by Cian Callaghan
Take any financial website, brochure or ad these days, and it’s likely that at some point you’ll come across the words ‘sustainable’, ‘ethical’ or ‘green’. They might also talk about ‘ESG’ (environmental, social and governance) or ‘responsible’ investing. Given the state of the world today, with its climate, human rights and poverty issues, that’s commendable, isn’t it?
It’s not quite so simple. While being environmentally and socially responsible is a worthwhile pursuit for people, businesses and investors alike, it’s by no means a straightforward thing to achieve. And where intention isn’t backed up by authentic action – especially when it’s only in place to attract business from those looking to make a difference – it can be called out as ‘greenwashing’.
What’s green investing anyway?
With no common agreed standards or metrics in place for what sustainable investing should look like, there’s no right answer here.
There are varying definitions for the different labels – ethical, responsible, ESG, sustainable – and how they differ from one another, but we don’t think that really matters. None of them are black and white (nor are they necessarily green). So excuse us while we bundle them up and use the terms interchangeably here.
Responsible investing is hugely popular, as more and more people want to invest their money in a way that aligns with their values and moral beliefs. The problem is that, not only does this look different from person to person, the measures used to choose companies and products to include in sustainable investments are also subjective.
The selection criteria can generally be divided into negative screening (we won’t invest in companies that produce arms or tobacco, for example) and positive screening (we will invest in companies that, say, generate alternative energy). This may seem clear cut, but it’s anything but. A company that may be seen as having a positive impact could have connections or produce outcomes that do the exact opposite. Let’s scratch the surface here with some examples:
Even where there is a ‘clean’ ethical trail for a business or an investment fund, with no industry regulation in this area, there’s no guarantee it will remain that way.
We’re not saying that there are no responsible investment providers out there doing a good job in helping investors make a difference. But with so much demand for these kinds of investments, there are plenty more entering this arena that aren’t quite doing what they claim.
Then there’s value for money. Because responsible investments need to be actively managed, by their nature, they cost more to run. This puts extra pressure on returns to make up the difference. And, unfortunately, many sustainable investments don’t score highly here compared to automated tracker funds. Granted, this often isn’t the first objective of those looking to invest ethically, but when it’s not even authentic, is it really worth the trade off?
So how do you make a difference when investing?
For all of these reasons, at Metis Ireland we’ve decided that for now we will not specifically recommend ESG funds. We recognise that there’s great work being done to formalise the definition of a genuine ESG fund, but it’s not quite there yet. So we believe that waiting for this work to be completed and verified by globally recognised independent groups is the best way forward.
We have a saying here at Metis Ireland that we’ll never propose our clients invest in the ‘next best thing’. We believe our position on ESG funds right now allows us to be true to our word. As evidence-based investors, we only invest in things that have always worked and have a long term proven track record.
We believe in a more reliable way to make a positive impact on the world through your investments. Instead of relying on a fund manager to pick ‘virtuous’ companies according to a narrow definition, our evidence-based approach leads us to invest in the global stock market (the great companies of the world) over the long-term. Representing thousands of different companies, investing globally generates reinvestment in developing countries, creating new wealth and opportunities for communities that need it. There is clear evidence that lifting people out of poverty gives them the time, energy and resources to take more care of their environment too.
Of course, by putting your money to work across the globe through a well-diversified portfolio that’s designed specifically for you and your goals, you’ll know your money is working as hard as it can for you. That’s how you invest for a better tomorrow.
Book a call with a member of the Metis Ireland team to get started.
And if you are interested in sustainability, you should check out www.futureplanet.com. Future Planet’s mission is to equip people and companies to do right by the planet and each other as they continue on their journey of commercial growth.
Cian Callaghan is the Head of Financial Planning and a Private Client Manager at Metis Ireland.
Metis Ireland Financial Planning Ltd t/a Metis Ireland is regulated by the Central Bank of Ireland.
All content provided in these blog posts is intended for information purposes only and should not be interpreted as financial advice. You should always engage the services of a fully qualified financial adviser before entering any financial contract. Metis Ireland Financial Planning Ltd t/a Metis Ireland will not be held responsible for any actions taken as a result of reading these blog posts.