62 1GM Saturday October 17 2020 | the times
Money
cynical journalist’s for a moment I
would warn about the dangers of an
ESG bandwagon. When I first started
writing about ESG eight years ago,
very few financial groups expressed
much interest. Today my inbox is
chock full of the latest ESG initiatives.
One of the reasons is that ESG has
become a powerful marketing tool.
While money is flowing out of most
actively managed funds, it is flowing
into actively managed ESG funds
which are holding their own against
tracker funds, partly because the
selectivity required by ESG lends
itself to active management. Since
actively managed ESG funds can
charge higher fees than trackers they
are very popular with fund groups.
Investors need to be aware of the
growing problem of greenwashing,
where fund groups label funds as
green or ethical when they include
stocks that would appear not to live
up to that description. Of the 2,405
funds in Europe labelled sustainable,
just 160, or 6.7 per cent, state that
they screen out or reduce exposure to
fossil fuels, according to New Money,
a sustainable finance consultancy.
All investors should, in any case,
check what is in their fund’s portfolio,
but it is particularly important that
would-be investors in ESG funds ask
for a full list of holdings.
I don’t hold any investments
specifically labelled as ESG, but then
I bought most of them before ESG
was a thing. A number, however, have
ESG characteristics.
Taking an ESG approach to
investing is worthwhile, but must
come with real transparency from
fund managers so that we can see
exactly what we are getting into.ESG funds had inflows of £192 million.
Between 2015 and 2018, net
monthly inflows into ESG funds were
stuck around zero. They started to
rise in 2019 and inflows rose tenfold
between the third quarter of 2019 and
the third quarter of 2020.
The arrival of Covid-19 could have
driven nervous investors to abandon
ESG investing, but this has not been
the case. Instead, the pandemic has
reinforced the fact that the behaviour
of companies and organisations has a
real impact on society and vice-versa.
This interdependence is a key part of
the ESG message. The social impact
of companies has been scrutinised
and those seen to fail their employees
or the wider public face reputational
damage and a consumer backlash.
Governments have also turned
to green initiatives as a way of
rebuilding their economies in the
wake of the pandemic. Rishi Sunak,
the chancellor, committed £3 billion
to energy efficiency initiatives while
the EU has a green recovery package
of €750 billion aimed at producing
net zero carbon emissions by 2050.
That millennials are now an
increasingly important part of the
investment community has also
boosted take-up of ESG funds.
One of the biggest financial
arguments against ethical investing
used to be that it would mean
excluding certain areas of the stock
market, such as gambling or tobacco,
and thus reducing the size of the pool
they were fishing from. I can’t fault
the logic of this, but at the same time
the investment performance of
ethical and ESG indices stands up
very well against mainstream indices.
The FTSE4Good index of ethical
stocks has beaten the FTSE 100 index
of leading UK stocks over one, three
and five years. Brooks Macdonald, an
investment manager, reports that
while the MSCI World Index rose
2.1 per cent this year, the World SRI
Index went up 7.2 per cent.
So far so good, but if I could swap
my positive, trusting hat for myInvest ethically, but don’t
fall for the greenwashing
A
lot of people thought that
investing using a so-called
ESG approach — one
focused on environmental,
social and governance
issues — was a fad that would vanish
in a few years. Instead it has grown
into a massive part of the industry.
More and more investors are voting
with their wallets to ensure that theirmoney is managed in accordance
with concerns over climate change,
pollution and the way companies
treat staff and customers.
Calastone, a funds network, said
that UK investors ploughed a net
£588 million into ESG equity funds in
September, a new record. This year
these funds have had a net inflow of
£2.6 billion, while mainstream non-Conscientious investing
600500
400
300
200
100
0
-100
2015 2016 2017 2018 2019 2020£m
Net monthly flow into ESG equity funds
Source: CalastoneMark
Ather ton
Activist Investor
Money Mentor
Online
See our beginner’s
guide to investing
thetimes.co.uk/moneymentorClaim the tax-free heating
allowance when you WFH
T
he taxman has received 55,000
claims for tax relief from people
working from home since the
launch of a new web page — three
claims every minute.
The government site, which went live
on October 1, allows employees to ap-
ply to offset some of the costs of home-
working, such as gas and electricity.
Since April 6 this year employers
have been able to pay staff up to £6 a
week tax-free to cover additional costs,
up from £4 in previous years, although
they are not obliged to.
Some employees may feel it’s not the
right time to ask an employer for extra
money, so they can apply instead to
HMRC to have some expenses deduct-
ed from their taxable income.
The tax relief is based on the
£6 weekly allowance and depends on
the level of income. If an employed
worker pays the 20 per cent basic rate of
tax and claims tax relief on £6 a week,
they would get £1.20 a week in tax relief
towards their household bills. Higher-rate taxpayers would get £2.40 a week
(40 per cent of £6). Over the year this
could mean reducing your tax by
£62.40, or £124.80.
You do not have to keep receipts to
show evidence of your expenses to the
taxman.
About 5 million employed workers
have been forced to work from home
since the start of the pandemic, and
they would be eligible for the relief.Employed workers can also claim
tax relief on one-off work-related
expenses, such as cleaning uniforms,
tools or signing up for work-related
subscriptions.
You can apply for both reliefs
through gov.uk.
David Byers5 million
UK homeworkers eligible for tax relief