Sustainable Scotland podcast: ‘Why sustainable investing is here to stay’
Ian Campbell, a Director and Chartered Financial Planner with AAB Wealth, tells the Sustainable Scotland podcast series: "This is not a fad or a short-term investment craze that we're going through.
"In future, it won’t even be called sustainable investing, I think it will just be investing and people will assume it is the norm.
"I think it's 100% the future in investing and it’s 100% the future in companies and in the corporate world. It is here to stay."
However, Jim Whittington of Dimensional, a global asset management firm with almost $700 billion under management, warns people to approach sustainable investment - or ESG (Environmental, Social and Governance) investing - with their eyes open.
"Sustainable investing is still investing," he says. "There isn't any robust evidence that ESG is either a driver of higher returns or lower returns. Of course, there are lots of good reasons why people want to consider sustainability or ESG - but don't rush out and get an ESG fund just because you think it's going to lead to higher returns."
Whittington, Head of Responsible Investment at Dimensional, also emphasises the subjective nature of sustainable investing: "Like people, companies aren't all good or bad. Let's take Tesla. It looks very good on the environmental spectrum, but people have concerns about social aspects, such as cobalt in the supply chain, or governance aspects. When a tweet by the CEO can influence the share price, it’s not considered a good thing."
Ian Campbell also urges a rational approach to sustainable investing. He says: "We can't [change] the world with one investment or one fund. But we can take small steps to make a real difference.
"Clients’ understanding and awareness [of ESG investing] is improving...but people are still learning and there's a lot of jargon and a lot of information out there. At AAB Wealth, we are continually looking ahead at potential changes which may impact clients and their [investment] portfolios. High on our agenda is how do we consider investing in sustainable funds that make a positive difference to the world we live in."
Jim Whittington urges sustainable investors to beware of both greenwashing - and greenwishing.
"ESG adds a whole extra dimension of complexity to investment, which many people frankly find quite complex enough already," he says.
"It's important that people be careful. There's a lot of marketing buzz and hype around ESG investing, but there are examples of people out there overstating what they're doing. Greenwashing means they're actually doing less than they say they're doing. Another thing we see is greenwishing, when people are perhaps overstating the impact they're having.”
He also explains how Dimensional believes companies can show they are not greenwashing or -wishing:
"We think the solution is really to be clear about what you hope to achieve in your sustainable investments - to have high-quality data, rather than rely on subjective opinions.
"We provide clear reporting, so we can show our clients we are delivering that meaningful reduction in exposure. You wouldn't invest in a financial product that wouldn't tell you how it was performing and we think you need to hold sustainability promises to the same standards."
Ian Campbell agrees: "Our investment portfolios are built on sound investment principles, they are evidence-based and research-backed - and if we can incorporate sustainability within our investment portfolios, then all the better."
He explains that AAB Wealth introduced a sustainable equity fund to its portfolio two years ago and is adding a fixed income bond fund this March
Jim Whittington explains that it isn't always easy to measure success when you are pursuing sustainability objectives AND strong financial returns: "It's a challenge to pursue two goals at the same time. But what we see, over very long periods of time, [across] a wide variety of different funds, is very similar performance between [Dimensional’s] sustainability and the non-sustainability funds.
“So that's telling us that we're delivering on the goals we want to achieve, which is to help people achieve their sustainability goals, without having to impair sound investment principles.”
To listen to the podcast, see the above video or click here.