Vista - Sustainable impact investing

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26/02/2019
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This article was correct at the time of publishing however the information contained within it will no longer be current. It may also no longer relect our views on this topic.

As investors we seek positive long term returns in order to increase our wealth and provide us with security and a better standard of living. Yet wealth can be defined in other ways. It can include our physical and mental health, education, society and the state of the world. Without these other factors simple monetary wealth is diminished. Most people would be certain they want to live in a safe and tolerant society, in a world that is diverse, pollution free and preserves the biodiversity of the planet. We want this not just for ourselves, but for our families and friends, now and in the future. 

In 1987 the United Nations defined sustainable development as "development that meets the needs of the present without compromising the ability of future generations to meet their own needs". 

Today, the United Nations has 17 sustainable development goals which range from ending poverty, action to mitigate climate change, sustainable cities and gender equality. These objectives were set in September 2015 and form a new sustainable development agenda. Each goal has specific targets to be achieved in the next 15 years. 

Businesses of all types are signing up to work towards these goals, and the investment management community is a part of this. It is common to find environmental, social and governance standards (ESG) now considered in the analysis of companies before investing; a significant change from only 5 years ago. Good ESG credentials invariably mean better quality business and potentially better returns. 

Monetary wealth creation and these sustainability factors are now being talked about in the same breath, something that has been discussed by a minority for a long time but has now entered mainstream investing. 
What's changing? When looking at which companies to invest in, environmental, social and governance records are carefully scrutinised - management is challenged when there are short falls and investors ask what is being done to improve them. 

Engagement of this type can and does bring change. How a company performs in these three areas is referred to as their ESG rating. There is increasingly the view that companies with good ESG scores will perform better in the long run. Perhaps this is obvious, because they are less likely to break regulations, face fines and censorship. Employees treated well work better and are more productive, and companies working for the benefit of society contribute to the wellbeing of communities. 

The approach to this type of investing is to have an 'impact' such that your money generates a good return, but also helps to tackle the many challenges the world faces. 

Economies throughout history have been linear. They have been 'throw away' economies where consumers and producers discard what they don't want and take what they do, without thought to the consequences. Waste is buried in the ground, dumped in the sea or pumped into the atmosphere, it is left to accumulate and pollute. Today we are on a journey moving towards a new economy, a more circular economy in which waste is recycled and resources used efficiently, with due consideration given to the impact. This major shift is very much underway. 

A key theme in this is decarbonisation. The need to rapidly decarbonise the global economy is now accepted. The planet's average surface temperature has risen about 2.0 degrees Fahrenheit since the late 19th century, a change driven largely by increased carbon dioxide and other human-made emissions into the atmosphere. Most of the warming occurred in the past 35 years, with 16 of the 17 warmest years on record occurring since 2001 (Source: NASA). 

One way to provide investors with the best opportunities to increase their wealth is by investing in companies whose products and services are going to increase in demand. In today's world we feel strongly that those businesses which adopt ESG measures, are profitable, benefit society and preserve the environment and fall very much into this category. Importantly these companies are building on enduring themes in industries of the future. 

 

The value of an investment with Rowan Dartington will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.