What does it mean to be responsible about investment?

With COP 26 being hosted by Glasgow unsurprisingly our thoughts at EIS Financial Services turn to the investment impact of such concerns and how this might influence the way you choose to invest your lump sum or save an additional sum for your retirement. How do you make money with a conscience?

In 1963 Garrett Hardin, the first person to be termed an Ecologist and an Economist developed the first law of ecology:

“You can never merely do one thing”

In other words it’s all inter- connected; “the effect of the effects”. Hardin also built on the work of British economist William Forster Lloyd to popularise the concept of “the tragedy of the commons”. Paraphrasing him, he suggested that where individuals have access to a resource, the use of which is not inhibited by formal rules or social structures, they will act according to their open self-interest and against the common good of all users, leading to depletion of the resource by their uncoordinated action.

Lloyd wrote in 1833 and Hardin in 1968. Yet we find ourselves examining such consequences today not just on our individual level but also on our company level and country level too in relation to global warming, climate change, sustainability, social and environmental issues.

Climate change is arguably one of the greatest market failures the world has seen and it interacts with other market imperfections to effect the basic elements of life – access to water, food production, health and the environment. The market is an imperfect solution and sometimes not even that.

The impact of the rich on the poor whether as an individual, company or country is hurting the common good of us all. COP 26 is striving to achieve a global interaction and response to the problems we face using a Taskforce for Climate-related Financial Disclosures with New Zealand becoming the first country to make it mandatory to produce such reports.

There is also a campaign started by the director Richard Curtiss, “Make My Money Matter”, to bring defined benefit pension schemes in the UK into line with the corporate position and ensure that Pension Trustees take Climate related issues into account.

Mark Carney, the former Governor of the Bank of England, has been appointed the UK’s Special Envoy to the UN and the Prime Minister’s Finance Adviser for COP26 and has produced a report on Building a Private Finance System for Net Zero.

Having a concern as to any of this for investment can be complicated – which part matters when it all matters? Investing responsibly means different things to different people. For some it is climate change and the move to net zero emissions. For others it is a matter of treating people fairly, staff, customers, those in the supply chain. For some it can be ethical or religious concerns which govern their choices.

To reflect that different managers have different approaches to responsible investing at EIS Financial Services rather than having a narrow focus on specific exclusions or inclusions or ethical pathways for our Responsible Investment Proposition Portfolios we have adopted a blended approach involving ethical, sustainable and ESG (Environmental Social and Governance) investing.

The Task Force for Climate related Financial Disclosure (TCFD) is working towards mandatory climate related reporting standards yet there remains a lot of differing approaches which we seek to check. There are over 1,000 ESG metrics which can lead to confusion, indecision, and funds “green washing” themselves into this sector by appearing to be green friendly when they may not truly be so.

In 2020, the team at EIS Financial Services decided to design our own investment portfolios which are bespoke to teachers with an emphasis on responsible investing. We now offer 5 Responsible Investment Portfolios which are aligned to our client’s attitude to risk. We examine the funds we choose to include in our portfolios to ensure that they genuinely belong there in response to these concerns. Within the 5 portfolios funds may be excluded if they do not meet standards, or where the fund has a positive approach to best sustainability or best working practices, included. And then there is the approach of “strategy of engagement” where fund managers encourage good practice and try to influence the application of appropriate standards by the companies they invest in within their funds.

We believe that this blended approach and attention to detail ensures that our Responsible Investment Proposition Portfolios will remain true to purpose. If we can help with any aspect of investment and in particular Responsible Investment please don’t hesitate to contact your adviser or our team in the office on 0345 355 3242 or enquiries@eisfs.co.uk

And as COP26 makes us consider how involved we are together in our world may I leave you with the words of a Scots born American who loved and tried to protect the wild places:

“When we try to pick out anything by itself we find it hitched to everything else in the Universe.” John Muir