The issue of climate change has been around for decades, but in recent years, with scientific evidence showing just how critical the current climate issue is, governments have been clear in their aim to reduce our carbon footprint and prioritise the development of more environmentally efficient and ethically sustainable means to maintain our quality of life.
Over the last decade, sustainability has become increasingly important in the investment world. More investors now want to know where their money is going and what it’s being used for.
In response, more industries across a wide range of sectors are adopting the (ESG) Environmental, Social, and Governance principles, which has helped increase the number of ethical and sustainable funds available to investors.
Investing in ethical funds no longer means sacrificing growth as there are now options available that not only meet ethical requirements but consistently deliver returns above and beyond that of their competitors.
The global acceptance and the growing adoption of ethical and environmentally sustainable processes have made it much easier for fund managers to offer sustainability-themed funds that challenge and exceed the performance of funds that follow a general investment framework.
Square Mile Asset Management can construct ethical investment portfolios on a bespoke ongoing advisory basis. Our minimum portfolio size for our bespoke ongoing advisory service is £500,000.
There are several ‘Environmental’ and ‘Social’ themes that we can consider when constructing an ethical investment portfolio; these include the following.
A global energy mix shifting to renewable and cleaner energy is crucial to limit global temperature increases. Additionally, battery storage will play an essential role in enabling renewables to become a mainstream energy source by smoothing the peaks and troughs associated with a variable output from solar and wind farms. This could include investing in renewable energy developers and operators, renewable energy technology and battery technology.
Roughly two-thirds of the primary energy contained in fossil fuels globally is wasted. As well as reducing emissions, efficiency gains are necessary for the use of all-natural resources, including materials, food and water. At its core, efficiency minimises environmental impact while still providing essential goods and services to society. This could include investing in electrical equipment, industrial process and automation technology, building materials, software and semiconductors.
The value of ‘natural capital’ is not captured in economic measures, yet it is the foundation of prosperity. There are many negative impacts on the environment associated with population growth and a linear economic model. Waste management, pollution control, environmental protection and remediation, and the creation of circular business models are all required. This could include investing in recycling and circular economy, natural capital, sustainable packaging, waste management, environmental engineering and infrastructure.
Transportation is one of the main contributors to global greenhouse gas emissions and pollution and is a crucial target for government curbs. There is significant opportunity for companies at the forefront of pioneering new energy technologies, vehicle efficiency, public transport infrastructure and other low carbon solutions. This could include investing in electric vehicles, electric vehicle technology, rail, public transport, shared economy and cycling.
Water is under pressure from both the supply side (insufficient fresh water, uneven distribution, poor quality and climate change) and the demand side (increasing use in agriculture, industry and municipal/residential areas). Substantial investment is required in infrastructure, alongside behavioural changes, to bridge the supply gap. This could include investing in water utilities, water technology and water infrastructure.
Knowledge & Technology
There is a close link between sustainability and innovation. Technological innovation and the advancement of knowledge play an integral role in developing a more sustainable economic model. The world needs companies that provide tools and services that enable greater productivity and innovation. This could include investing in software, semiconductors, artificial intelligence, cloud computing, robotics, communication services, education and publishing.
Ageing populations are putting systemic pressures on health provision and social care services. The demand for healthcare increases with age, and the challenge will be providing affordable care and services for this growing segment of society over a longer time horizon – as life expectancies are also rising – in addition to supporting healthcare innovation to address unmet needs. This could include investing in health insurance, healthcare information technology, healthcare services and diagnostics.
Growing populations, technological change and climate change are leading to an increase in the scope and complexity of risks. Companies with goods and services that prevent or mitigate risks are necessary to protect human life and enhance economic resilience. Examples are technology or services related to road safety, natural disasters, cybersecurity and food safety. This could include investing in food, drug and environmental testing, transportation and electrical safety, public safety equipment, insurance and quality assurance.
Sustainable Property & Finance
Financial services play an integral role in the development of a sustainable economy. Banks provide essential products and services for savers, borrowers and business. Insurance companies contribute to economic resilience. Urbanisation, demographic trends and climate change necessitate the construction of sustainable and resilient housing and other types of property used to provide social services. This could include investing in financial technology, insurance, commercial and retail banks, housing and digital payments.
Quality of Life
Thousands of years of human development have resulted in rich and diverse societies with complex needs. Many companies with goods or services make a positive contribution to society and human culture by improving quality of life, including healthy living, sustainable consumer goods, and entertainment and leisure. This could include investing in recreation and leisure, sports and fitness, sustainable clothing, healthy and sustainable food.
Ethical investing has come such a long way that not only does following an honest investment approach no longer mean sacrificing returns, but it is now statistically more likely to yield greater returns.
Square Mile Asset Management can provide a full review of your existing investments and performance. If you have investable assets of £500,000 or more, please contact us for further information on our bespoke ethical investment advice service and how it can work better for you and your wealth.
We offer a flexible and alternative approach to wealth management.