Socially responsible investing is largely ignored by investors who possibly still have some deep rooted suspicion that companies that go all soft and protect the environment will be less profitable than those that focus on profit at all costs.
While we may be concerned about the environment, we are far more concerned about the returns from our portfolio. But watching BP’s share price halve turns the whole argument on its head. It is in fact because of the share price that you should be worrying about whether the company you are invested in is following environmentally sustainable models — eventually the chickens will come home to roost.
Companies that act in a responsible way or that manufacture goods that are not harmful to the environment will not face unexpected and very expensive liabilities like cleaning up the Gulf of Mexico.
A year ago I interviewed Malcolm Gray, portfolio manager at Investec Asset Management in charge of sustainable investments who argued that a company that is responsible is more likely to build capital over time compared to an irresponsible company that runs the risk of taxes and levies to recoup costs.
He said a time will come where water and air pollution costs will have to be reflected in the costs of production, possibly through taxes or legislation.
That time is now very close. After the oil disaster in the US you can bet your bottom dollar that there will be a demand for oil companies to pay an environmental tax towards a fund for future oil spills in much the same way that the US and UK are considering taxing banks to fund future bail-outs.
Gray also pointed out that companies who were not making strides to become more energy efficient would face massive future costs when energy prices soared. Already we have seen the price increases that Eskom will be passing on to businesses. A company that is focusing on reducing its energy demand is not doing it for a “feel good” factor; it is doing it to survive.
Socially responsible investing is not something to include in your portfolio to assuage your conscience, it could prove be the very investment that delivers your best performance.
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