I was musing on a recent trip to the UK’s cheapest supermarket (you know the one) – buying carrots, swede, cabbage and Brussels sprouts all at 15p a portion – about how sometimes the less you spend, the more you often get.
More food, yes, but also inevitably more single use plastics. How is it that two avocados in a cardboard tray and sealed in cellophane can cost barely more than one in its perfectly adequate natural packaging?
It seems that shopping in scoop shops, greengrocers, butchers and bakers in an effort to live more sustainably not only takes longer, but costs twice as much.
Yes, in most cases there is a difference in quality, but this does rather mean that sustainable living is being restricted to better-off families with a social conscience.
It’s the same with travel, at least in the UK. At the time of writing, the cheapest return train fare from Bristol to Edinburgh is priced at £231 and takes more than seven hours. An Easyjet flight can be had for under £50 and takes just over the hour.
Looking at carbon costs, of course, shows the reverse picture; the train journey’s 0.04tCO2e (tonnes of carbon dioxide equivalent) to the plane’s 0.337tCO2e.
Sure, but what has this got to do with investing?
Much has been said about the opportunity cost of investing ethically or sustainably. The past two years have seen portfolios with an environmental, social and governance tilt suffer badly against those filled with oil and gas stocks.
Before this, of course, ESG was going great guns in the pandemic year with fossil fuel stocks the loser. In the long term, though, evidence largely suggests the average sustainable portfolio performs broadly similarly to a mainstream one, which was not always the case.
Is it not plausible to expect sustainable investments to ultimately outperform the mainstream at some point in the future, when we factor in stranded asset risks, increasingly stringent environmental regulations and the effects of evolving social norms and expectations?
The Financial Conduct Authority's sustainability disclosure regulations will soon introduce a new way of labelling funds, to help consumers choose the style of sustainability that best meets their principles and preferences.
Whatever you think of the four labels – I think there is plenty of scope for consumer confusion and ambiguity – this ought to do a great deal to prevent greenwashing and by extension push fund managers to be more active in their stewardship and drive the sustainability agenda at the boards of their investee firms.
Will it result in more expense?
Inevitably, fund managers will need to pass on the costs of the labelling regime, on top of the (different) sustainable finance disclosures regulations many will be adhering to for their EU-traded funds.
Advisers will need to adjust their fund selection, monitoring and communications capabilities, and those offering model portfolios will need to realign their own sustainability vetting processes to fit the labels.
