Canny View by Glen Trillo, Head of Wealth
Published in Hawke's Bay Today
Growing interest in sustainability and issues like climate change has sparked questions on whether people can integrate their values around sustainability with their investment goals and, if so, how.
According to a global sustainable investment group that covers Australia, New Zealand and other developed nations, assets managed under "responsible investment" strategies increased by 25 per cent between 2014-16 to US$22.89 trillion.
Responsible investment is defined by the UN as an approach that aims to incorporate investor's preferences around environmental, social and governance (ESG) factors into their investment portfolios.
Individuals can express their political preferences around sustainability through the ballot box. As investors, they also can express their preferences through participation in global capital markets.
Sustainability preferences within investments are not restricted to one issue. Many people have concerns about land use, biodiversity, toxic spills, operational waste and waste management as well as social issues.
Companies may want to be excluded if they are strongly associated with undesirable social issues such as tobacco, alcohol, gambling, pornography, child labour, nuclear weapons and landmines.
The key question is how to include a sustainability focus without compromising your desired investment outcomes. For instance, how can you reduce your portfolio's carbon footprint while maintaining sufficient diversification and meeting your investment objectives?
An Authorised Financial Adviser can screen investments on the issues that matter to you.
Historically, there were two main forms to ensure you hold sustainable investments.
The first involved choosing a relatively small number of stocks that were considered desirable from an ethical or environmental point of view. This approach compromised the benefit of having a broadly diversified portfolio, and its international performance track
record has, in general, been poor.
The second approach involves screening out from portfolios companies involved in activities such as tobacco, alcohol, gambling and weapon manufacturing. A criticism of this method is that while it reduces exposure to these activities, it does not place any weight on companies that are making a positive difference.
There are a growing number of sustainable funds available for New Zealand investors, provided by both local and managers offshore.
As always, it's important to make informed investment decisions. It's best to educate yourself about these options by reading about the ins and outs of sustainable investing and seek the advice of an Authorised Financial Adviser before making any investment decisions.
Stewart Group provides an option for sustainability to be a key element of our clients' portfolios and we design each portfolio based on the client's goals and issues that matter to them. Together, we can build a bright future for ourselves and for the planet through our investment choices.
• Glen Trillo is an Authorised Financial Adviser and Head of Wealth Management at Stewart Financial Group, a Hawke's Bay-owned and operated independent financial planning & wealth management firm based in Hastings.
• The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from an Authorised Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961.