What is sustainable investing?
TALK about sustainability to most and it is a very passionate yes. To others it can be an image forced upon them of a tree-hugging, lentil eating typification.
Why the binary thought process? Because it is often maligned, and inappropriately so.
Knowing what many pension funds are inappropriately invested into, I am often baffled why we are putting money into pensions and investments for a nice long retirement, by investing into non-tax paying, sustainability busting companies, that make your retirement more inflationary and indeed more unlikely.
I’ll explain sustainability with a story:
We have a choice. When we purchase services or goods, or invest money, we can buy them by throwing our money into a fast flowing river. Let us call that river the Amazon. For the hell of it!
That river gains more gush the more it receives, and as it heads south, it rips the banks out of society, offering no contributions to that society, leaving ghost towns behind it.
At the end, it falls off into a non tax-paying waterfall, never to be seen again.
An alternative at the top would have been to create a circular lake with that money. That same society could gather around the lake, enjoy its beach, expand into bars and restaurants and accommodation to rent around the lake, and then build back into local accommodation and schools hospitals etc. Smiles all round.
When the water is high, it can be used for hydro etc.
You get the drift I’m sure: Support non-tax paying businesses or keep amongst you to support you and a sustainable society?
It was therefore very strange when Donald Trump finalised a rule last year that limited the power of those running pension funds in where they could or could not invest. Yes, he did.
If you wanted your pension fund to follow Environmental Social and Governance policies (ESG), Trump blocked that by disallowing fiduciaries that power. That’s neoliberalism tipped over the edge.
ESG analyses how companies you are invested into affect the economy as a whole and do they play the right part? Do they pay the tax to support economies they are benefitting from, or are they happy to let that river run dry, as long as they own the pool at the end of the waterfall?
That’s one rule for the elite…
Jeff Bezos has come under fire from Joe Biden’s tax reforms singled out not once, but twice as a blue chip US company “using loopholes to not pay a single cent in Federal tax”. Biden has said he will put an end to that, and Bezos has responded saying he will support Biden’s infrastructure plan and corporate tax reforms.
We are indeed making progress.
Let’s remember, the entire budget of Ethiopia (population of 105 million people) is the equivalent of just 1 per cent of Mr Bezos' fortune, conceived whilst not supporting taxation.
This is not sustainable, and investors all over the world are moving away from such policies.
Here is a simple explanation of just one aspect of sustainability through the river of life.
Did you know for example, there is a 50 per cent risk of emotional and behavioural problems at 4 and 7 years if the mother was in the top 15 per cent of anxiety during her pregnancy, and 15 per cent of childhood behavioural problems can be attributed to stress during pregnancy.
Follow that through and you will find that £8.1bn is being spent to deal with long term consequences of perinatal mental health conditions in the UK. Some 72 per cent of this cost relates to adverse impacts on the child rather than the mother.
Some may like to wash their hands of society’s issues but its clear where just this one small issue is coming from, and misspent energy of a child, alongside misspent tax payer money is something well within our control. It would cost a fraction of this to bring perinatal mental health care up to scratch
Janet Yellen declared she now wants a global minimum corporation tax, something the tax-exempt elite will not rejoice with.
Some 55 big corporations in the US paid no Federal tax from $40bn in profits.
Sustainable investing do not support those organisations or what they stand for. Divesting from them has a serious impact they will struggle to digest.
:: Peter McGahan is chief executive officer of independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority. If you have question on sustainable investing, call Darren McKeever on 028 6863 2692 or email firstname.lastname@example.org or visit https://www.wwfp.net/