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Can sustainable investing improve returns and reduce risk?

12 October 2017

Seven Investment Management believes sustainable investing can improve returns and reduce risk, but warns investors must do their homework.

According to Camilla Ritchie, senior investment manager at 7IM, investors must ensure their views on sustainability match the funds on offer.

She said: “The lines between sustainable and ethical can be quite blurry and funds in this sector come in all shades of green. I look at assets where the underlying companies, countries and institutions score well on social and environmental criteria, but it is important investors look at what rules the manager applies.”

Ritchie points to electric cars as an example: “James Dyson expects to have an electric car in production by 2020. Whilst welcome news to urban dwellers suffering high levels of pollution from petrol and diesel cars, from my perspective there’s a bit more to it than that. If the electricity charging the batteries is generated by coal-fired power stations, pollution is still happening – just in a different place.”

Ritchie admitted a particular fondness for the Renewable Energy Infrastructure investment company sector, with dividends linked to inflation making them attractive as part of a multi asset portfolio. According to the Association of Investment Companies assets in the Sector Specialist: Infrastructure – Renewable Energy sector have grown 375% in the four years to end August 2017.

Ritchie said: “It’s been professionally and personally satisfying to watch the evolution of investment companies in the renewable energy infrastructure space, where spectacular growth in assets has come despite significant headwinds like changes in Government policy towards renewable energy and a fall in the oil price. This has come hand in hand with a substantial fall in installation and operational costs leading companies to look at how to approach the post subsidy era, with some beginning to look at the potential that battery storage might have for the ‘intermittent’ energy sector.”

She added: “We see risk to infrastructure companies as being fairly low. It would be expensive for the Government to break these PFI contracts, adding to its already enormous debt pile and with shareholders in infrastructure companies, largely pension and other funds, which are owned by the many, suffering. In a later statement from the Labour Party, the nationalisation threat was downplayed.”

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