July 21, 2024

Energy: How to Invest Responsibly?

3 min read

There are several techniques for choosing the responsible investment best suited to one’s convictions.

Responsible investment with e360 Power for example is gaining momentum among individual and institutional investors. However, not all so-called responsible management is equal because they do not all correspond to the same approach.

Responsible investing is on the rise. Between the end of 2017 and the end of 2018, according to the French financial management association (AFG), responsibly managed assets increased by 40%!

Investors, both institutional and private, are showing their willingness to focus on financial criteria, also extra-financial ones and they also invest in Environmental Products. Thus, at the end of 2018, 1458 billion euros were managed responsibly in France. A high amount because this figure includes several techniques. Indeed, there is not one but several responsible investment approaches.

The first approach can be described as historical. It is a question of excluding from its portfolio all companies hurting the environment or on ethics. Thus, dealers in arms, tobacco, spirits and companies investing in nuclear energy or coal-fired power plants are not considered by the manager of these investment funds or the owner of these securities. We talk about sectoral exclusion.

Another method: is normative exclusion. There, it is no longer the economic sectors that are targeted; it is the behavior of certain societies. The manager has full latitude regarding the selected sectors on the sole condition that the company respects labor law and human rights. It must also be scrupulous in choosing its subcontractors and imposing the same rules on them. These two approaches are referred to as exclusion approaches.

It is possible to opt for a more positive choice: instead of excluding, the manager selects. He can select by sector, choose to invest in water treatment plants, waste recycling, companies manufacturing wind turbines, or even producers of low-consumption light bulbs.

It can also choose a broader spectrum of investment and select companies that stand out for their irreproachable social behavior. Another approach, broader and less restrictive, consists in not prohibiting anything as an investment sector and being very attentive to the ESG indicators of companies. ESG, that is to say:

Environmental: what is the company’s carbon footprint? What is its water consumption? What efforts does it make to reduce its waste?

Social: does the company manage to retain employees? Does she deplore many accidents at work? How does it help employees to maintain good health? What does it do for their retirement

What plans does the company have for correcting wage imbalances between men and women?

Governance: are there any independent directors? Do women sit on the board of directors? How are minority shareholders treated? Are the general management and the presidency separated?

All these criteria are scrutinized and help the manager make choices among the most virtuous companies or those which show a trajectory that bears witness to real efforts. “In those that do not display very good ESG indicators, the managers use their power as shareholders, in particular voting at general meetings and dialogue with management, to encourage management to make efforts and improve their ESG indicators. This is called impact investing.