Firms urged to develop ethical investments
A VISITING economist says ESG investing is definitely the future with younger generations making it a priority. He urged Jersey’s finance firms to get to know the issues around it and develop new products.
ESG, which is Environmental, Social and Governance based investing, was the subject of an Invesco presentation by Paul Temperton, a consultant to the business, as part of their Investment Intelligence series.
Mr Temperton said ESG investing is ‘hugely important’ to Jersey in part because of the geography (an island surrounded by rising sea levels), and also because the Island is an international finance centre: ‘Jersey’s role is interesting. Potentially, for a small place like Jersey, with a close cohesion between the people who live here, and the people who work here and the way they manage money and their futures and livelihoods, it’s easier to see the link between what we do in the workplace and the environmental consequences.’
Mr Temperton advised Jersey’s finance firms to seize the initiative: ‘ESG is going to be a big growth area, there’s no doubt about that. So get to know more about ESG investing, and I think having an ESG product that people can invest in.’
Mr Temperton said three-quarters of the world’s assets are now managed by fund and asset managers who have signed up to the UN’s Principles for Responsible Investing, which has ESG criteria at its heart. However, he doesn’t think that this accurately reflects the reality of the situation, with problems around making informed decisions.
‘The difficulty is that, I could say that I am invested in ESG when I’ve really done a relatively lazy assessment of ESG. It is very, very hard to say that you’ve looked at every single criteria,’ he explained.
‘Many of the rating agencies have 250, or 300, categories of environmental, social and governance factors that they would look at, you can’t possibly as an individual, look at all of those. So there’s an element of faith.’
He advises having your own ESG checklist: ‘So Invesco, for example, it’s all about the G. It’s all about governance, it’s about executive pay, it’s about shareholder structure, but you could have a completely different list. You could say, the criteria that I’m interested in are environmental sustainability, cleaning up plastic waste, benefiting poorly paid farmers in Latin America and Africa.’
While ESG has in the past brought in slightly reduced returns of 1.5 to 2%, Mr Temperton said this is not an indication of future returns as can be seen by the fall in return from ‘sin’ stocks, such as tobacco companies.
‘We always say in finance that past performance is no guide to the future. And this might be just one of those cases where that’s a really, really important caveat. Because past performance has been when all the vice stocks and the sin stocks have done well. It might just be that that’s over. And now it’s ESG, so that past performance is actually no guide to the future.’