Ethical investing returns

Many investors wonder if investing ethically means you must sacrifice investment returns. In fact, there is evidence (from MSCI and others) that ESG investing can improve long-term investor returns by reducing certain risks in investment portfolios.  This seems plausible, because a key focus of ethical investing is to question how sustainable a particular investment is likely to prove.

Case study: Investing in the oil and gas industry

Oil and gas companies such as Royal Dutch Shell, BP and Total are some of the biggest companies in the world.  So it’s no surprise that their shares are a core holding of many investment funds.

 

However, oil and gas is an industry that many ethical funds seek to avoid, primarily based on environmental concerns, but also social impact and governance questions, particularly in developing countries.

What’s more, some ESG-focused investment professionals argue that an excessive exposure to oil and gas exploration and production companies represents a material risk.

The risk is that those companies may never be able to monetise the reserves they have previously discovered, and on which their current valuations are based.  And investment funds that avoid the fossil fuel industry don’t bear this risk.

Cost is a still problem in Ireland

Unfortunately, investors based in Ireland have historically been asked to pay a premium to invest in ESG funds.  That’s changing.  Moneycube can offer a wide range of ethical funds where these premiums have been removed – and we’re campaigning for this across the industry.

If you’re already investing your savings or pension into ethical funds, it’s worth paying special attention to the fees you’re being charged for the privilege, or talking to Moneycube to drive that cost down.

Focus on the numbers

The lesson for Ireland-based investors is that the ethical approach is no different than other styles of investing.  Financial returns after costs still count.

Of course, it’s possible to invest in poorly performing ethical investment just as it is with a conventional investment.

That’s why the Irish investor in ethical funds need to be evaluated critically based on financial performance, fund management approach, underlying holdings, and overall cost as well their ESG credentials.