The power of ESG investing
WHETHER I am getting old or not, is not in question. Given my date of birth, and the alternative to being old, I am glad I am 52.
The ‘wear sunscreen' song reminds us of the ‘inalienable truths': ‘Politicians will philander… and when you get old you'll fantasise that when you were young, politicians were noble and children respected their elders'.
I am there. Football was real, they didn't roll eight times after a tackle, manicure their eyebrows, and television wasn't about ‘celebrities' being paid to go into a jungle, have worms poured over them and ask to get out.
Worse still, we did not watch television, watching people sitting in their houses watching television, watching ‘celebrities' have worms poured on them.
Did times change, or did the ‘tube' change them for us. Are they changing back again?
In business school, we were taught all about customer service and values. This was to be the way forward, the differentiator that made you special, the ‘luck penny' you receive from the corner shop knowing they will also fix anything that's not working.
However, with the domination of Neoliberalism and the effective ensuing bubbled monopoly they enjoy, large firms do not seem to care at all. Even if you can find their customer services number, ‘press 1 to be sent to the moon' is the best option to take.
That was until ESG arrived. More on how this affects your life, funds, security and performance in a moment, but simply put, Environmental, Social and Governance are the headings.
Environmental covers how companies interact responsibly with the environment, Social covers how they conduct themselves with both internal and external communities and Governance frames how they behave in their business activities.
Knowing if a company is ticking these boxes with meaning and purpose is everything, whether you are an employee, customer or investor.
If you are an employee, you want to feel good next to your firm and say with pride who you work for. You want to get up earlier than normal to be with your colleagues who believe what you believe. You also want to know that your firm is sustainable and not likely to be fined/closed down, for not treating people fairly, dumping your pension fund into the mix whilst protecting their own assets.
Similarly, if you are an investor, all of the above are necessary if you want safe, secure and steady sustainable returns, rather than a chart resembling the crowd watching McEnroe and Borg.
The tipping point is of course when the consumer becomes aware when they are making a purchase. That effectively bullies the school bullies into doing, as they should.
For society to flourish, we cannot have our local spending money being hoovered from our local environments into an online Black hole in the sky. We cannot have Swedish services for US prices, and we need to think about when that capital moves from our bank accounts to online providers, it's likely never to see your town again.
For communities to survive, let alone perform, we need your local shop to receive the money, who spend it over and over again throughout the town, village and county, as the owner uses the carpenter, who uses the electrician, who uses the florist etc.
Times are changing. Investors, and in particular Blackrock, have been very successful in forcing change, as investors have weaponised their capital to create a voice to make sure companies operate responsibly.
In September, the Big Four accountancy firms agreed a common framework to cover ESG reporting standards. This is a rare and colossal step forward.
Commetrics recently announced to their vast range of top corporations to take their focus away from bland targets such as ‘purpose' and focus on the quantifiable target of ESG.
That movement has very much begun. Since 2012 for example, the number of signatories to the UN supported Principles for responsible Investment has reached 2,400 funds.
That group controls over $86 trillion.
Evidence is clear: ESG limits risk and produces more sustainable returns and you get to feel the future you have borrowed from your grandchildren will be there to give back.
:: Peter McGahan is chief executive officer of independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority. For advice on ESG funds, call Darren McKeever on 028 6863 2692, email firstname.lastname@example.org or visit www.wwfp.net.