Take yourself back to 2003. Arsenal won the Premier League undefeated with ‘The Invincibles’, Westlife topped the charts and Tony Blair was Prime Minister. This was also the year when the current management team of the Royal London sustainable funds took over. And, like the football tables, pop charts and politics, much has changed since then.
Sustainable investing is all about integrating environmental, social and corporate governance (ESG) factors into investment decisions. Back in 2003, if investors were asked what role ESG analysis has in investment decision making, the answer would be almost universally ‘none’. Indeed if there was a view on the effect of ESG factors on investment returns, it would have been negative. Principles are fine but they come at a cost, would be the response. Also, beyond a narrow universe of people badged ‘ethical’ investors, funds that think about the environmental and social context of their investments were deemed to be niche and of limited interest.
Today sustainability is becoming accepted as part of investment decision-making process. Equally, funds that offer investors this kind of approach, such as the Royal London Sustainable Funds, are seeing a notable uptick in interest. Why is this? And is it here to stay?
From an investment standpoint, sustainable investing is based on a very simple premise: environmentally responsible, socially positive and well-governed companies can deliver better investment than those who are not. We can see this in the large number of corporate scandals that have their roots in poor ESG management, such as Volkswagen, Facebook and Carillion. We can also see this in companies that have products and services with a social benefit to them, such as those companies in the healthcare and technology sectors. These companies tend to offer stronger growth prospects. So being environmentally responsible, socially positive and well governed translates nicely into the potential for better investment outcomes.
From a product perspective, we’re seeing a huge shift in consumer preferences, not just in the financial services industry, but across all industries. There is a noticeable trend in consumers wanting to understand the environmental and social context of the products they buy, rather than just looking at their basic use. For example, this is manifesting itself in the supermarket, where the higher growth areas are the organic, free from and fresh produce, and the decline is in the big bulk brands that stand for very little.
This shift is often associated with the rise of the ‘millennial’ generation, those born from approximately 1982-2000. This generation has been born into a digital, global and social media driven world. They understand more than ever how the consumer choices they make influence broader society and the environment. How they invest is no different. Increasingly consumers want to invest for their future in a way that improves the environment and society as a whole. This is very positive for sustainable investing.
These are exciting times. Sustainable investing is coming of age and Royal London is championing its development.
Find out more about how your clients can now access our Sustainable Fund Range.
Mike is Head of Sustainable Investments at Royal London Asset Management, and has been the Fund Manager of the Sustainable Leaders, World and Diversified Trusts since 2003. Prior to this, Mike worked as a Deputy Fund manager at the Co-operative employee pension fund for two years and an investment analyst covering the utility, support services and media sectors. He originally trained and qualified as a Chartered Accountant, and has spent the majority of his career assessing environmental, social and governance issues and how they influence investment decisions. He is a specialist in sustainable investing and one of the few fund managers in this area with such long tenure.