Is Green Investment set to bloom?
On January 20th Joe Biden was sworn in as the 46th President of the United States. One of his campaign pledges was a commitment to take the US back into the Paris Climate Agreement, which the country had left under his predecessor.
Here in the UK, the Government is committed to a series of green initiatives, including the sale of new petrol and diesel cars and vans banned from 2030.
The UK’s first-ever battery ‘gigaplant’ is set to open at Blyth in the North East. The project will cost £2.7bn and will employ 3,000 people at the plant, producing lithium ion batteries for electric vehicles. A further 5,000 jobs will be created in the supply chain. In Europe, electric car makers Tesla have plans for a huge new plant in Germany.
‘Ethical’ investments, as the early funds were called, had something of a mixed performance record in their early days, with critics arguing that they usually only performed well in bull markets.
Those early funds typically avoided investments in companies associated with tobacco, gambling, the arms industry and so on. Gradually, the focus has shifted to what is now largely referred to as ESG investing, with fund managers looking at a company’s environmental, social and governance ratings alongside traditional investment metrics.
In a recent note to their clients, Goldman Sachs stated, ‘Prior to this crisis there was a meaningful and increasing focus on ESG investing and it is likely that this focus will only increase following Coronavirus.’
We have all seen how companies like Netflix and Zoom have benefitted from the pandemic in the short term. In the longer term, we may well see a fundamental shift in investment, as people look at how companies have responded to the pandemic with the ‘social’ and ‘governance’ elements of ESG perhaps becoming even more important than the ‘environmental.’
Of course, the key question for investors is, do the funds perform? So far the evidence from the US – where ESG funds have a much higher profile than in the UK – is good.
Despite the last year being difficult for world stock markets, ESG funds have more than held their own, with some comfortably outperforming the main indices.
We are, unquestionably, going to see a greater emphasis placed on ESG investing in the years ahead. There is clear evidence that the Millennial generation want to work for companies that share their values: as this generation become investors, they are going to want the same from their investment funds.