Why sustainable investing can ditch the ‘activist’ tag

Investing ≠ activism

Activism can provoke a negative reaction in people. If you’ve been anywhere near the M25 recently – where climate change campaigners have blocked the motorway to traffic – you’ll probably understand why.

That group has successfully grabbed our attention, but will it achieve its goals? The jury’s still out on that one. High-profile activism, whether it’s digging tunnels to stop building work, or shutting down airports to protest against air travel, can put off as many as it wins to the cause. 

So even though we’re all far more conscious about issues like climate change, cutting our carbon footprint or making the world a fairer place, many of us are still a bit nervous about putting our head above the parapet. We fear being branded with the ‘activist’ tag.

It’s the same in investing. There are still advisory boards of ESG-related investment funds that baulk at using terms like ‘ethical’ or ‘sustainable’ in fund titles – just in case it puts investors off. 

That’s despite ESG now being much more mainstream. In the 2021 ‘proxy season’ (where shareholders get to vote on how they think companies they hold a stake should be run) there were record levels of resolutions tackling ESG themes, such as climate change and diversity. 

But here’s the important thing to remember. While the goals may often align, sustainable investing is not activism. 

It’s investing for your future and the planet’s (not either/or)

The bottom line with sustainable investing is that it’s about making you money. The advantage is that you can help create a better world while doing it.

In fact, quite the opposite to being an ‘activist’, you could argue, choosing to invest sustainably is the most relaxed form of contributing there is. It’s even less work than separating your waste into a recycling bin!

By being aware of environmental, social and governance factors and the impact they can have on your investments, being a sustainable investor helps you: 

…improve your portfolio’s resilience. For example, many UK funds have benefited in the past from being investors in North Sea oil. As the world moves towards a ‘net-zero’ energy supply, who’s to say that these companies won’t be subject to back-dated fines, or increased taxes? In my view, that’s a risk that investors have to take seriously.

…look to the future. ESG investing means identifying companies that are tapping into some long-term trends, whether that’s creating greener forms of energy, or contributing to a ‘circular economy’. In some way, it’s like the early days of the railway boom in the 19th century. Investors then were pioneers putting money into in a new world of opportunity. This is the modern version.

…and it’s also helping contribute to broader change. At times, buying an electric vehicle, or other changes we can make in our lives, can seem like a drop in the ocean compared with the size of these global challenges. Being a responsible investor helps you make a more substantial difference. According to Make My Money Matter (founded by former government adviser Jo Corlett and Love Actually director Richard Curtis) ‘greening’ your pension is 21 times more effective at reducing your carbon footprint, than if you stopped air travel, turned vegetarian and switched your energy provider all at the same time. 

It’s time to lose the cringe factor

Much of the scepticism levelled at sustainable investing stems from false assumptions that it’s a form of activism. On one side of the debate there are those who claim focusing on ESG ignores the ‘real’ financial issues. But on the other side, campaigners accuse it of ‘greenwashing’ and marketing spin that doesn’t lead to any changes. 

Neither are correct. ESG, in the hands of experienced investors, is proving an effective way of growing your financial returns. I think there’s a responsibility here for advisers to help break down the misconceptions and educate clients on what being a sustainable investor entails – and the many options that are available to them.

In this way, we can remove the ‘cringe factor’, and help more people incorporate responsible investing into their financial decision making.