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BLOG: Why investors should care about COP27

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Written by: Darius McDermott
10/11/2022
Environmental campaigning has been all over the news in recent weeks. Protestors have attacked art galleries, sprayed paint over prominent buildings and caused roadblocks on the M25. Regardless of how you see their actions, the fact is that how we treat our planet is a subject that can’t be overlooked by investors.

This week, world leaders converged on Sharm El Sheikh, Egypt to tackle climate change at COP27, the 27th annual United Nations meeting on the topic.

Why should investors care?

So, how does this affect investors? Well, the reality is that every company – and every investment fund – will be influenced to some degree by the environmental agenda. Even the most unenthusiastic executives need to accept the increasingly stringent rules that are being brought in to deal with the climate crisis.

As well as the regulatory punishments, companies that ignore the environmental concerns risk becoming ostracised by customers due to viral social media campaigns.

On the positive side, it’s hoped that investors can also make a profit by investing their money into ‘green funds’ focused on generating returns and helping the planet.

Investors are buying into the trends

UK investors have been favouring environmentally-focused portfolios for a long time. However, the political and economic uncertainty in recent months has seen a slight step change.

The latest data from the Investment Association showed that responsible investment funds suffered outflows of £211m during September 2022. This is the first time since February 2021.

Of course, this can be attributed more to broader issues, such as the cost-of-living crisis, than to a dislike or distrust of the sector itself.

Funds for responsible investors

The question is: Where should you invest to get exposure to environmental themes? Well, the good news is there are plenty of options, so you’re pretty much spoiled for choice.

I’ve picked four portfolios, each with a slightly different focus, that could be worth considering. Each of them boasts experienced management teams at the helm who are well versed in eco issues.

The Ninety One Global Environment fund, for example, only invests in companies that are contributing to the decarbonisation of the world economy. Launched in December 2019, this global equity fund has a unique approach and not only would you be investing for a better future for yourself, but also for the planet. The portfolio has complete conviction, with just 20-40 holdings.

The LF Montanaro Better World fund invests in medium and small sized businesses and has a simple philosophy; invest in companies you can understand, buy things which are growing, back quality management, engage with your companies and don’t over trade. It also has six impact themes: environmental protection, the green economy, healthcare, innovative technologies, nutrition, and well-being.

Ethically minded investors are the focal point of the EdenTree Responsible and Sustainable UK Equity fund. It invests in a portfolio of companies that make a positive contribution to society and the environment through sustainable and socially responsible practices. Manager Ketan Patel is a truly passionate advocate of responsible investing and EdenTree was a pioneer in this space, investing sustainably long before most peers.

And responsible investing is not just limited to equities – you can invest in bonds too. Rathbone Ethical Bond invests in quality investment grade bonds. Ethical exclusions are simple: no mining, arms, gambling, pornography, animal testing, nuclear power, alcohol, or tobacco. All positions must also have at least one positive environmental, social, or corporate governance quality.

Darius McDermott is managing director of Chelsea Financial Services & FundCalibre

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