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As part of the Tatler SOS Experts’ Corner, we delve into the subject of investing sustainably and ethically. Here, Andrew Steel from James Hambro & Partners, shares his advice on why responsible investing is simply good investing.

The melting of polar ice caps is just one visible sign of the impact global warming is having on our world. It is a reminder that our actions as human beings have consequences on the health of the natural world. However, climate change and environmental degradation also threaten our own future prosperity.

So it is encouraging that so many people now want to align their investments with their values and see them have a positive impact beyond financial profit. The financial industry is meeting this demand with a growing number of specialist ‘ESG’ funds and solutions – these put Environmental, Social and Governance factors at the heart of the investment process.

For most it is the ‘E’ in ESG that is front of mind. This is understandable given the scale of the climate change challenge and the fact that it transcends borders, impacting every human being. Last year governments around the world set themselves increasingly ambitious and explicit targets, including China, which plans to reach net zero carbon emissions by 2060. These ambitious targets have been backed up with the promise of government investment. The US and EU have both committed to spending hundreds of billions on renewable energy and electric transport over the next decade. Regulatory ‘incentives’ will add further impetus. This combination of capital and regulation will create plenty of investment opportunities.

Companies must also be seen to take the social aspects of their businesses seriously. In July last year online retailer Boohoo faced allegations that one of its independent garment suppliers (not the company itself) had paid workers a fraction of the minimum wage and poorly treated its employees. Whilst it may not technically have been their fault, it was seen as the management’s responsibility to ensure Boohoo’s business was sustainable and supported improving standards. Boohoo’s shares have yet to fully recover. Those companies that looked after staff and customers and supported communities during the pandemic won plaudits on social media and in the press. Those that didn’t paid the price.

Good governance has long been a key part of any analysis that we do. That covers things like ensuring managers are not disproportionately incentivised and that their work is subject to proper oversight and controls. This vital due diligence can help us avoid companies like Enron, WorldCom and more recently Wirecard, that get caught up in multi-billion dollar frauds.

However, the wider social and environmental impact of a company, even beyond its core operations and interactions with clients and employees, is becoming increasingly relevant. The reality is that there are myriad excellent businesses that are embedded within society and produce essential goods or services but whose operations have wider, less benign impacts.

Take companies such as Unilever or Nestlé, which produce essential household goods and nutritional products for children and pets but whose use of plastic packaging has a huge impact on marine life – as was so clearly illustrated in Sir David Attenborough’s Blue Planet. We need these companies to be part of the solution.

By actively engaging with management teams and exercising their voting powers, shareholders can motivate companies to recognise their wider responsibilities and take action to mitigate or offset their impact. Where management fails to act or achieve the required standards then shareholders can force change.

In reality, therefore, responsible investing is simply good investing. It places investors in the best position to make attractive economic returns whilst supporting a fairer and more sustainable world for current and future generations. Those companies which recognise the need for change and allocate capital responsibly, by putting environmental, social and governance considerations at the centre of their strategies, are more likely to succeed over the long term.

This is why we believe that ESG considerations should be a core part of investment analysis. We believe it helps us as investment managers to identify long-term winners and avoid firms exposed to potential risks and vulnerabilities. That should support investment returns, not hamper them.

For more gold-standard guidance on investing sustainably visit the Tatler High Net Worth Address Book