Holly Black: Welcome to Morningstar. I'm Holly Black. With me is Holly Mackay. She is founder of Boring Money. Hello.
Holly Mackay: Hi, Holly.
Black: So, one area you've done lots of research into is ESG, environmental, social and governance investing. And this is growing in popularity with investors. Why do you think ESG investing is so important?
Mackay: I think it's all sort of come to a head, hasn't it? And I think there were several factors even pre-Covid, so last year sort of Greta Thunberg, the Extinction Rebellion, it just all felt like those sorts of conversations were being held more generically and at the same time people began to dig more I think into their pensions, into their investments looking primarily driven I think by climate change but actually starting to look at how the money they invested was impacting the planet, as I say, primarily environmental concerns there. So, I think, more generally, from the postbag we have at Boring Money and the research we've done, we've seen it really increase in importance for investors across the board.
Black: And a lot of people have been quite reticent to take up ESG investing. There is this belief – it's something just for millennials or for women. Is that something that you see in your research?
Mackay: Certainly, what we've seen in our research in the past is that there is a core group of both investors, but actually advisors, who still equate ESG inputs with those sorts of ethical funds that we used to see 20 years back which often would have negative impact on returns. So, I think that's something that we've tried to do a lot. So, we're not just talking about ethical funds, we're not talking just about negative screening. We're talking about looking at a broader set of inputs here. But definitely, in our research we found in the past ESG investing was more likely to appeal to people who were less confident investors and that did typically mean younger, it did typically mean women and actually, conceptually, we found appeal more to cash savers who were yet to kind of take steps into the investing world.
I've started to notice a different profile of investor who is interested in this that is typically an older investor, a more affluent investor and typically a more male investor who's actually beginning to look at the financial implications of ESG investing. So, I'm interested in this. This is something that is just common sense to me and driven by purely financial motivations I want to know more.
Black: So, obviously, the last few months, investors have seen quite big hits to their portfolios, and I think some people worried that could derail the momentum that ESG investing had been picking up. But it sounds like you're almost seeing the opposite trend?
Mackay: And I think if you actually look – again, if you look at ESG and those inputs, I think more and more investors are starting to see things happen in the news. Let's take Boohoo accusations there of sort of modern-day-slavery and the supply chain; you look at Wirecard. Everyone remembers Enron, Carillion. So, there are increasing numbers of examples out there when people are actually putting two and two together and seeing that ESG doesn't just mean buying kind of green energy stocks. It's a much bigger more fundamental sort of set of inputs to think about. So, I do think the actual old-fashioned kind of urban myth really that sustainable or ESG type investing impacts returns is something we have to challenge.
Black: So, finally, what would your top tip be to an investor who is interested in ESG but has no idea how to get started?
Mackay: I think what's quite helpful is we look on the DIY investment platforms and more and more of them have some sort of shortlist which points to various investment funds which will invest according to particular styles. So, we tend to sort of look there. I think the track records of some of the longest-standing funds speak for themselves. But you do have to do a bit more research I think and look under the bonnet. For example, you can't assume that every sustainable fund won't hold any fossil fuels in the portfolio. So, it is an area I think that requires a little bit more research. But there is increasing amounts of research available out there and I think more people are showing us that they really want to spend the time to dig into that.
Black: Holly, thank you so much for your time. For Morningstar, I'm Holly Black.
