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The irresistible growth of ESG investing

IFA Magazine caught up with ESG veteran, Wayne Bishop, CEO of King and Shaxson Asset Management (KSAM), to discuss the significant rise in popularity of ESG investing and how best advisers can talk to their clients about this powerful driver of investment decisions

2020 saw an explosion in ESG (environmental, social and government) investing. Global sustainable fund assets surpassed $1trn for the first time, and between January and October 2020, 47% of all net money flowing into funds was responsibly invested.

ESG in the DNA

King and Shaxson have a long history of ethical investments going back 20 years. In 2020 KSAM celebrated the ten year anniversary of their flagship model portfolio service.

Wayne started by discussing where his interest in ESG started, all the way back in 1992. At Wayne’s first job in the City he was upset by an investment involving tobacco, “I didn’t know it at the time, but I’d formed a negative screen.”

Around this time when Wayne was looking for investments one piqued his interest, namely Scottish Hydro Electric, a newly privatised energy company on the London Stock Exchange. Wayne reflected on the state of renewable energy at the time, commenting, “back then, wind energy was something for the future, it was so expensive to develop.” Moving on fifteen years, green energy companies were around but they were high risk investments, they were a fringe investment.” Wayne jovially compared that state of affairs to the present commenting “now these green energy companies are pretty boring mid-caps, to be honest with you.”

Renewable energy is just one ESG sector that has reached a point maturity in recent years. Wayne was quick to highlight another – cars. “I live in North London and every day I
see a new electric charging point, even those most critical opponents to electric cars are now saying they are the future.”

In terms of investment opportunities, Wayne continued, “Not only are these sectors maturing, they are becoming some of the most interesting growth areas, especially because there isn’t a lot of growth elsewhere.”

Perception matters

A key development in ESG over the last few years, and particularly in 2020, was changing perception by the public. The stunning growth of ESG companies like Tesla, of course, demonstrate the potential for returns, but Wayne shares a more nuanced analysis.

Wayne points to the demographics of people investing in ESG, saying, “there is a perception that this is the world of millennials. Whilst millennials are very interested in it and it matters to them, it’s actually the parents of millennials who are shifting the dials.”

Wayne points to his generation, Generation X, those in their 40s and 50s, who have either accumulated,
or inherited capital, and are looking to invest it. This demographic grew up with ethical, environmental and social considerations at the forefront of their culture. Wayne pointed out that his generation grew up with Sting and an awareness of deforestation, concluding, “it matters to people how companies behave.”

The type of corporate behaviour Wayne is alluding to is not strictly related to things like carbon neutrality. Wayne continued to say that going forward the sustainable and governance side of ESG will continue to gain interest, suggesting that the COVID crisis looks to be a turning point. He highlights the case of supermarkets returning their business rates relief, something which he says “would not have happened a few years ago. Social considerations have now become so important that these companies were giving money back to the government, money they really could have kept for themselves.”

Wayne suggested this social pressure will stick. “People are going to be asking questions, such as how did companies behave towards their staff and clients, how do they behave in society?” For Wayne this extends into governance too, adding “there will be interesting questions about dividends and taxation in due course.”

Wayne reminds us that the rise of ESG is not wholly because of Generation X’s inclination and the COVID pandemic, but these factors have converged with a far greater flow of information and data. He continued, “information is fast and thorough; if companies are doing something grievous the news will get out there quickly.”

Investors don’t just rely on an ESG report anymore either, companies are locked into ratings agencies, and as Wayne said, “people are watching.”

For Wayne, information was a key factor in the recent growth of ESG, especially in 2020. What was once considered extra data can now provide helpful insights.

Continue reading article…

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