Why is it that we are all recycling at home, but when it comes to investing, that mindset seems to go out of the window? Probably because making investment decisions is a mite more complex than deciding what rubbish goes in which bin. But it shouldn’t be. The financial market abbreviation ESG stands for Environmental, Social and Governance, and represents a growing shareholder-driven movement among listed companies to show that they care about more than just the profit motive.
Sustainable investing, responsible investing, impact investing or socially responsible investing are common phrases for ESG investing.
It ties in with phrases such as “social licence to operate’’. The main criterion in the sort of “social” investment screening process is finding companies which manage their relationships not only with their customers but also their employees, suppliers and the communities in which they operate.
The cynics point out that a lot of companies that care about the environment don’t make as much money as companies that don’t, but they ignore a key qualifier, “in the short term”.
Take coal, for instance. For the time being we are going to need coal to generate electric power, coal that’s labelled thermal coal, even though it’s now clear that solar and wind power plus batteries are going to be a cheaper option over the long term.
It’s in areas like this that green activists have to be realistic about the pace of change.
But society changes faster than the cynics think. When US president Ronald Reagan was an actor he took part in a 1952 advertising campaign for cigarettes, stating that for Christmas “I’m sending Chesterfields to all my friends”, surrounded by eight gift wrapped cartons of 200 cigarettes each.
Apparently he didn’t actually smoke himself. Had he done so, he would quite probably have been like the many Marlboro cowboy models (more than six) who died of lung cancer.
Anti- Instant Gratification
The illusion is starting in many places (if not the White House) to be replaced by an understanding of reality. We’re moving to a world where consumers are better informed than ever, to the extent for instance that many more people are checking food packaging than before.
That’s not to say that a bag of chips plus a two litre bottle of Coke aren’t still firm supermarket favourites for lots of people, but taking an ESG approach to everyday life also provides a raft of health benefits and simple economies that make much more long term sense.
In simple terms, whether it’s buying food or investing, there’s a battle throughout the developed world between some people’s desire for instant gratification and others’ realisation that there are better long term ways to do things. Any investor knows deep down that there’s only going to be one long term winner in that battle.
A eInvest we are proud to be soon launching the first Active ETF Small Caps fund in Australia with an ESG focus. It’s called the eInvest Future Impact Small Caps Fund (Managed Fund) ASX: IMPQ.
This article is the opinion of the author, Andrew Main, and is not financial advice. Speak to your financial adviser or broker for more information. I’m sure they’ll be happy to help you. For the active ETF you are investing in, make sure you always read the Product Disclosure Statement (PDS). To find out more and download the PDS, please visit einvest.com.au