By Seb Beloe, Partner, Head of Research at WHEB Asset Management
‘Give me a child until he is seven and I will give you the man’. So said Saint Ignatius of Loyola the principal founder of the Jesuit order, underlining that much of our character is formed at an early age and once formed is difficult to change. Today psychologists call this ‘cultural cognition’; a tendency of individuals to conform their beliefs to values that define their cultural identifies. People don’t change their minds much because what they believe is often connected to who they think they are.
How people think about ethical investment also tends to be rigidly set. For most financial professionals who normally pride themselves on their objectivity, ethical investment is a synonym for under performance. For them, the mere act of introducing moral considerations into investment decisions mean that you would be inevitably accepting that your portfolio as a whole will underperform.
This may or may not be true when such decisions are taken on a purely moral basis. But the key point is that for certain issues, including many environmental issues, decisions are no longer primarily about morality. Addressing issues like climate change, water scarcity and air pollution, are today much less about ethics, and much more about commercial, regulatory and technological considerations. Investing in a company that makes cleaner powertrain technology for cars clearly has a positive impact in helping to reduce air pollution. But the investment rationale for investing in such a business is that demand for these technologies is growing rapidly as regulators around the world force the car industry to clean up its act.
WHEB Sustainable Investment Themes
WHEB is an investment firm focused on investing in ‘positive impact’ businesses. We have found that companies that are exposed to key sustainability themes such as resource efficiency, sustainable transport, health and education have enjoyed much higher rates of growth than the market as a whole. Over the last five years, our research shows historical sales growth has been between 8-9% per annum for companies that fit these themes, while the rest of the market (as measured by the MSCI World) has delivered less than 5% sales growth. In a world that isn’t growing very much, this is a part of the market that is enjoying substantial and sustained growth.
So where does this leave ethical investment? Ethical investment emerged in response to specific moral concerns about certain industries. It was defined by what it didn’t invest in. But the world has moved on. The critical problems that society faces are around ageing, urbanisation and environmental issues. Free markets have responded with businesses developing new technologies and new business models that help solve these issues. Is this ethical investment? You could call it that. But it is also just good investment.
Our investment strategy committee, which consists of seasoned strategists and investment managers, meets regularly to review asset allocation, geographical spread, sector preferences and key global market drivers and our economist produces research and views on global economies which complement this process.
Our quarterly report presents our views on the world economic outlook and equity, fixed income and foreign exchange markets. Please click the link to download.