No pain, no gain: The sustainable investing challenge

When I was a teenager, I had the physique of a string bean. While I desperately wanted six-pack abs and Schwarzenegger-size biceps, I was unfortunately too lazy to go to the gym. Eating healthy also wasn’t really my thing. (And it still isn’t; I’m enjoying a plate of greasy nachos as I write this.)

My brilliant teenage self came up with a seemingly ideal solution: protein-powder shakes. I bought vast tubs of the stuff and slurped down a massive shake twice every day, without changing any other habit. Six months later – surprise, surprise – I looked nothing like Mr. Universe. I was still the same skinny kid, now suffering from terrible indigestion.  

It may sound like a peculiar comparison, but a lot of sustainable investing is like this: You feel like you’re changing something, but you are actually not. You’re just drinking the shake.  

Let me try to explain what I mean. 

Most sustainable funds get rid of “bad” stocks and buy “good” ones. As an investor in such funds, when you look at your portfolio, you feel great! But what has actually changed? The answer is sadly very little.

What’s “good” and “bad” may be ill-defined, but that’s not the main issue here. Rather, what is important to keep in mind is that equities are secondary market investments: When you buy an equity, your money doesn’t go to the company – it goes to the individual selling you the stock.

Likewise, if a sustainable fund sells all their “bad” stocks and buys only “good” ones, not much changes. The fund might argue that, by selling, they are restricting the firm’s access to future equity capital by pushing the current price down. But such arguments don’t stand up to scrutiny. 

Why? First, because for every seller, there’s a buyer. And second, firms rarely raise equity – so even if the sustainable fund did alter the share price, that is not going to have an impact over a reasonable timeframe. 

So what are the options for an investor who’s serious about sustainability? 

If you can’t impact a firms’ access to capital, then seek to change their behaviour. Buy the shares, then raise your voice through what is called “active ownership.” That means seeking to influence the behaviour of the companies in which you invest through voting at shareholder meetings and via “engagement,” a formal and structured dialogue on issues linked to the environment, society and governance. 

At Quintet Private Bank, where I work, we undertake active ownership on behalf of our clients. We do that by partnering with initiatives like Climate Action 100+ and leveraging the expertise firms such as EOS at Federated Hermes, a sustainable investment engagement specialist with nearly €1 trillion in assets under advice. 

Over the first seven months of this year, our firm voted on 8,988 management and shareholder proposals at 592 annual general meetings. That included, for example, voting against some proposals that failed to address gender diversity issues, while voting for others to increase the monitoring of environmental impact.

Active ownership is not the only option.

Serious sustainable investors should also embrace innovation, in particular by seeking to identify investments that deliver measureable impact. That could include choosing funds that not only invest exclusively in low-emission equities but also go a step further by offsetting their residual carbon footprint through activities like tree-planting.

Some investors may be excited to learn about such opportunities to make a difference. Others may be disappointed to find out that good intentions alone are not enough to realize lasting change. Instead, real work – in the real world – is required. 

As Jane Fonda put it in her 1980’s workout videos: “No pain, no gain.”


james purcell

Purcell serves as Group Head of Sustainable Investment at Quintet Private Bank, which is a signatory to the United Nations-supported Principles for Responsible Investment and a member of Climate Action 100+. The statements and views expressed in this document are those of the author as of the date of this article and are subject to change. This article is also of a general nature and does not constitute legal, accounting, tax or investment advice.

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