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Ethical choices and sustainable practices are hot topics and ones that nearly every industry, sector and faction are thinking about. And finance is no different. Matt Falla and Ian Leverington of Evelyn Partners International sat down with Meg Winton to delve deeper into the subject
YOU probably hear the words “ethical” and “sustainable” pretty frequently and in a variety of contexts.
There is a consensus that we – as individuals, workforces, communities and nations – should employ habits that are both sustainable and considerate of ethical standards.
As Jersey’s biggest industry, finance has seen a huge uptick in these types of conversations, and ethical and sustainable practices are now embedded into many companies’ operations.
Ethical investing is slightly different from sustainable investing, according to Ian Leverington, investment director at Evelyn Partners International.
“Ethical is about exclusions and things you won’t invest in,” he explained.
“Sustainable is more inclusive. It means investing in good companies and portfolios, or companies that are trying to be good, without giving up returns that you should expect from a normal portfolio.”
Generally, there were industry standards within investment management which determined whether an investment was ethical or not, and managers rarely sought out investments that were not sustainable, explained Matt Falla, managing partner of Evelyn Partners International.
When it comes to unethical investments, Ian said cigarettes and armaments were considered the top contenders.
“People also include things like gambling and companies involved in pornography.
“Nuclear is a contentious issue as to whether it’s a good or bad thing,” he added, “but often an ethical decision would be to not have any nuclear exposure.”
Determining whether an investment was not sustainable was more “nuanced”, Ian explained, because it was a two-sided coin.
“The classic example of a stock that’s not sustainable would be an investment into the coal sector – a huge carbon emitter and the dirtiest of fossil fuels,” he said.
A reason to not invest in coal could draw on ethical considerations.
“It’s a polluter,” said Ian, “and you don’t want to invest in something that’s going to make the earth uninhabitable in 30 years’ time.”
With global efforts to move away from relying on unsustainable practices and materials, the future of a business in a sector such as coal is called into question, he adds, so not only is its products unsustainable, but so is its business model.
“There’s a good chance that in the future, you’ll be told that coal is not allowed
to be used in the production of energy,” said Ian. “If you’re investing in coal, at that point, you have an asset in your portfolio where its value has just gone down to zero.
“You can’t sell it, you have to write it off, so you make a permanent loss in your portfolio.”
Matt pointed out that the view on what was considered ethical and sustainable was subject to change, and cited the war in Ukraine as an example of an event which had driven such change.
“We could have taken the ethical stance, and rightly so, that armaments are bad,” he said.
“But if you’re defending freedoms and you’re defending oppression, then that does, unfortunately, require armaments.”
But why should we make sustainable investments? Ian put his “environmental hat” on to explain that humans have had an “undoubted impact” on raising global temperatures to a “dangerous level”.
“We’ve started to see more extreme weather occurrences and a huge loss of biodiversity in the world already. That has an impact on us.”
He argued that although there were investments and regulations set by governments to tackle the issue, more needed to be done.
“Most of the world’s assets are held privately,” Ian explained, “and money is needed to reduce carbon emissions, freeze global warming and have more sustainable business practices.”
And investment managers have a responsibility to choose where to allocate that money.
“It’s incumbent upon all of us, especially when we’re looking at managing money, to ensure that it’s being done in the right way and it’s not damaging to the planet that we all depend upon,” said Matt.
“Sustainable investing should be good for the planet, good for investment
returns and should be good for society,” added Ian.
Quizzed on whether the popularity of ethical and sustainable investing had grown in line with the increased attention on general ethical and sustainable practices, Ian explained that their individual histories differed.
Ethical investing, he said, had been around “since the 1500s”.
“You could argue it’s happened for a lot longer than that, whether you have Muslims not investing in money lending or Methodists not investing in the slave trade,” he explained.
Sustainable investing, though, is a newer concept in comparison. Ian explained that after the Second World War, there was an uptick in “socially responsible investing”.
“People said, ‘we will give up some of our returns to do good in our investment portfolios’, which is commendable, but it wasn’t widely adopted.”
It wasn’t until the 1990s that sustainable investing became “more mainstream”, he said, after a report from the Intergovernmental Panel on Climate Change, which led to the introduction of the UN’s Principles for Responsible Investment in following years.
“It tries to get all investment managers to look at their investments in a certain way, understand very deeply what their companies do and work together to put pressure on companies who were bad planetary citizens to behave in a better way,” said Ian.
Matt highlighted the change in attitudes towards ethical and sustainable investing that had emerged over the decades.
“You used to give up something to be ethical and good,” he said. “Now, because the whole investment management industry and global corporate practices are far more ethically and sustainably driven, you’re not going to notice any give-up in investment returns.”
Whether you were investing alone or with the guidance of an investment professional, it could be difficult to be certain that what you were doing was ethical and sustainable, Ian and Matt acknowledged.
Primarily, they recommended doing your own research – a key element of their internal processes at Evelyn Partners International.
“We speak to the company and look at their sustainability reports to check whether what they are saying is true,” said Ian.
“We want to see things like science-based target initiatives, which means they have been audited, and somebody externally has approved it in line with the Paris Agreement targets over the next ten years.”
An element of personal inclination should be part of your decision too, Matt added.
“Do you recycle? Do you buy ethical food? Do you make decisions around what you eat and what you put into your body?” he asked.
“If you can’t invest individually, find someone you trust professionally in a well-regulated environment, and put your faith in them to invest money in line with your wishes.”
Speaking of trusted professionals, if you were seriously considering investing, consulting an investment manager was your best bet, said Ian and Matt.
“Any investment manager worth their salt nowadays should have a good handle on how the portfolio is allocated and whether it’s sustainable or not,” said Ian.
“They should be focusing on these things because it’s in the best long-term interests of the individual they’re investing money for.”
You used to give up something to be ethical and good. Now, because the whole investment management industry and global corporate practices are far more ethically and sustainably driven, you’re not going to notice any give-up in investment returns
Matt Falla
Ian re-emphasised the importance of doing your own research if the topic was important to you.
“Study the subject and read around it,” he said. “The Jersey Finance website has lots of information on sustainable investing, both locally and conceptually.”
“If you’re in the finance industry, you can simply study CFA or CISI, as both offer courses that teach you about the issues involved, what your responsibilities are and what you should do.”
We all had a role to play in ethical matters and sustainability, Matt agreed.
“We make decisions on what we do with our capital, either our monetary capital or our time capital,” he said.
“You decide whether to recycle or shop in a certain place or use an honesty box from our organic growers; but do what you can.”
“Get involved,” added Ian. “Find out what’s going on locally; it’s really important that everybody does.”
Hear more
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