Investing responsibly: investing in the war against climate change

Investing responsibly isn’t only for the idealist: there could be a pragmatic, and very profitable reason for doing so.

Article updated: 23 January 2019 8:00am Author: Michael Baxter

The economist Milton Friedman didn’t believe in regulation. Nor did he believe that investors should focus on anything other than the bottom line: P&L and other fundamentals.

Frankly, it surprises me that Friedman’s big advice to investors was that they should stay in bed. Because Friedman believed in such enigmatic concepts as the efficient market hypothesis. Leave the markets alone, and the profit motive would be enough to create sustainability, since, in the long run, a non-sustainable approach wouldn’t be profitable: and the infallible markets price in what will happen in the long run.

There is a good word that describes that theory: and the word is: poppycock.

The markets have proven, over and over again, that they are very good at mis-pricing assets, pay scant regard to the long term, and often fail to spot the trends that to the casual observer are obvious.

Besides, if the efficient market hypotheses was right, the only way you could ever beat the markets would be if Lady Luck was smiling, and investors should select the stocks that make up their portfolio by picking up a pin, laying out a list of stocks that make up say the FTSE 350, then don a blindfold and proceed to randomly select stocks with the aid of the pin.

Responsible investing

Climate change, plastic pollution, misleading food packaging, non transparently loading our food with sugar, data privacy violations; these are just examples of the areas that the socially conscious worry about.

And if the food we eat gives us diabetes, if the plastic we throw away ends up in the stomachs of fish, eventually making seafood inedible, and the carbon fuels we burn create devastating economic harm, won’t the companies behind such actions be among the losers?

Of course, it has not always been thus. It amazes me that tobacco firms were not punished more severely for the damage their products did. Or indeed, not punished more severely for the way they supplied disinformation on the health risks of smoking, when in fact, the evidence was clear.

But these days it does feel different. The internet, for all it’s fake news, is very good at shaming corporate wrong doers.

It seems that younger investors have a somewhat more altruistic vision with their investing.

And if you follow the advice that investing is a long-term game, then maybe you should start focusing on the responsible side of the equation.

ESG

And that takes me to Environmental Social Governance (ESG).

It is in vogue: more than a quarter of the world’s professionally managed assets have been directed into ESG investments.

And while investing with an ESG hat on does not promise riches, there is no reason to expect it to be any less profitable than a broader non-ESG approach.

There are countless funds that include ESG metrics in their investment criteria.

Four interesting ones include: EdenTree Amity International Fund, F&C BMO Responsible Global EquityLiontrust Sustainable Future UK Growth, and Rathbone Ethical Fund

Climate change

You may of course want to consider investing directly in companies that are focusing on activities that are designed to fight climate change.

Tesla, not only because of its electric cars, but because of its solar panels division and lithium ion batteries, is the obvious candidate.

Or you could invest in Lithium ion batteries.

To invest directly in lithium, the US miner, Albemarle is interesting.

If you want to invest in Cobalt, a key component of lithium ion batteries, look at Glencore. To me, its cobalt production is the most interesting thing about the company.

Look to space

There is one snag with renewables. They are not truly sustainable. Sure, solar and wind tap into the energy of the sun, and in that sense are sustainable. The materials that renewables and lithium ion batteries are made from are not.

Lithium, cobalt and rare earth elements that are vital in this area have limited supply, although this limit is not likely to be met for some time.

For this reason, mining in space is likely to come into vogue and indeed probably won’t be long before this practice is more cost effective than mining on Earth.

Fossil fuels are unique to earth, as oil and coal etcetera are formed from what was once living things. But the asteroid belt is likely to be teaming with materials such as lithium, that will prove most valuable.

And I am not aware of a requirement to worry about pollution on asteroids. So that is where the sustainable money might be in the long run, and clearly, SpaceX tops the list in that area.


These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.

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