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It’s not easy being green…

The world of ethical investing is just as complicated and nuanced as the underlying issues warming our planet.

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Andrew Moss
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Climate Change – the topic hot (excuse the pun) on everyone’s lips. The outlook for us is rightly concerning, but as we are seeing with COP26 there is still hope yet – but what can we do to help?

The natural answer for many of us is to recycle more, right? According to Boris Johnson, the answer is surprisingly no - household recycling of plastic does very little to help climate change or our polluted oceans. Instead, we should be looking at the biggest global polluters - industries and corporations to try and reduce plastic production and greenhouse gas emission at source.

But if household recycling does far less than we think, what other areas can we look at in our own lives to try and help the planet? For many of us, our savings and retirement pots make up a relatively large sum of money and are invested across hundreds or thousands of companies across the UK and the globe.

If “Money Talks”, perhaps investing it in an eco-friendlier way should be an easy step to help tackle climate change. Sadly, the world of ethical investing, more commonly known now by the term Environmental, Social and Governance Investing (ESG), is just as complicated and nuanced as the underlying issues warming our planet. So how easy (or hard) is it to be a green investor?

Any fund can give itself an ESG label, but it is only when you look under the bonnet can you start to see how green your investment will be.

Most funds that give themselves this ESG label can be broadly divided into two categories. The first using negative screening (where they do not invest in so called ‘bad’ companies such as those in oil or mining). The second using positive screening (where they invest in ‘good’ companies such as those that build wind farms or electric cars). However, dividing companies like this is not as black and white as it seems. Energy companies that are involved in oil are also some of the biggest investors into next generation renewable energy. Likewise, companies that create so-called ‘green electric cars’ still create greenhouse gas pollutions when creating the electric batteries that help drive them.

ESG fund managers therefore have to spend plenty of time and money talking to and researching various companies to decide if the positives outweigh the negatives – which usually means an increase on the fee they charge. And because we all have varying degrees of how ‘green’ we want to be, likewise, there are now plenty of funds springing up with varying ESG agendas, all competing for our ethical investments.

However, as fund managers typically do not reveal every company they invest in, this also opens the door for those managers looking to make a quick buck via ‘Greenwashing’. This is a process where fund managers take their original fund, remove one or two ‘bad’ companies, stick an ESG label on the cover and hope to bring in money off the back of the ESG bandwagon. Since there are no standard metrics for analysing or comparing how sustainable a fund is, there is no way to easily discriminate those that are trying to invest more sustainably from those looking to catch the wave of ethical investing. Only with thorough research of fund history and fund managers themselves can we start to separate the good from the bad.

And that is only the tip of the (rapidly shrinking) iceberg when it comes to the murky world of ESG investing. So, as a famous frog once said, ‘it’s not easy being green’. But that does not mean it is impossible to be a green investor.

As a company that likes to stay firmly on the right side of the ethical line, we have recently dedicated a substantial amount of time and thorough research to create our own set of ESG portfolios, that also adhere to our high standards of investment portfolio design. As with everything ‘Candid’, whilst costs on these portfolios are slightly higher than our originals, we have strived to avoid the greenwashing chancers, to ensure the fee our climate-concerned clients pay the fund managers is fair for the work they do. Whilst these portfolios may not yet be perfect, like COP26, they are the first step we are taking towards a greener investment world.

Following Boris’ declaration, we will all do our best here at Candid to dramatically reduce the amount of plastic we buy. But in the meantime, we will continue to recycle our plastic whenever we can - as every little bit helps towards a better tomorrow.

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