Sustainability Shift – COVID Is Driving Demand For Responsible Investments
September 2020 | BY Ellerston Capital
Responsible investments are outperforming traditional ones during COVID-19, according to local investment firms, because of heavy allocations to technology and better governance.
Speaking on Boardroom Media’s new Pay It Forward show, Ellerston Capital’s James Tayler said as investors look to a COVID-19 recovery, many are tipping a further move away from less sustainable companies.
The oil market is a case in point, according to Tayler, head of ES&G related issues at Ellerston Capital. While the oil price has actually gone up since the Covid-inspired correction in markets, oil explorers and producers have lagged.
“… investors are continuing to divest from companies that they consider to be poor from an environmental perspective and certainly illustrating some underlying trends that may well have benefited the responsible investors,” Tayler said.
Tayler says responsible investment has been gaining momentum long before the pandemic hit. And while it is not necessarily more profitable, Tayler says it is clear there’s no cost to being responsible in investment.
“There’s a fallacy that’s often said – probably by those with a vested interest – that there’s an absolute cost to being responsible with your investments. That is absolutely not the case. And that’s been demonstrated by various academic pieces of research.”
However, it still remains difficult to say definitively that responsible investment is more profitable, Taler says, because proper evaluation takes several years.
“There’s actually only a very small set of funds or responsible investors that have been around for a length of time at which academics can look and judge whether there’s been a direct, positive benefit attributable to the responsible angle of their investment.”
From a risk management perspective, responsible investment tends to align with better governance, according to Tayler.
“If your responsible investment manager does nothing more than avoid companies with bad governance, then you’re more than likely to have avoided investments in companies like Enron … A more up to date example might be the stranded assets around hydrocarbons, oil, gas and particularly coal.
“If you’ve been invested in coal miners of late, you’ve probably lost quite a bit of your money. So a negative impact.”
Investor And Community Benefits
Responsible investment benefits can go beyond the investor’s portfolio too. Tayler explains the current shift of capital away from fossil fuels demonstrates an obvious benefit to the environment.
“Society benefits. And at the same time, if that capital is recycled into companies that are providing solutions, say, around carbon capture, for instance, then society clearly benefits from that as well.”
Tayler says while these market forces are occurring on their own there is still an important role for regulators to play in providing “guidance” towards responsible investment.
“I’m confident in saying in 10 years time there will not be any investor or investment business out there that says it’s not a responsible investor. We’re certainly seeing that’s that’s the trend we’re seeing in terms of client demand for product that’s managed in a responsible manner.
“The problem with that is that there are some players who are trying to greenwash. That’s saying that they’re doing the right thing and maybe not being quite as honest or as authentic as they should be.”