In the Financial Times of January 18, 2018, (https://www.ft.com/content/b4870bd2-fab6-11e7-a492-2c9be7f3120a) British fund industry veteran Terry Smith of Fundsmith criticised investment structures that offer ‘sustainable’ investing opportunities. He claimed they fail on two counts: 1) they are not actually invested ‘ethically’ and 2) returns still lag comparable mainstream funds. Below is a response from Zoe Vanderwolk of QUAERO CAPITAL’s Accessible Clean Energy strategy:
In his article Terry Smith claims "…There are virtually no examples of sustainable funds monitoring real-world sustainability measures." I hope he is pleasantly surprised to hear that in fact there are more and more funds every year available that match this description and which are signatories to the UN Principles of Responsible Investment (PRI).
His depiction of socially responsible approaches to investing is rather quaint and outdated and therefore should be challenged. Decades ago, socially responsible investing may indeed have involved a simple negative screening, merely excluding "sin stocks" like arms manufacturers or tobacco companies, with no consideration of the underlying sustainability of a business.
However, modern investing incorporating environmental, social and governance (ESG) criteria as part of the normal investment process is far more sophisticated than this exclusionary approach, and in fact regularly outperforms comparable mainstream strategies, as has often been reported in the FT (eg, the Big Read, 3 September 2017; FTfm, 11 October 2017, etc).
I would suggest that any investor - or indeed, opinion writer - take the time to review the UN Principles of Responsible Investment. Mr Smith would surely be heartened to discover that in fact all these "real-world" sustainability measures are covered within the investment policy guidance and fiduciary duties to integrate long-term investment value drivers, including ESG, into investment practices.
A conversation with any fund manager can quickly distinguish between those that merely pay lip service to such principles, and those who believe that investing responsibly is key to long term, sustainable and equitable returns.
Zoe VanderWolk,
Investment Team, Quaero-Accessible Clean Energy Fund, Quaero Capital