Ethical or sustainable investing has evolved over the past few decades into a US$30 trillion market. What started as being more about making a stance and a way of activism, than necessarily seeking profits, has changed forever.
The good news is that no longer does investing with ethical considerations come at the expense of returns.
Investing in companies that take environmental, social and governance (ESG) factors into consideration have proven they can be market-beating. Company directors can no longer afford not to consider these factors in decision making, with shareholders known to penalise stock’s for poor handling of ESG issues.
The most common approach to ethical investing is taking a ‘negative screen’. This investment style avoids a category of stocks entirely such as tobacco or mining.
At Cutcher & Neale – we take a different approach.
Our Investment Committee felt that while ESG and negative screens can weed out bad behaviour, it’s not sparking innovation and moving the ball forward on things like climate change and efficient use of energy. When reviewing many portfolios in our research, managers that were utilising the negative screen process were mostly full of technology related businesses. Whilst not polluting or harming the environment they were not actively pursuing ways to do good.
So, we decided to take things one step further and reward companies that are actively seeking to improve the planet in a positive way – a positive screen approach. Positive (or affirmative) screening means that rather than excluding companies, investors select companies that set positive examples of environmentally friendly products and socially responsible business practices.
Our sustainable themes are:
- companies generating renewable energy, such as solar and wind power
- manufacturers of natural food and healthy living products
- companies involved in environmental clean-up and recycling, resource efficiency and sustainable food production.
Overtime, we expect to add to this list of industries.
Unlike negative screens, which are generally black and white, positive screens require an analysis of complex issues such as pollution, workplace practices, diversity and product safety.
Fostering change through active ownership we believe is the most effective and lasting way to improve corporate behaviour, sharing the responsibility to tackle issues that are critical to improving the lifestyle of future generations.
While it is important to invest in businesses providing a positive impact on society, it is also important that we navigate the growing industry to ensure that we are investing in companies and sectors, both domestically and internationally that show a clear expectation for ongoing financial growth.
There is no point investing in a business that just provides the warm and fuzzy feeling, we are seeking companies that will be profitable and stay around for the long term. What may have started out with moral goals at the forefront, ethical investing is now viewed as an imperative metric when looking at a company’s future potential.
If you are interested in driving change and rewarding those companies seeking a better tomorrow and making profits, please contact the Cutcher & Neale Investment Team.
