Weathering the storm of climate change with responsible investment strategies

Written by George Fisk, CFP™

The call for responsible investing has surged in recent years, transcending traditional environmental circles and gaining traction among diverse stakeholders. No longer confined to environmentalists or niche groups, this movement now commands attention from shareholders advocating for accountability through robust corporate governance. Media and public scrutiny has intensified, pressuring companies to demonstrate their commitment to responsibility.

Green bonds, pivotal indicators of sustainable investment, saw a dramatic uptick in 2023, with $190 billion of green bonds being issued in the year alone  – a 10% year on year increase. Political commitments further propel the sustainability momentum. In 2023, the World Bank delivered a record $38.6bn in climate finance , supporting efforts to end poverty on a liveable plant – a 22% increase compared to 2022, reinforcing adherence to green objectives.

Recent data underscores the dire consequences of environmental neglect. Reports published in the British Medical Journal found that air pollution deaths directly attributable to fossil fuels claim 5 million lives annually , with a total of 8 million deaths worldwide being attributed to outdoor air pollution.

Investor sentiment mirrors this growing awareness of climate change. The iconic ‘Sustainable signals’ report by the Morgan Stanley Institute for Sustainable Investing revealed that 77% of individual investors expressed interest in considering sustainability when making investment decisions, with 54% of investors planning to increase sustainable investors in the next year .

Many of the clients I speak with ask the important question of whether they will be leaving returns on the table if they opt for a sustainable strategy. As per every investment promotion’s notorious caveat of ‘past performance should not be used as a guide for future returns’, it is impossible to predict whether returns will be impacted by a sustainable investment strategy. One should note that diversification should remain paramount, as investing in only a handful of perfectly sustainable companies will inevitably carry concentration risk, but as noted by JP Morgan the attention towards companies that do not take sustainability seriously has increased significantly in recent years, so there is a possibility that these companies could indeed underperform their peers and relative benchmarks .

MASECO, being the UK’s first Wealth Manager certified as a Benefit Corporation (B-Corp) in 2013, integrates diversification principles with ethical investment standards in their low carbon centric portfolios. By blending funds with strong Carbon Emissions criteria, these portfolios mitigate concentration risk while embracing sustainability.

Regulatory developments underscore sustainability’s mainstreaming in financial markets. MiFID II mandated that Financial Advisers inquire about clients’ sustainability preferences from 2021 onwards, signalling a regulatory push towards integrating sustainability into investment decision-making processes.

The escalating trends in climate change and sustainability underscore a critical shift in global consciousness and investment practices. The alarming records of extreme weather events and environmental degradation serve as urgent reminders of the need for responsible investing. As evidenced by the surge in green bonds issuance, political commitments, and growing investor sentiment towards sustainability, the financial sector is increasingly aligning with environmental and social objectives. However, the question of returns on socially responsible investments remains a pertinent consideration, necessitating a balanced approach that integrates diversification principles with sustainability criteria. Regulatory mandates further solidify sustainability’s integration into investment decision-making processes, indicating a broader recognition of its importance in financial markets. As exemplified by MASECO’s pioneering efforts in responsible wealth management, blending Carbon Emissions criteria with diversification strategies offers a pathway towards addressing both financial and environmental imperatives. Moving forward, sustained collaboration and innovation will be essential in navigating the complexities of climate change and fostering a more sustainable future for generations to come.

i. Warmest February on record for England and Wales – Met Office
ii. Green bonds reached new heights in 2023 | Insights | Bloomberg Professional Services
iii. Climate finance | Fiscal Year 2023 (worldbank.org)
iv. Air pollution deaths attributable to fossil fuels: observational and modelling study | The BMJ
v. Morgan Stanley Survey: High Investor Interest in Sustainability | Morgan Stanley
vi. What impact does investing sustainably have on investment returns? | J.P. Morgan Asset Management (jpmorgan.com)

The Legal Stuff

The information is intended for clients of MASECO LLP and should not be reproduced, copied or made available to others, in whole or in part, without MASECO’s prior written consent.

• Nothing in this document constitutes investment, legal or fiscal advice and should not be construed as such.
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MASECO LLP is authorised and regulated by the Financial Conduct Authority for the conduct of investment business in the UK and is registered with the US Securities and Exchange Commission as a Registered Investment Advisor.