Is ESG investing dead? No, this is ‘just the beginning’ says SimplyBiz’ Wiesner Today, as we celebrate World Earth Day, Fabian Wiesner, Head of Distribution Partnerships, SimplyBiz, reflects on recent trends in ESG investing as he considers both positives and negatives behind the mammoth changes needed if we’re to achieve Net Zero and really go green.
Over the past four years, ESG has been a talking point worthy of our time. However, with recent sentiment shifting, is ESG investing dead?
At first, the feel-good aspect of ESG investing – and subsequent returns – were a match made in heaven and everyone was happy. Unfortunately, the shine was taken off ESG investing during a swing between growth and value investing, with the growth-ier ESG investments taking a hit.
As a double whammy, the regulator then stepped in to take a closer look at greenwashing and what ESG investing means to the end client. Since then, it’s felt like we’ve been in limbo waiting for guidance. Meanwhile, AI has become the new hot trade because everyone was seeing wonderful double digit plus increases to their assets, and that has dominated what institutions, traders, and clients have been talking about ever since. As a result, ESG funds seemingly fell out of favour, with investors opting for returns first, ESG second. Our industry loves returns!
Plenty of positives
ESG investing still has its place, and why shouldn’t it? I was reminded of this by Sarasin Portfolio Manager, Ben Gilbert, recently. Technological advances have meant that, per megawatt-hour, hydro, solar, and offshore wind-farm power have become cheaper to produce than traditional combustion sources. So, more investment could mean more efficient, cheaper to produce, energy in the long run, leading to healthy profits and potentially making these companies the winners of tomorrow.
Electric vehicles or other futuristic green cars (hydrogen cars anyone?) might be the same. I’m a self-confessed ‘petrol head’, however, there is a case for moving the c41m vehicles (c33.5million cars) on UK roads away from combustion engines for the sake of the future.
Many challenges exist
I think we are all aware that infrastructure needs to catch up somewhat, and that the ‘green’ investing conversation can’t miss out the obvious manufacturing issues facing EV companies. The enormous mining efforts tearing up the ground, the cost of emissions on shipping resources, refining resources, shipping the refined product, building the vehicle, and shipping the finished article to its final destination. This all makes a significant dent in being green before you’ve even driven your first mile. It seems like an oxymoron calling EVs ‘green’, however, change and refinement take time and commitment. Those companies that adapt and innovate could again be the winners of tomorrow.
From terrible to bad and upwards
However, imperfect it may be now, for the next generations there is a lot of good to be gained from us all moving from terrible CO2 emitters to simply bad, before upgrading to neutral or better. It will take time to embed the changes, it will take time for all industries and countries globally to adapt. It will take time effort and resources to change. It’s not as easy as “flipping a switch”.
SDR and the labels have made it clear that now any old investment toting itself as “Sustainable” with little to back it up will not be tolerated, which is great for those that are seeking to make an impact. We needed the definitions to be clear, so that the clients who care (as we all should) can invest directly into the types of companies that can make the changes the client is looking for. Might the water be choppy? Yes. Will there be winners and losers? Inevitably. Will this promote the changes we want to see? TBC.
A rocky road
It’s easy to come across as self-righteous when talking about ESG investing, but that’s not my intent. Pragmatically, the world needs change, and those companies that are at the forefront of change stand a great chance of doing well. Even though the road has been rocky recently, the longer terms
benefit is there for clients. For example, despite recent performance, Telsa is up over 13,000% since listing in 2010, Enphase Energy up 1400% since listing in 2012, – give me the name of a client who wouldn’t like to reap the rewards of the next big green company if they can deliver the same pattern of return demonstrated above.
The labels are introduced to help fund and invest in companies that have the desire to make changes that will positively affect all of us. Funding companies that have the desire to develop new or existing technology that will make the world a better and greener place, and in the long term, the returns will follow as more people around the world adopt these technologies in day-to-day life. I concede, not all of the technology will be areas as exciting as artificial intelligence or big data, however, there is still a lot that can and will be developed.
My genuine hope is that we are able to sustain the pressure for change globally. Will I be gluing myself to the M25 or throwing orange paint on artwork?
No, I will not.
Will I remain optimistic that we as a global society on the whole might continue to care about what happens next?
Yes. I will.
Is ESG dead? No, to the contrary, I think this is just the beginning.
About Fabian Wiesner
Fabian Wiesner joined SimplyBiz in September 2023 to manage its relationships with its investment strategic partners and develop and strengthen its comprehensive investment supply chain for member firms. He also sits on its Investment Committee, with a focus on strengthening the SimplyBiz Risk Controlled offering, a proposition that is designed to help advisers manage their investment supply chain and clients’ investment portfolio risk.
Fabian joined SimplyBiz from the role of Strategic Partners Manager at Aviva Investors. He has previously held relationship management positions at Aviva and Old Mutual Global Investors. He holds the IMC and Certificate in ESG Investing through the CFA Society.
