Sustainable Investing at Ground Level

Sustainable investment market updates at a glance…

• Stubbornly high inflation and response from central banks continue to impact investment markets.
• Sustainable themes such as energy transition and food security continue to grow in importance.
• Regulators start to crack down on greenwashing and introduce new legislation for corporates.

In the first half of this year, investors have experienced a great deal of turbulence, with inflation remaining stubbornly high and compounded with the conflict in Ukraine. The response from central banks to tackle inflation has meant that ‘risk assets’ – such as equities – have fallen, due to the nervousness around rising inflation and a possible recession, but fixed interest assets have also dropped. Therefore, many investors are left asking the same question: “Where should we invest?”

This is a very valid question, as keeping funds within cash during periods of high inflation has a negative effect on the value of these funds as well.

We know that, in the months to come, the investment landscape will look very different to what we have seen over previous years. Especially recently, as we have had a sustained time of high liquidity with Quantitive Easing, meaning a lot of cash within the economy being available and interest rates at historic lows. However, going forward, this does not mean that every sector and company will suffer in the same way and we are seeing some ‘green shoots’ of opportunity starting to appear.

Given all the above reasons for the current market downturn, there is an equally enormous demand for certain activities and sectors, many of which fall into the Sustainable Investment category, including renewable energy and food security.

The demand for renewable energy to reduce the reliance on Fossil Fuels has been accelerated massively by the conflict and supply shortages across Europe. Recent EU plans (RePowerEU) have included a commitment to investing 200 billion Euros in renewable energy. Our existing, carefully selected, sustainable portfolios are comfortably holding valuable invested assets directly within this sector.

As we have been so reliant upon global imports of food and grain, the recent conflict and supply shortages have brought about a sharp focus on this area and related sectors.

Within the UK, DEFRA have committed £300bn to increase UK agriculture, bringing more production to UK shores and also investing into precision farming. Again, the existing sustainable portfolios we recommend will already have exposure to this sector directly. We are also seeing a similar focus globally, as China and India are investing in their infrastructure to tackle the irrigation system issues they often face.

It is important to note that all funds claiming to be ‘sustainable’ are not the same, and that regulators have already started raiding some asset management firms who are known to be ‘greenwashing’ and using Environmental, Social and Governance (ESG) integration in an incorrect way. Credibility and credentials are vital when selecting a sustainable portfolio manager, as they have an important role as ‘gatekeeper’ to investments, companies and funds on the investments being held.

The US Security and Exchange Commission (SEC) has stepped up its sustainability and climate change requirements for listed businesses. The new climate risk rule requires publicly traded companies to report on climate-related risks which are material enough to impact their operations and financial position, aiming to produce consistent, comparable information for investors.

The SEC are also cracking down on misleading ESG investment claims by product providers, and therefore having a robust process to identify authentic and truly integrated ESG analysis will put the sustainable portfolios in good stead for the current regulatory developments.

There are, however, reasons to remain excited about the future of investments in this space. We are seeing real engines of growth in the space of sustainable investing around the areas of:

• Environmental projects and infrastructure
• Food Security, agriculture and healthcare

If the US gets their inflation under control (which we are all waiting for data to show over the coming months), then markets will ultimately stabilise, as the central banks will have done their job.

2022 could very well be a year of two halves. H1 was all about inflation and rising interest rates. H2 is more about fundamentals – company earnings and what seems an inevitable recession in late 2022 or early 2023. But how deep and for how long?

If you have any questions regarding these recent updates, or how these changes impact your own investments and financial plans, please do not hesitate to get in touch with an Integrity365 Independent Financial Adviser on 0117 450 1300 who would be more than happy to assist you.

For more information, watch our recent sustainable investing webinar with Phoebe Stone, Partner and Head of Sustainable Investing at LGT Vestra LLP, where we discuss the importance of Investment Markets in respect of the issues the planet faces, including recent events such as COP26 and Biden’s Build Back Better Agenda, which have added to the growing focus on Sustainable Investing: https://www.integrity365.co.uk/can-your-investments-work-hard-for-both-you-and-the-planet/