By Yusra Sarkar
ESG factors tend to be important for most investors and fund managers because they feel a duty to invest responsibly, whether that’s contemplating the environment, social factors or, more generally, governance. Prioritising ‘green’ investments or simply considering a stock’s impact on the environment can be essential considerations for today’s fund managers. It’s a trend that’s in part driven by investor interest and demand, but also by a desire to mitigate more extensive damage to the planet.
Is it only climate change that’s driving the ‘green’ trend?
The reality is that something like climate change can have a tangible – and sometimes catastrophic – effect on investments. In itself, this is driving fund managers to consider what exposure stocks have to risks associated with climate change. Ski resorts that no longer have guaranteed snow are one example and agricultural businesses with a track record of exposure to drought or forest fires caused by climate change could be another.
For many fund managers, the human cost of climate change is enough to warrant at least an interest in more sustainable or green investments. Equally, the portfolios of some funds may seem to lean heavily towards stocks that are very ‘green’, when the fund manager isn’t necessarily motivated by ‘climate-friendly’ investments and the fund isn’t marketed based on its ESG or SRI factors.
‘In our experience, our clients’ interest in green fund structures does tend to be based on personal and investor conviction. A real desire to mitigate climate change is often at the heart of that decision making. At the same time, I think it would be naïve not to consider the other factors at play. Fund managers will always look at the most robust stocks that offer the best returns for their investors. In many cases, green stocks make good business sense, especially when companies have already made changes to mitigate risk to climate change. Consumer momentum and demand is also seeing the green sector grow. In many respects, ‘green’ investments provide ripe opportunity, regardless of personal incentive or interest in climate change,’ says Dave McNay, Head of Funds.
Green investments are generally a good thing. Does the ‘why’ matter?
In one sense, the rationale behind investments doesn’t matter – fund managers should always be free to stock pick or make investments based on their fund’s investment philosophies and objectives. So, is the motive for green investing important, especially when the outcome is positive?
‘Generally, we think any trend that sees more green investment is a good thing – whatever the motivation for doing so. How these investments are happening does matter, though. Increasingly, there’s a need for green finance solutions, especially financial mechanisms which support green investments and unlock opportunities,’ adds Dave.
Guernsey’s Green Fund is one such solution. A Guernsey Green Fund is a certified fund which is required to pursue a return for investors while at the same time, mitigating environmental degradation. Guernsey Green Funds are popular considerations for investors because they can meet the balance of pursuing strong risk-adjusted financial returns, while positively impacting the environment through their investments.
For more information, please contact Dave McNay, Head of Funds.