We’re always interested in people or businesses who are breaking the mould of their industry, especially when they are doing it in a sustainable way. So when Nutmeg, an online investment company, told us they’d found a way to help people invest their savings and pension in socially responsible companies, we were naturally intrigued.
We sat down with Nutmeg’s Investment Manager, James McManus, to hear how we can invest with a greater purpose in mind.
So who are Nutmeg and what are they all about?
Nutmeg was borne out of frustration with the traditional financial services industry. Investing was over complicated, and the highest quality investment management and financial advice was the preserve of only the wealthiest in society. That’s where the name Nutmeg came from – in Elizabethan England, nutmeg was only used by the wealthy, but today is easily attainable and affordable to all.
We want to help everybody invest so they can be confident in their financial futures, whether they have £500 or £5 million to invest and whatever their goals or ambitions. Our customers tell us their goals and timeframes, and we build and manage a low-cost investment portfolio for them.
Who first thought about investing only in socially responsible companies?
The origins of socially responsible investing were largely philanthropic and weren’t focused primarily on the return for investors. But that has changed rapidly over the past 15 years, as businesses are held to higher standards by society and new data better informs investment analysis.
Many investors now analyse environmental, social and governance factors when investing in companies, and the benefits of doing so are becoming well understood. For example, we can all understand that a company that rewards staff fairly, invests in training and has a management team aligned with the success of the business, should be positioned to perform better than one that doesn’t have these attributes.
James McManus, Investment Manager at Nutmeg, says customers said they wanted to know more about how their investments aligned with their personal values.
What prompted Nutmeg to launch a socially responsible investing score?
Even as professional investors, we struggled to understand whether the products being offered to many investors were truly ‘responsible’ or ‘ethical’, and it wasn’t always clear what these labels meant in reality.
What’s more, our customers told us they struggled to understand how their investments aligned to what mattered to them unlike other areas of their lives where they were able to make better informed conscious decisions.
Rather than use an over-simplified label or leave things to interpretation, we’ve embedded data from one of the world’s leading sustainability research organisations. We believe our customers should be able to understand whether their money is really serving a greater purpose.
What type of person would be interested in socially responsible investing?
I don’t think there’s any typical person. We all have something that matters to us whether that’s a matter of ethics, the environment or societal issues.
No portfolio can be designed to always avoid every controversy. But we do believe investors should be given the choice to invest in a way that more closely matches their personal values.
What types of exclusions do you offer and why might people go for them?
We exclude three core issues from our socially responsible portfolios: companies involved in the tobacco industry, nuclear weapons production or controversial weapons production.
But actually in reality the funds in which we invest have much stricter guidelines than this – including the exclusion of companies involved in activities such as alcohol, gambling, conventional weapons, firearms, thermal coal and genetic modification. You can learn more about our exclusion methodology in our blog.
You mention Tesco as a company is excluded from your socially responsible portfolios. Why is that?
Tesco is currently excluded for two reasons. First, it fails a test of involvement in major controversies and adherence to international norms and principles. Second, Tesco currently generates approximately 8% of its revenue from tobacco, which is above the 5% threshold applied in the fund. Many investors would be surprised which household names do not make it into the portfolios at present. For example, many large technology companies, such as Apple, Facebook and Amazon do not currently feature.
Tesco as well as Amazon and Facebook are excluded from Nutmeg’s socially responsible investment portfolios.
How do sustainable and socially responsible investments perform compared to the mainstream?
Many investors expect that choosing to invest in a socially responsible way means giving up returns. However, there is increasing evidence that socially responsible investing could in fact lead to higher returns. The premise is simple: the companies that are best placed to operate successfully in the future are those with strong social responsibility profiles, that do business in a fair and progressive way, with a management team that addresses short-term risks while ensuring the company is positioned to adapt to long-term transformational changes – such as climate change. You can read our own analysis of how we expect these portfolios to perform on our website.
How easy is it for people to invest in one of your socially responsible portfolios?
Very! We request some simple information and ask you a few questions to make informed decisions about how to invest your money. We now offer SRI portfolios across all of our products, including pensions! The whole process can be completed in as little as ten minutes. Find out more and set up a portfolio today. Capital at risk. Tax treatments apply.