Further Reading: Why investing to save the planet might be worth it

It seems extraordinary that Financial Times journalist Alice Ross first had the idea to write a book on investing to save the planet in the summer of 2019. Then, the link between climate change and stock market investing was one that was only being pulled together by a handful of people. Sure, funds run by companies such as Impax or Montanaro, which seek to invest only in companies that make a positive contribution to the planet, had been around for a while, but they were the minority. 

Not today. In just over a year, ethics has become the most pressing and often hotly debated topic in capital markets. ESG – investing with environmental, social and governance factors front and centre of decision making – is now being considered (or at least discussed) by wealth and fund managers, pension scheme proprietors, investment banks and private investors. Investing to save the planet: How your money can make a difference notes a recent report from the UK’s Department for International Development that found “68 per cent of UK savers wanted their investments to consider the impact on people and planet alongside financial performance”.

In the book Ms Ross notes the revolution that has happened in climate-focused investing in the last year; 2019 was “the year the world woke up to climate change”, she says. The upshot is that the number of retail and institutional investors applying ESG principles has rocketed: $20.6bn (£15.4bn) was ploughed into US sustainable investment funds in 2019, four times higher than the previous year, while in Europe €120bn (£109bn) was invested in responsibly managed funds. 

But the sudden surge in demand for climate change solutions has paved the way for greenwashing, “when companies or fund managers pretend their products are more environmentally friendly than they really are”. Ms Ross notes that “many fund managers have been quick to piggyback on the Paris Agreement”, while the logos of UN sustainability goals have proven “particularly impactful in marketing materials”. Her book warns that not all ESG investors know that they may not be investing to help the environment: “people who want to invest to save the planet should do their homework before picking an ESG fund”.

That’s easier said than done. It’s not just greenwashing of funds where investors need to be vigilant, companies themselves are increasingly claiming ethical credentials with very little merit. The book notes Morningstar data which states that only 40 per cent of ex-fossil fuel companies are actually fossil fuel-free, and points to the many water companies claiming to be supporting better global provision of clean water, while really only serving wealthy western populations. Questions also remain about the legitimacy of certain climate change innovations: to what extent is solar energy, which relies on hard-to-mine minerals, better for the environment than natural gas, for example?

But the good news is, according to Ms Ross and her book, that there is a lot investors can do to invest with the climate in mind. Over three chapters, the author lays out the steps investors should take, starting with ensuring that your investments are your own and not simply copied from a friend: “investment decisions are deeply personal to the individual”, she explains. That’s especially true when it comes to responsible investing – one person’s ethical fund might be investing in areas that are deeply immoral in the eyes of others. Fossil-fuel companies with green energy divisions are especially contentious.

Ms Ross also walks prospective planet-savers through the ways that they can make their money do the right thing, while also accumulating wealth. She explains that the sale of fossil fuel company shares alone is not enough and quotes Bill Gates who said in 2019, “divestment, to date, probably has reduced about zero tonnes of emissions”. She also points to the evidence that contradicts traditional fund managers who worry that narrowing the potential pool of investment opportunities by focusing purely on companies that are contributing positively to the planet will stunt the potential returns. Indeed, investing only in environmentally responsible companies has the potential to be enormously profitable. 

But this is where the book skates over a crucial point for investors to consider when pondering ESG: is socially and environmentally responsible investing not just good long-term investing? Have the most successful investors not always favoured the assets with the greatest long-term potential for improving society and ditched the stocks with ties to antiquated or immoral industry? 

In the years leading up to the agricultural revolution, the most successful investors were those who put their money into farming innovation – there is no denying the agricultural revolution had a hugely positive contribution to health. The same was true of the investors who sponsored factories, railways and steel prior to the industrial revolution, which led to a more fair and civilised society. Today, the planet’s priority is sustainability and investors who back the companies supporting that are best placed to make money in the long term. That’s not always easy, especially when the most promising assets are hidden among a pool of misleading green badges. Investing to save the planet can put you on the right track.

Investing to save the planet: How your money can make a difference is now available on Amazon.