Pawprint speaks to Poppy Campbell-Lamerton, Private Client Executive at 7IM, about how sustainable investing can drive the green transition and help shape a world where humans and the planet thrive.
Hi Poppy, thanks for taking the time to chat with us...
To kick us off, why don’t you tell us a bit about sustainable investing; can you give us a breakdown of what it is?
Sustainable or environmental, social and governance (ESG) investing is the term used to describe investing according to ESG principles, so that your money will have a more positive impact on the world around us.
There are many different strategies that come under the umbrella of sustainable or ESG investing. One example is a “negative screening” strategy, which filters out any companies that might be involved in practices that are unsustainable; either socially or environmentally. A “positive screening strategy” is when companies are selected because they are visibly involved in making their companies or products more sustainable.
Usually with a “positive screening” strategy, there is an adoption of a “best in class” approach, which is where companies can be selected (even fossil fuel companies) that are doing the best out of all of their peers to reduce their negative impact on society or the environment.
Other styles of sustainable investing include “impact investing” (investing in companies that are actively involved in reducing environmental or social issues) and “thematic investing”, which is investing according to themes i.e., renewable energy.
What, in your opinion, is driving the demand for sustainable investment opportunities?
It has become increasingly impossible to ignore our negative impact on the world, and the very real fact that if we don’t do something to reduce our carbon emissions and live more sustainably, the human race will simply die out. I think sometimes we forget our relationship with the planet is not mutually beneficial; we’re dependent on the earth to survive.
Sir David Attenborough’s “A Life on Our Planet” was a witness statement exposing the level of damage humans have done to the world throughout his lifetime. He concluded with a few tips on how we could each do our bit to attempt to improve the situation: eat less meat; opt for renewable energy; and think about where you are putting your money. All equally as important, but the latter is something we can think about when deciding what to invest our money into.
Many people who put their money into sustainable or ESG friendly investments are wanting to take part in this drive by doing something positive with their money; investing in change and investing in the future. This drive to live more sustainably is something I am sure you are familiar with at Pawprint, where people and businesses are coming to you to help them measure their carbon footprint and provide them with tips to go about their lives in a more sustainable manner.
How has the world of sustainable investing changed over the past 20 years?
In the past, there was a common assumption that if you wanted to have a positive impact on the world through your investment choices you would have to give up some of the “upside” or investment returns.
This was largely due to the concern that the pool of companies or funds to choose from was smaller and more concentrated geographically. By selecting investments from this smaller pool, you might be minimising “diversification” benefits (benefits derived from spreading your risk rather than having all of your eggs in one basket). However, as the popularity of sustainable investing has grown, so too has the choice of ESG funds in the market, as well as other ways to invest sustainably.
Global governments are also making a large push to reach net-zero targets. The UK’s Chancellor of the Exchequer, Rishi Sunak, recently announced the issuance of “green gilts” (sovereign green bonds), as the UK government ‘look to build out a “green curve” over the coming years, helping to fund projects to tackle climate change, finance much-needed infrastructure investment, and create green jobs across this country.’ (Rishi Sunak, 2020)
If we look at performance over recent years, investing sustainably seems to indeed reap rewards. There is an argument that companies with higher ESG scores (the higher the score, the more sustainable the company’s practices are) seem to perform better in times of crisis. As Warren Buffett, the highly regarded US investor once said, “When the tide goes out you find out who has been swimming naked”. Indeed, during the market downturn in March this year caused by the Covid-19 pandemic, ESG proved to be a “defensive” investment strategy.
The Covid-19 pandemic has also woken people up to the fact that we are part of a community and we need to serve that community; one way of doing this is investing in companies that are visibly doing good in the world. Beyond this, the fact that ESG has performed beyond expectations over the last 10 years means that many investors are more likely to consider sustainable investments when deciding where to put their money, as it is both good for the soul and good for the pocket.
Can you tell us a bit about 7IM and the role it sees itself playing in 'building a better world'?
7IM is an investment management firm set up in 2002, founded by seven (hence the name) industry professionals who wanted to create a company they would feel comfortable recommending to their family and friends.
7IM has an ESG fund, namely the 7IM Sustainable Balance fund, which was launched in February 2007. The fund combines three elements of responsible investment:
- Ethical exclusions: excluding funds that have more than a certain allocation to companies involved with gambling and nuclear power generation, to name just a couple.
- Stock selection: on the basis of the stewardship the company exhibits through its environmental, social and governance practices.
- Thematic investing: looking at particular themes that are and will be important, such as evolving consumption and climate change.
Although 7IM offers an ESG fund, there is a robust investment process in place across all of our other funds, which ensures that sustainability is also taken into account.
At 7IM, we take our role as a “corporate citizen” seriously. In 2019, 7IM signed up to the UN Principles for Responsible Investment (PRI), which encourages all investors to incorporate ESG issues into their investment process. 7IM is also a signatory to the UK Stewardship Code.
Can you give potential investors, who are considering a sustainable investment, some tips on what to look out for, what to ask, and/or what to avoid?
One thing to look out for is what has become known as “greenwashing”; most companies are claiming to be sustainable in one way or another, as they know that this is a major consideration for many investors. You have to dig deeper than just the headlines to see just how green (or not green) these companies and products really are.
Another factor to perhaps consider is ESG scoring, as there are many different institutions that provide ESG scoring data, and they all have various methodologies for measuring an ESG score. If there are particular ethical or environmental considerations you wish to be taken into account, you might want to look at the ESG providers behind the score and see what specific methodologies they use.
Please note that any reference to specific instruments within this interview do not constitute an investment recommendation. The value of your investments and the income from them may go down as well as up, and you could get back less than you invested. This article is for information purposes only and does not constitute endorsement by 7IM for activities carried out by Pawprint. Please be aware that crowdfunding can place your capital at risk.
Poppy has been a member of the Private Client Team at 7IM for over 2 years. She holds both the Investment Advice Diploma (IAD) and the Private Client Investment Advice and Management (PCIAM) qualifications from the Chartered Institute of Securities & Investment (CISI).
Find her on LinkedIn