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How to Become an ESG Investor

VIDEO: At the start of Good Money Week, interactive investor's Jemma Jackson talks about how investors can get their head around confusing ESG terminology

Holly Black 7 October, 2019 | 8:46AM

 

 

Holly Black: Welcome to the Morningstar series, "Ask the Expert." I'm Holly Black. With me is Jemma Jackson. She's from the fund supermarket interactive investor. Hello.

Jemma Jackson: Hi.

Black: So, it's Good Money Week. So, we're talking all things ESG and sustainable investing. So, you speak to a lot of investors. Is this trend an area that you're seeing growing in popularity?

Jackson: It is growing in popularity. We've spoken to our customers about this and they are increasingly citing environmental issues as something that is starting to worry them from an investment perspective. So, that's been a really interesting trend. And we're also starting to gauge their interest in ESG investing. Now, a lot of them say that they don't understand the terminology. A lot of them say that it could compromise returns, which actually, we know looking at the data that that's just not true. So, we need to get into sort of a new mindset there, that actually it doesn't have to compromise returns, it can enhance them. But a lot of people just don't know where to start. Because there's no sector for ESG investing which I suppose in a way is good, because it avoids from being put into a sort of niche box. But it just makes it very, very hard for people to navigate with sector. So, I think there's a little bit of a chicken and an egg situation going on where a lot of people would like to invest in ESG, but they don't know where to start. A couple of years ago, actually, there was a survey which found that 8% to 6% of millennials are really keen on ethical investing. But actually, really interesting was that old people weren't that far behind them. So, I think there is the interest there. It's just the knowing how to go about it.

Black: That is true what you say actually, the terminology. It must be off putting. Investing is hard enough anyway with all the jargon and then you throw around words like ESG and SRI and what does it all mean?

Jackson: Greenwashing, impact. It's dizzying, isn't it?

Black: So, you say it's not compromising returns. That's something obviously that – now, we've got more long-term data, I guess, is starting to come through because a lot of these funds aren't as old as their non-ESG counterparts, so perhaps the evidence wasn't there before.

Jackson: Yeah. No, I think that's right. The sector has matured, and there's a lot of funds now with that all important 10-year track record. We had a look at – I mean, it's quite a small sample, which shows you that the sector still has some way to go. But we had it occur in-house funds, ethical and unethical sort of siblings and the ethical funds were more than holding their own, generally, more than holding their own. So, that was interesting. But we've just launched ACE 30, the UK's first rated ethical list. And I have to say, every fund on there is on there because it deserves to be rather than just making up the numbers. The figures are starting to be compelling.

Black: So, I think one of the hardest things is working out what you want to express through your investing. Do you just want to avoid some things? Or do you want impact where your money is properly put to good work? And then, finding a fund that fits those beliefs. So, how do people get started?

Jackson: Well, it's really hard. It's really hard. We've tried to make sense of it our own way by coming up with ACE category is, avoids, considers and embraces, because often people think about ethical investing as green investing, don't they? But it's a huge broad span. It could be corporate social responsibility, it could be sort of really embracing social change and really going for it. Or it could just be, you know, more of an avoidance scenario. So, we've tried to sort have put our sort of ACE list into those three categories. We've also built a long list as well. It's not a rated list. It's just to try and help people navigate the sector. But you know what, I mean, I think we feel that probably over time – and we might be wrong – but over time, it might be that actually the whole industry goes the way of sort of corporate social responsibility, ethical investing, it becomes the norm.

Black: We don't even have to call it ESG anymore. It's just investing.

Jackson: And then, we don't have to worry, do we? Wouldn't that be great?

Black: Thank you so much for your time. And thanks for joining us.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author

Holly Black  is Senior Editor, Morningstar.co.uk

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