For sustainable stocks, the presumption has been that investors must think about their conscience rather than the bottom line. Traditionally, that process has gone about as well as one would expect – and a prevailing wind remains. A study from Charles Schwab in April found that two-thirds of investors were unconcerned whether their money is being put into environmental, social and governance (ESG) portfolios.
As reported by Trustnet, the latest Investment Forces survey found that while more than half of millennial (55%) and Gen Z (56%) investors said they regularly considered ESG in their investment decisions, for the ‘boomer’ generation it dropped to just 28%. UK MD Richard Flynn noted that while most investors have ‘good intentions’, many “appear to be conflicted between moral and practical motivations.”
Look a little deeper, however, and green shoots are in abundance.
Clim8 Invest, founded in 2019, offers an app where only ethical stocks can be bought. The company promises to ‘work hard to weed out empty promises and Big Finance BS’. Founder and CEO Duncan Grierson has founded or funded various environmental initiatives in his career, from clean tech to venture capital.
“Bringing it all together, it gives me quite an interesting perspective on building a platform to basically make it easy for anybody to invest in the companies that are having a positive impact on climate change,” he tells Sustainable Future News. “I’m coming at it from the problem of climate change, rather than coming at it from what I would suggest the vast majority of the ESG asset management sector comes at it from.”
What is that approach? “A great marketing hub to grab a whole load of dollars by sticking a label on it with ESG,” says Grierson. “If you scratch the surface, there’s a whole load of not-very-environmental investments in the portfolio.”
Gordon Tveito-Duncan, co-founder and CEO of GaiaLens, has a similar opinion but is addressing the problem from a different angle. GaiaLens aims to build a ‘purely quantitative, data-driven, tech-first’ ESG platform, in the words of Tveito-Duncan. “Most of the criticisms about existing incumbent providers are largely due to the fact they’re still human-based, which means sometimes they’re prone to human biases,” he tells Sustainable Future News. Other problems include poor update frequency and a lack of accountability. When clients tell GaiaLens they disagree with its scores, they have to figure out why, as it’s purely driven from their data. “That’s quite a valuable insight they’ve given us,” explains Tveito-Duncan.
Accountability and transparency are the name of the game for GaiaLens. Its ESG reporting offers four scores; a low feature level, then themes, pillars – E, S and G, in other words – and then the overall score. There is also a specific transparency score, again looking at more traditional ESG reporting providers who ‘blur the lines.’ “If another ESG provider gives a bad score to a company, you’re not sure whether it’s because of actual genuine bad performance, or because they just haven’t disclosed the data point,” says Tveito-Duncan.
A recent S&P 500 ESG Index removed electric vehicle maker Tesla, while oil and gas giant Exxon remained in the top 10. S&P argued Tesla’s ‘lack of low-carbon strategy’ and ‘codes of business conduct’ negatively impacted its score. CEO Elon Musk tweeted that ESG is a ‘scam’ which has been ‘weaponised by phony social justice warriors.’
The Economist reported last year that of the world’s 20 biggest ESG funds, they on average held investments in 17 fossil-fuel providers.
“ESG is a negative screening tool – it takes out the worst of the worst,” explains Grierson. “Tesla may not be great on [for example] governance, but [Musk] has basically dragged the whole of the automotive industry around the world into electric vehicles.” “The point is there’s no right answer in this space,” adds Tveito-Duncan. “It’s much more like an equity research recommendation, like a buy or sell recommendation. And there’s room for nuance and a divergence of opinions.”
The average user invests around £2,000 into Clim8, with the minimum amount set at £25. Among the companies which Clim8 users can invest include Vestas, a Danish wind turbine manufacturer, and Ørsted, another Danish company. Note that these are not small players. Indeed, Ørsted is the largest energy company in Denmark. But as Grierson explains, unlike so many of the oil and energy giants who talk a good game on sustainability today, there is no ‘core product destroying the planet’ offsetting it.
Andrew White, senior fellow in management practice at the University of Oxford’s Said Business School, explains that at its best, investment and sustainability ‘are two sides of the same coin’. “If you look at things like solar and wind, they are businesses now, it’s no longer about doing the right thing,” he tells Sustainable Future News.
“I think the challenge is in the transition. If you look at BP as an example, you’ve got two big activities – their green business and their older business. How quickly do they ramp down the older business, and how quickly do they move into that new business?”
Those companies are certainly not on Clim8’s radar. But what of the assessment that millennials and Gen Z are driving this investment trend? The average age of a Clim8 customer is 36, playing into the millennial theme; yet Grierson also notes customers who are in their early 60s.
Tveito-Duncan agrees that millennials may be more open to the idea that you can invest sustainably and make money. “Investing in sustainable companies would be a nice bonus, I think, to a lot of people,” he says. “It’s still about making positive returns and investing in sustainable, and having an impact on whatever trend or theme that you want to.”
Crucially, more than 90% of Clim8 users have ‘very high retention’. “I think that speaks to the fact that the people we’ve attracted are looking for genuinely sustainable companies to invest in and understand that this is long-term investing,” says Grierson. “So that’s quite encouraging.”