INSIGHTS

INVESTING WITH A SOCIAL CONSCIENCE

Craigs Investment Partners, November 2021

MindfoodPublished in MiNDFOOD December issue.

An increased desire by investors to invest in companies that are creating environmental or social advances not only makes smart financial sense – it also benefits the wider community.

Every investor wants to see healthy returns, but you could argue the definition of ‘healthy’ is changing, with socially responsible investing on the rise. More and more people prefer to invest in companies that cause minimal harm to the environment and provide benefits to society. In New Zealand, responsible investment assets under management reached a record $142 billion in 2020, up from $111 billion in 2019.

Olivia Sandlant, Research Analyst at Craigs Investment Partners, says “investors are looking further into the future. The pandemic has shown that you never know what’s going to happen around the corner, so people are thinking more long term. And that’s where sustainability comes in – people are wanting to make sure that their investments involve less risk, as well as seeking to make a positive impact. Sustainability isn’t just about climate change or environmental impact, it also means thinking about social factors, as well as governance which impact and resonate with everyone differently.”

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As Sandlant points out, the benefits for investors who take sustainability into account extend beyond aligning investments to their values – it also encourages companies to make positive change, and can reveal much about the longevity of a company’s business model. For example, diversity is a key sustainability measure, with companies that are diversity leaders increasingly finding themselves prized more highly by investors and financial markets.

“There’s evidence that shows different perspectives and unique points of view can lead to significant benefits, not only to companies, but also communities and countries in general,” says Sandlant. “A more diverse company will likely be more prosperous and make for a more successful investment in general over the long term, often due to higher levels of innovation, and more diverse thinking and decision-making all round. To demonstrate this, the Impact Shares YWCA Women’s Empowerment ETF has for example returned 82.3% since its inception a little over three years ago, easily outpacing the 62.0% return of the S&P 500 over the same period.”

SUSTAINABLE INVESTING ON THE RISE

This huge global trend is something that has been observed locally by Craigs Investment Adviser Annemarie Hills. “Over the past five years, I’ve seen an increasing demand from clients for sustainable investing, and then a step up in that demand since the pandemic began,” she says.

Hills has noticed a trend amongst her clients wanting a more holistic approach incorporating environmental, social and governance (ESG) factors within investment decision-making. “Whereas previously clients may have requested exclusions in their portfolio, such as alcohol, tobacco, gambling or weapons, today clients are requesting a preference for sustainable investments in general and across the whole portfolio,” she says.

CRAIGS RESPONDING TO THE GROWING DEMAND

“It’s this increase in interest that triggered Craigs to develop its own sustainability scoring framework, which looks at a range of non-financial measures and determines how companies rate to build a comprehensive sustainability picture,” explains Vanessa Stevens, Sustainability and Data Analyst with Craigs. Under the framework, each company is allocated an environmental, social and governance score, and an overall combined sustainability score out of five. “Each company also has a sustainability overview which highlights the key issues that investors should be aware of, because that’s the detail a lot of investors are interested in.”

Craigs client Anna explains that sustainability is something that has become of heightened interest in the last few years. She’s a firm believer that “companies that care about people and the planet and make a positive impact today will be more sustainable in the future. It’s really hard to assess sustainability of companies yourself. There is a lot of greenwashing out there. Companies that are doing the right thing or just being seen to do the right thing isn’t necessarily the same, so Craigs’ scores make the process much easier and more transparent to make good decisions.”

Some areas considered as part of the sustainability scores

NOT A ONE-SIZE-FITS-ALL APPROACH

Investment Adviser Hills notes that it’s not a one-size-fits-all approach when it comes to how sustainability considerations are used. “It’s not my role to tell clients what they should value or care about. The sustainability scores act as a starting point, and how much weight each of us personally places on the E, the S or the G is an individual decision,” she says. “So for example, while diversity at a board level may be important to me, it may not be a concern at all to my client, who may be much more interested in what a company is doing to reduce waste or their emissions footprint. Some clients prefer a score of at least a four out of five and others even rate sustainability as more important than the returns.”

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