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Does investing sustainably mean making less money?

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These days, positive investments (whether labelled ‘responsible’, ‘sustainable’ etc.) don’t just cut out the bad – they actively support the good.

“Through the 2000s, investors moved on from thinking about what’s actually being sold and whether that’s good or bad, and thought more about how businesses were run," begins George Latham, Managing Partner of WHEB asset management.

"So regardless of what your product is, do you treat your staff well, do you run your factories well, do you have good governance, do you have good environmental policies, and do you manage your footprint in how you manage your business.”

That is to say that if you’re supporting well-run, well-considered companies that people actually agree with, it shouldn’t come as a huge surprise when some of these companies do well financially. Meaning you should do well financially too.

 

Nice theory… how does it look in practice?

“When we do surveys of our members, two thirds to three quarters say they want us to invest responsibly. Half of those say we don’t want you to give up any return. Which is fine because we don’t believe you should have to give up any return,” shares Mark Fawcett, Chief Investment Officer at NEST Pensions.

“Cutting out tobacco is a good example. Tobacco sales globally are falling, profits are under pressure, they’re shifting from high-margin cigarettes to loss-making vaping. It’s a really bad business model. And they’re being regulated more and more. So as a financial decision to get out of tobacco, it’s a good decision. There are other reasons to get out as well – children in the supply chain, marketing to children – etc. but predominantly it’s a financial decision.”

 

Show me the numbers

Take robo adviser Nutmeg’s ready-made SRI (socially responsible investing) portfolios from this past year, compared to the average non-SRI portfolio. At every risk level, the good guys outperformed. And this isn’t an isolated incident – research giant Morningstar have reported that both active and passive ESG funds have “on average done much better” than conventional funds over three, five and ten years.

Nutmeg returns

 

Of course, nothing’s ever guaranteed. We certainly can’t say you’re more likely to make a good return with a sustainable investment. But we can say that you shouldn’t automatically expect to make a worse one.

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