Eimear Toomey, head of responsible investment at Quilter Investors, said there has been an “explosion in popularity of ESG investments”, but investors need to avoid companies that are “greenwashing”, rather than making real changes. “As funds proliferate, it is vital investors do their homework and understand exactly what they are investing in,” she said.
Many investors believe there is a price to pay for going green, as ESG funds shun major sectors such as oil, mining, defence, travel and chemicals.
However independent investment commentator Adrian Lowcock said there has been a “seismic shift” in attitudes and performance has improved massively with the MSCI
ACWI ESG Leaders index returning an impressive 95 percent over five years. Investors pumped £61 billion into the ESG sector in the year to February, doubling in a year.
“Companies involved in alternative energy, greener food production or waste reduction are here to stay and crucially, rewarding investors,” Lowcock said. Like any sector, ESG will not always outperform, he added. “As vaccines are rolled out there has been a shift to recovery stocks, such as oil companies and airlines, that typically do not feature in ESGfocused funds.” Prudential’s research shows that 45 percent want to invest purely in ethical firms and Lowcock tips the following three funds.
ASI UK Ethical Equity follows a strict ethical code, excluding sectors such as pharmaceuticals that test on animals, tobacco and weapons. It favours companies that promote equal opportunities, have strong governance and support the local community.
Five-year return: 48 percent
Royal London Sustainable Leaders targets socially responsible FTSE firms that have a positive effect on the environment and quality of life
Five-year return: 80 percent
Stewart Investors Worldwide Sustainable focuses on companies with high-calibre management, sustainable revenues and healthy balance sheets.
Five-year return: 89 percent