What on earth is Earth?

Talk about investing and for most people, there’s usually a limit on how much they want to know. If you have a personal pension or a stocks and shares ISA, you’ll know your money is invested in some way. You may have an idea that it’s held in an investment fund or funds and you may recognise terms like shares and bonds.

Beyond that and you’re really doing well. Discussing asset allocation or investment strategies is often met with glazed looks and stifled yawns. Yet, ironically, this is the most important bit.

What you invest in and how you do it will shape what you get. A pension or ISA are simply investment wrappers that determine how the money in them is taxed and how you access it. The way your money is invested is key and should relate to how long it’ll remain invested and how you feel about it fluctuating in value.

A good example is a personal pension which could last many decades. Getting the balance between the return you get and the journey to get it is the job of the investment strategy – the blend of assets like shares and bonds that give you the best return prospects without leaving you wondering and worrying about it.

Back in June many of our clients saw their investment accounts updated to incorporate a change to their investment strategy. It introduced a new element to the way their money is invested by focussing more on companies with good ESG scores. We call it sustainable investing as companies with good ESG scores are more likely to perform better that those with poor ESG scores over the long term.

The initialism ESG stands for Environmental (the wider impact of a company’s activities such as their carbon footprint), Social (the people-related elements of a company’s culture and operations) and Governance (how well companies operate their businesses) and it has become possible to measure these credentials along with the financial data.

So, ESG is part of the investment strategy and the portfolio of investment funds we use to deliver the investment strategy is called Earth.

Why is ESG important?

Turn on the news and you’ll soon hear about the environmental challenges the world is facing. In 2020 my local community in East Nottinghamshire formed a Going Green Group born out of general confusion on what can be placed in our silver recycle bins. The list of accepted items had gradually declined over time particularly some types of plastic and there are notable exclusions like glass and aluminium foil.

Most people get the reason for recycling and like to feel they’re ‘doing their bit” by segregating their waste. However, dig a bit deeper and you soon discover that recycling is actually part of a much bigger problem. The amount of waste we produce and our capacity to deal with it sustainably is a massive challenge.

At the beginning of October the Going Green Group ran an event called The Big Green Saturday in our local village hall. Its aim was to share information and fresh ideas based on the Reduce, Reuse and Recycle waste hierarchy to raise consciousness of the subject and encourage people to be more intentional in managing the amount of waste they create.

The event was well received by the people who came along and prompted lots of great conversations encouraging us to run the event again in 2022. However, converting those conversations into lasting change and gaining universal support will take time. Yet, according to the renowned author and natural historian Sir David Attenborough, we don’t have time.

Take a look at the BBC’s Earthshot Prize: Repairing Our Planet series – building a waste-free world where you’ll hear Sir David talk all about the scale of the problem. Fixing our climate, the air we breathe, our oceans and protecting nature are all addressed in the series which culminated in sponsorship of £1 million for 5 inspiring projects aiming to tackle some of the challenges we face.

The Reality

We know the change our Going Green Group can bring will make a difference locally but the reality is that it will have limited impact globally. At Serenity, we know that moving capital away from those companies that are contributing to the problems of the world in favour of those that are trying to solve them will have the most immediate impact.

My colleague Ian Kemp wrote about a study in his article Your Money – can it have more Impact that showed that ‘greening’ your pension fund alone is 21 times more effective at reducing your carbon footprint than giving up flying, going veggie and switching energy provider combined.

According to the authors of that study Make My Money Matter, there’s about £2.6 trillion invested in UK pensions. Lots of it funds harmful industries like fossil fuel extraction, tobacco, and arms manufacturing yet it also funds brilliant things like wind farms, curing disease, building more energy efficient homes, better transport and drives innovation.

By introducing ESG into the investment strategy means our Earth portfolios will be supporting less of the harmful industries and focusing more on good sustainable companies who are expected to do well in the future. We think that makes sense.