each pillar.
The funds which make up this new range of portfolios have all been carefully selected to ensure that these principles are front and centre in their stock selection process.
One of the big questions you might ask in considering this type of investment is:
How will integrating ESG funds impact on performance?
In the past it was assumed that investing in line with one’s principles came at a cost in the form of higher charges and/or lower performance but the evidence does not support this; in fact, there is increasing evidence that ESG integration leads to enhanced returns. Consider the Eccles et al (2012) study The Impact of Corporate Sustainability on Organizational Processes and Performance which identifies companies that had long standing good practice in terms of sustainability (closely equivalent to ESG), and states, “High sustainability companies significantly outperform their counterparts over the long term, both in terms of stock market as well as accounting performance.
In addition, engaging in dialogue with companies on ESG adds value. For example, a study of investor’s engagement activity in the extractive sector identified a 4.4% additional return from companies that engaged actively with their stewards and that engaged companies are less volatile than their peers.
More recently there was the Blackrock Investment Institute’s Global Insights report May 2018. The study, carried out between May 2012 and February 2018, found that the MSCI USA Index’s annual gross return in US dollars was 15.8% - the same result as the MSCI USA ESG Focus Index. The World ex-US index returned 10.5%, while its ESG counterpart beat this by 0.6% over the same period. In emerging markets, the ESG index returned 9.1%, while its parent benchmark only produced 7.8%.
There is no guarantee of course that this kind of outperformance over traditional funds will continue but with so much more attention on how our actions impact the environment around us, it does makes sense that companies which adhere to the principles of ESG, could do very well indeed.
We at Clearwater have no axe to grind or any angle on this, we remain completely agnostic on this issue but we are sure some of our clients might take some comfort from having their money managed in this way. We have some really helpful, easily digestible literature on the Earth Portfolio range and if you are interested in exploring this further, I will be very happy to send it over to you. There would be no cost to switch and there is a corresponding Earth Portfolio for each of the existing portfolios, in terms of asset allocation.
As always, if you have any questions about this piece or any other finance related matter, please do not hesitate to get in touch.
Let’s hope we can get out of this interminable lockdown soon but in the meantime, do keep safe.
Yours sincerely
Graham Ponting CFP Chartered MCSI
Managing Partner
