In recent months ESG has become increasingly important to investors who are focusing on the way in which companies operate. Coronavirus has accelerated the importance of this theme, and we are seeing signs that the investment landscape has already shifted. Charlie Buxton, our Portfolio Manager, reports on these important first steps.
Last week the largest private pension fund in the UK took the decision to withdraw from companies operating in the coal, tobacco and weapons sectors.
The fund – the Universities Superannuation Scheme (USS) – currently holds over £68 billion. According to its statement the USS has taken the decision to sell holdings in these controversial sectors within two years. It will also avoid any additional investment from this point forward. The announcement marks the first time the fund has commented on those firms and sectors it plans to actively exclude from its investment strategy. As well as removing investment in any firm involved in tobacco production and thermal coal mining, the decision impacts those manufacturing cluster munitions, white phosphorus and land mines.
This is a significant step and echoes the growing pressure from investors, and the wider population, about the importance being placed on ESG in a bid to tackle climate change and other ethical issues. Indeed, there is already research which shows that companies which operate in a socially responsible way perform better. The flipside of this is that those in more ethically questionable sectors will start to feel the economic fallout from changing public, political and regulatory attitudes.
It seems clear that this trend will only grow in prevalence as we move forward, and the current global pandemic will simply ramp up the importance of ESG on a much faster trajectory than was already occurring. If you are keen to consider the relevance of ESG in your investment strategy, please contact your nearest office.
Charlie Buxton, Portfolio Manager
charlie.buxton@thefrygroup.hk