Earth Overshoot Day is this week, and for investors, it can present a good time to review portfolios and consider how the companies they invest in are preparing for a more sustainable future.
Earth Overshoot Day is the point each year when humanity’s demand on nature ‘overshoots’ what the planet can regenerate within that year, and this year it is on 30 July.
Dominic Rowles, head of ESG at Hargreaves Lansdown, said that the day “serves as a reminder of how unsustainable our consumption patterns are and the strain they are putting on Earth’s ecosystems”.
“Pressures on natural resources can create both risks and opportunities as governments, consumers and businesses respond to environmental challenges,” he said.
He added that checking companies’ websites and annual reports is a good way to gauge what progress they are making to prepare for a more sustainable future.
“If you invest in active funds, you should make sure they are considering the sustainability credentials of the companies in which they invest. Some funds go further, excluding companies considered to have the greatest negative impacts on the environment. Others focus on businesses and assets linked to environmental solutions.”
Two funds taking different approaches
Aegon Ethical Equity fund
The Aegon Ethical Equity fund aims to identify and understand the key environmental, social and governance risks facing each company, industry and sector in which it invests.
Fund manager Audrey Ryan believes that companies demonstrating strong governance and sustainability practices are better positioned to deliver attractive long-term returns for investors.
The fund applies a strict set of ethical exclusions, such as not investing in companies involved in activities deemed unethical, including tobacco and alcohol production, munitions manufacturing and banks with significant exposure to developing world debt.
The fund also avoids businesses whose activities contribute to some of the environmental pressures highlighted by Earth Overshoot Day such as coal mining.
Liontrust SF Corporate Bond
The Liontrust SF Corporate Bond fund invests mostly in sterling-denominated investment grade corporate bonds, issued by companies that make a positive contribution towards sustainable development for people or planet.
The bonds it invests in can, broadly, be split into three buckets – ‘greater safety and resilience’, ‘better resource efficiency’ and ‘improved health’.
It also applies a range of exclusions – for example, it does not invest in companies deriving significant revenues from the extraction or production of coal, oil and natural gas, or from coal-fired power generation.
Read more: ESG investing has a governance problem
