Local independent financial adviser, Becky Hammonds of Willow Financial Solutions, looks at whether responsible investing is viable.
Responsible, ethical or green investing is not only ‘in vogue,’ since COP 26 it has suddenly become front of mind with many leading financial institutions. Now, how the investment community can contribute to tackling climate change has become a very real question.
But there is much confusion among advisers, and investors at large over what exactly constitutes responsible investing. For some, a fossil fuel company transitioning to renewable energy is a step in the right direction, while for others this amounts to greenwashing.
Not only that, but how much transparency about where a pension or investment is invested should be available to the investor? You are quite within your rights to ask your financial adviser about this area.
And there is also the question of performance – do sustainable stocks perform better, the same or worse than traditional stocks?
There is a notion that adopting a responsible investment approach will negatively impact financial returns.
Is this a myth or fact?
Well, there is now a significant body of research to support the view that taking environmental, social and governance factors into account in investment decisions does not have to result in lower returns. Indeed, several studies suggest the opposite and that a responsible investment approach may help to enhance long-term returns.
In fact, a 2019 paper by the Morgan Stanley Institute for Sustainable Investing, which details research conducted on the performance of almost 11,000 mutual funds between 2004 and 2018, showed there was no financial trade-off in the returns of sustainable funds compared to traditional funds.
It is certainly an area which is becoming increasingly important.
For pensions and investment advice contact Becky Hammonds on 07969 269677 or email becky@willowfs.co.uk
