Growing recognition of the collective power of investors has created more interest in socially responsible investing (SRI) – an umbrella term that’s used to describe investing with a focus on environmental, social and governance (ESG) issues. After three years of SRI at Nutmeg, we spoke to some of our clients about why they chose this investment style.
“I think that for an individual, where they invest their money can have a bigger impact than almost anything else they do,” Hannah J, Nutmeg socially responsible investor since 2019
What is socially responsible investing?
“Knowing that my investments will be aligned with companies that have high ethical and environmental standards is a no brainer,” Kate B, Nutmeg socially responsible investor since 2020
When it comes to socially responsible, or ‘ethical’ investing, it is never a straightforward choice. There is no ‘perfect’ organisation, one with every aspect of its business beyond reproach. Moreover, nobody agrees on what exactly it means to be ‘ethical’; as individuals we all have different values and even among people with similar values their priorities can differ.
For some, their main concern will be reducing the carbon footprint of their investments, while others will want to ensure that they’re investing in businesses with fair pay practices and good treatment of their staff. Whatever is important to you, it’s important to know if and how your investments align with your values.
Why are investors choosing SRI?
“Being able to direct where money is invested will have a significant impact on business and government policies precipitating a change in practices that will benefit us all,” Tom O, Nutmeg socially responsible investor since 2021
SRI covers a range of concerns including climate change, carbon emissions, environmental degradation, pollution and waste, human rights, corporate social responsibility, animal welfare and so on.
To fit within an SRI market index, a stock must be scrutinised on different aspects – for instance reviewing a company to see how its practices in the boardroom, treatment of staff, and management of its supply chain contribute to positive or negative outcomes.
How companies are scored on their SRI credentials is a complicated area. But we wanted to give investors a helping hand. That’s one of the reasons we give every Nutmeg portfolio a detailed score against a range of ESG criteria.
Growing in popularity
“[I invest responsibly]…so that there is a planet for me to retire on,” Matt S, Nutmeg socially responsible investor since 2019
Nutmeg carried out a survey in March 2021, and found that among younger adults aged 25-34, 60% have put money into their investment pots over the past year compared to just 38% of the broader population. Moreover, young people are much more likely to seek out socially responsible investments – with a quarter saying they are ‘much more likely’ to seek them since the pandemic began.
Further to this, the number of new investors who chose a Nutmeg SRI portfolio – available in a range of risk levels – continues to increase year-on-year (Source: Nutmeg data, as at 30 November), with SRI our fastest growing investment style.
Does it make a difference?
“I feel it is important to live sustainably and be considered in one’s personal choices. I work for a charity and support many others, so would not want to invest any differently. I think there are innovative ways of doing business that don’t come at an ethical cost,” Carla P, Nutmeg socially responsible investor since 2020
When choosing a socially responsible portfolio, you’re communicating to the market what kind of activities you will and won’t accept from the organisations that ultimately use your money. By investing more in companies that score well on environmental, social and governance (ESG) measures, less in those that score poorly, and nothing in the most controversial sectors, such as nuclear weapons or thermal coal, your investments could be helping to make a difference in the world we all live in.
What’s in it for me?
“The market has been turbulent and it is tough to get good returns without heavily investing in fossil fuels or mineral mining in areas with questionable regimes and working practices – so I have been very pleasantly surprised at the returns,” Alex A, Nutmeg socially responsible investor since 2020
Many people assume there is a trade-off between what’s good for the world and what’s good for your pocket. But our research shows SRI strategies have not historically underperformed conventional ones. Of course, people have their own reasons for choosing a portfolio, but our research suggests that performance expectations should not be a reason for not choosing an SRI portfolio.
What about the future?
“I see a long-term future in ethical and sustainable businesses. As such, I wanted to support the growth of these companies with my investments. I believe that their value will grow much quicker than traditional markets as challengers begin to overtake the established competition,” Connor W, Nutmeg socially responsible investor since 2019
Not only is socially responsible investing the fastest growing investment style at Nutmeg, but SRI is the broader direction of travel for the industry. The Department for Work and Pensions (DWP) has asked all larger pension funds to disclose their ESG holdings by 2022 in a bid to encourage further SRI in the future.
This kind of disclosure is indicative of the power of SRI and those companies benefitting now from SRI are in good stead to last well into the future.
“I want to support greener, more sustainable companies. In the long run, as (hopefully) the world becomes less reliant on fossil fuels and switches to more socially responsible/gender balanced companies, I believe these will be more profitable than the more conventional alternatives,” Leticia M, Nutmeg socially responsible investor since 2020
As with all investing your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. Past performance is not a reliable indicator of future performance.