An interview with Patrick Fogarty, Client Director at The Private Office

The impact that investors can have in driving an organisation’s actions and ethos on climate change has never been clearer. As well as investing money, shareholders are increasingly demanding corporate accountability from the companies they invest in, attempting to influence boards to take environmental sustainability and social issues seriously.

As regulations dictate that companies publish more and more information about the impact they’re having on the environment, it’s become easier to assess which companies to invest in, and which to avoid if you’re passionate about these issues.

One key question investors face is how to manage the trade-off between investment returns and social responsibility. For instance, how can one reduce the environmental footprint of their investment portfolio while maintaining sound investment principles like diversification?

“A growing number of people want their investments and their values to be in alignment, but at the same time they don’t want to sacrifice their financial objectives”, says Patrick Fogarty.

“In the past, the approach investment managers used to address these concerns was quite blunt, often excluding whole industries such as oil and gas completely from portfolios.

“While the first iteration of socially responsible investments helped investors to meet their values objectives, the ‘negative screening’ approach often resulted in portfolios that compromised key components of best practice portfolio design.”

Instead, fund managers now use more sophisticated weighting mechanisms to measure a company’s environmental credentials. This means that investors can maintain exposure to sectors like oil and gas, but weight the companies within that sector by their environmental credentials, measured against variables such as carbon emissions, biodiversity, toxic spills, operational waste and water management.

“This evolution has resulted in more investors adopting a socially responsible approach, creating a virtuous circle of companies responding to meet this growing demand.”

In New Zealand around 70% of professionally managed assets claim to be “socially responsible” based on ESG (Environmental, Social and Governance) factors. These are:

• Environmental – covers a company’s carbon footprint, its use of renewable energy sources, its waste management program, how it handles potential problems of air or water pollution arising from its operations, and the company’s attitude and actions in relation to climate change issues.
• Social – covers the nature of a company’s business activities. Are they for example involved in the production of tobacco, cluster munitions or landmines? Do they use child labour or factory farming? How do they treat their employees, suppliers, customers, and the communities where they operate?
• Governance – deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights. Will you as an investor have the ability to use your power to vote at shareholder meetings to influence socially responsible decisions?

Putting this into practise, Patrick explains that at The Private Office they account for all of these factors when building portfolios.

“Clients who want to express their values through their investments are looking for a broad approach, one that considers all aspects of environmental and social responsibility.”

Although the investment landscape is moving in the right direction, there is a long way to go. It takes advocacy and education to move investors towards this space, and despite the large range of options “there are still a lot of strategies that aren’t fit for purpose if your objective is to do well financially while adhering to your core values.”

“Ultimately, my job as a wealth adviser is to help investors address their sustainability and social objectives while building robust investment solutions aimed at growing their savings for future consumption.

“I have spent a lot of my career helping investors to achieve this, and plan to continue doing so for as long as I’m in this industry.”

If you would like to know more about The Private Office’s approach to Socially Responsible Investing you can find more information on their website.

The Financial Markets Authority has more information on investing ethically in an article recently published on its website.