I was asked by a potential client to look into ways that they could invest on a more sustainable or 'green' manner. Firstly those terms are seriously overused and distracting. Many products and providers will put those words in their products and it might not be what you, as a consumer, needs from it. So my first bit of advice would be to investigate the definitions of these words in your product if you want to be a discerning consumer. I must thank him for requesting this and it is these sorts of questions and advice requests that make my career so rewarding. Learning new things and exploring individual solutions ensures I am always on the cutting edge of what we as financial planners do.
I use the word 'green' to encompass everything that is sustainable and environmentally friendly in this discussion. Broad but simple enough to understand!
Being green or looking to create sustainability in things we do is more a lifestyle philosophy then anything else. And as with most things in life, one might have to moderate your desires and find a balance between one's goals & needs and this philosophy. This is my view towards how one could create an investment portfolio that includes a goal
of creating wealth while at the same time taking a responsible line.
Responsible in that we would like the companies that you invest into to take
their mandate of ‘green & sustainability’ seriously.
Firstly I must state that it is not possible to be green with every aspect of a portfolio. Please also remember that when investing there is nothing you can’t
change, move or cash-out at any time! You have full control & flexibility. I have discussed constructing a portfolio in previous posts - if you are interested here is a link to one - . I also think we shouldn't lose sight of what our main purpose of investing is and that is wealth creation. Whether that be for your retirement, kids education or another goal you have for your capital. Either that or one would have to dissect each Annual report for what a company's record is. Even those are biased so you will have to go and dig a lot more to unearth the real record of a company's sutainable and green initiatives.
Sustainability & ‘Green’
There is only really one ‘green’
fund out there – the Nedbank Capital BettaBeta Be Green ETF (see attached).
This bases its investments on a number of factors and an overriding one is for
the companies to be environmentally friendly. Another option to look at would
be Shariah funds. These funds are based on Shariah, or Islamic, law. This is,
however, not entirely a ‘green’ mandate. They are prohibited from investing in
companies that do financial services, entertainment & alcohol (I have
condensed this list). So one of their large investments is mining and we all
know that mining houses can be anything but beneficial to our environment and
health. As another example a Shariah fund would not invest in the likes of SAB Miller (Beer producer) which
has a solid record of sustainability and corporate/social investments.
It is arguable as to whether the
criteria used on the Nedbank fund is actually a good measure of what we would
consider ‘green’. There are some commentators out there that say their
methodology is flawed. It is a step in the right direction though. There will
definitely be more of these types of funds coming out as our reporting and
compliance with emission targets and global norms is enforced. How far away
this is is anyones guess. We need strong & brave leadership to make these
types of changes and that is a global comment.
So what I advise is incorporating Green funds/company's into your portfolio. It is not possible, yet, to be completely green in your investment choices. This shall change as our demand for these types of investments increases. You can always change or choose to avoid certain industries or company's if you so wish. As an example - my Grandfather refused to invest in British American Tobacco (BAT) because he hated smoking. It is a strong rand hedge stock that is a basis for many portfolios and is often punted yet he avoided it. It is a choice one can make!
There is a serious matter underyling all of this and that is whether a company can make super-profits without sacrificing some underlying ethical or green basis. Most blue-chips company's rely on some measure of ruthlessness to maintain their place at the pinnacle of their industries. In the end it is up to our legislation and law enforcement to ensure that Company's that do step out of line are brought to book. We, as individuals, can encourage this by buying sustainable produce or by supporting those industries that are Green. This will encourage those businesses to go where the money is being spent. If we all chose to buy free range or non-gm foods, those companies who sell or produce sub-standard food would go out of business.
So in summary, currently it is difficult when
investing to create wealth objectively by choosing only ‘green’ companies. This
is also a factor of our country, which is still resource (mining) based and a
growing economy as well. We do have legislation and rules (JSE/listing
regulations/Companies Act etc…) that encourage companies to be
responsible in what they do to provide shareholders returns. So be aware of what you are investing in and if you feel strongly against something avoid it. In the end it is up to us to choose.
