There is some truth to that. In a complicated world, being truly ethical is a very hard thing to do, and so-called positive screening – including companies that demonstrate good behaviour rather than simply excluding companies in morally dubious sectors, or negative screening – meant some surprising companies were able to brand themselves ethical. But recent academic studies – and bare fund performance data – suggests the performance gap is no longer there, if it ever was.
Meanwhile the difficulties that those wishing to choose ethical investments face in finding truly ‘good’ companies have eased as environment, social and governance – or ESG, as ethical matters have been sensibly and successfully rebranded – issues have become a part of mainstream business, not least consumer goods businesses; as we explore in this week’s sector focus on page 66, these companies are having to take serious steps to convince customers they’re not profiting from harmful activity.
There is still, of course, a concern that many companies continue to engage in so-called ‘greenwashing’ – disproportionately promoting the worthy aspects of their activities while carrying on business as usual elsewhere; think BP’s huge ‘Beyond Petroleum’ rebranding in 2000, when its alternative energy portfolio barely represented a rounding error in its accounts.
In fact, BP was back in the ethical headlines this week after suggesting in its annual Energy Outlook that banning single-use plastics in favour of more sustainable materials could have a bigger energy cost in terms of production and transportation. “They would say that, wouldn’t they?” I hear you cry. But a similar point was raised over electric cars on a radio discussion I tuned into: emissions may be lowered, but the environmental footprint of the batteries they run on isn’t very green at all. BP is right that navigating the unintended consequences of going green, as a consumer or investor, isn’t easy.
But even if being a perfect ESG investor isn’t possible, being good enough might still reap dividends. At our recent private investor seminar, Mark Whitehead of the Securities Trust of Scotland, spoke about why ESG is a primary consideration when choosing its investments. “It’s called investment,” he put it simply; in other words, bad governance, unhappy staff, or environmental damage cost companies money and all investors should seek to avoid them, while ESG themes sit at the heart of many big growth trends that consumers – especially younger ones – are increasingly responding to. You don’t need to be a hippy do-gooder to buy into that view.
