Sustainable investing: why it makes sense to be on the side of the angels

We’re always talking about long-term investing here at MoneyWeek. Short-termism gives us high executive pay packets (shareholders don’t act like long-term owners, and so let managers get away with silly incentive schemes); a lack of investment for the future (because that costs money today – for more on the potential consequences of that); and a popular view of investment as little more than high-stakes gambling, which does the free-market capitalist system a massive disservice and obscures many of the benefits it has delivered.

So, while we have been known to express a touch of cynicism as regards ethical investing in the past, we’re a little more keen on its latest incarnation as “sustainable investing”. Amid all the irritating buzzwords, meaningless jargon and bandwagon-jumping that you’d expect from any other part of the fund-management industry, the core idea of sustainable investing has two major plus points going for it.

Firstly, this is an era in which it makes sense to be seen to be on the side of the angels. The increased scrutiny on the behaviour of institutions of all types (this week it was Oxfam’s turn to be toppled off its pedestal) is only going to continue, and reputational risk is only going to become an ever bigger threat. If sustainable investing can help investors to spot that threat and offset it in advance, then that has value.

Secondly, investing sustainably means thinking about companies with sustainable finances, too. So we’re not just talking about “divesting” out of problematic industries such as fossil-fuel providers. We’re talking about looking at what makes a company sustainable in a financial sense – strong brands, healthy end-markets – what we might otherwise refer to as an economic moat.

One thing that sustainable companies tend not to have a lot of is debt, and in this week’s issue, Phil Oakley looks at how the demise of support-services group Carillion shows how companies can – quite legitimately – hide the true extent of their indebtedness using various accounting conventions.

Finally, if you’re looking at long-term trends that companies of the future will have to cope with, then one you should most definitely consider is the end of the bond bull market and the return of proper inflation. This week, US inflation figures for January beat market expectations, sending bond yields higher, which probably ensures the recent bout of jitters that saw various volatility-linked financial instruments blow up may have a distance to run. As Ben Judge suggests this week, it might be a good time to pop something distinctly old-fashioned but perhaps more sustainable than any other financial asset into your portfolio – gold.


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