The financial crisis of 2008 was perhaps the biggest wake-up call in recent history, as the poor practices of the banking sector slammed the brakes on the industry, and numerous others as a result.
Alliance Trust Investments’ Peter Michaelis says as a result of this shift, the popularity of sustainable funds has increased exponentially in the last decade.
"When you look at the long-term picture of demand, it has been consistently growing stronger than the market on average," he said. "Ten years ago there was £4bn invested in SRI funds and it’s now over £11bn."
"We think this growth will continue. The reason is, a lot of people have become unhappy about the behaviour of companies throughout the financial crisis and they want to have an alternative."
"It’s much more apparent if companies are doing wrong, with the rise of the internet and social media. It’s harder for companies to hide what they’re doing," he added.
Michaelis, head of the sustainable and responsible investing (SRI) team at Alliance Trust Investments, says investing with this methodology in mind is about giving people the choice to make money in companies that fit with their values.
"It’s for people who obviously care about how much they make, but also care about how they make their money," he said.
The manager says investors can be on the cutting edge of the investment world by putting their money in companies which are more progressive and avoiding those whose activities have a negative impact on society.
In order to avoid these potential road blocks – and build an investment portfolio that can not only deliver strong returns well into the future, but also contribute to the greater good of society – Alliance Trust Investments has outlined four themes that it believes will hold up over the long-term.
Climate change and energy efficiency
The ability for companies to continue to produce clean, efficient and inexpensive energy is one the Alliance Trust Investments Sustainable Future team sees playing out over the long-term.
"We closely follow developments in political support and technological development to identify firms that will thrive through providing solutions which will mitigate climate change and also help in adapting to the consequences of climate change," it said.
Companies that fall under this category include renewable energy firms and building insulation manufacturers.
Quality of life
In developed countries, the ever-increasing quality of life is more difficult to see; however, emerging markets and frontier economies are currently experiencing a massive shift in fortunes for workers.
These countries are facing a revolution in terms of wages, which means consumers in these countries are improving their overall quality of life with better healthcare and education.
"We focus on companies whose products and services deliver real improvements in well-being," Alliance Trust Investments said.
Sustainable consumption
Another theme that plays out in the Alliance Trust Investments Sustainable Future portfolios is that of sustainable consumption, which means investing in firms that use resources more efficiently.
"This includes the treatment of water and waste and environmental technologies," the team said. "In short, those companies helping us do more while using fewer resources.”
Resilience
The final theme that shapes the way the team builds its portfolio is factoring in the risks over how a company is managed and what activities it participates in.
The firm says it looks for companies that have leading environmental and social management and avoids those that are involved in maligned practices, such as child labour.
"By default, because we’re focusing on companies which are improving society and the environment, we will not invest in companies which have negative impacts," Michaelis added.
"These include companies involved in tobacco, arms manufacturers, gambling and also companies that are poorly run from an environmental, social or governance point of view."
These four factors are then used to analyse the financial performance of a company. And as Michaels points out, the firm’s eight SRI portfolios have held up on the performance tables.
Seven of the eight funds have outperformed their peers over the last three years without investing in firms with questionable practices.
The Alliance Trust range includes five growth-oriented portfolios, one income fund and one income and growth portfolio.
The funds invest in a wide range of asset classes, including UK, European and global equities, corporate bonds and a mix of asset classes to provide access to overall total returns and capital protection.
This article was written in collaboration with and is sponsored by Alliance Trust Investments.
