The Dinah Wolf column: why all that glisters is not ‘green’

Forget Wall Street, our new Gen Z columnist is the Wolf of Threadneedle Street in the beating heart of London’s Square Mile. In her second column for interactive investor, Dinah reveals what she thinks of ethical investing and how she plays the theme. 

The question that we should be asking ourselves doesn’t concern the colour of our future (it will be as green as can be), but rather where our buck can be put to best use – for our planet and our portfolios.

Ethical companies should, over the long term, outperform their counterparts. High returns are not paradoxical to this investment philosophy. They can go hand-in-hand, much like the yin to the yang. The trouble is that too many obsess over the short term, skewing the bigger picture.

Investing is a manifestation of your unique world view and your stock-picking will certainly reflect that. Sectors such as healthcare and renewable energy form the basis of positive change that will no doubt care for, and power, the world. But in this realm of ESG (environmental, social, and governance), or ‘ethical’ investing there is no silver bullet I’m afraid. 

It appears that all ESG routes are stuck in a traffic jam. As such, it has been a tricky business to find a quiet road but trust me, you’re better off cruising down roads that are less travelled. I, for one, don’t own a single renewable or electric vehicle stock (gasp!) apart from those stashed in my funds, of course.

• Our jargon buster runs through all you need to know about ethical investing 
• Why Baillie Gifford Positive Change backs ‘controversial’ Alphabet and Tesla

My rationale for steering clear (apart from my inner contrarian) is twofold: the gross overvaluation of these sectors and the fact that many electric vehicle (EV) companies have already priced in perfection. It is impossible for every EV company to dominate the market. At the top, there is only ever room for a (very select) few. Sorry folks.

And that’s precisely where funds come in handy. They do the hard work and hunt those winners, all while you sip a cuppa. One such trust that I hold is the Baillie Gifford (no surprise there) Keystone Positive Change Investment Trust (LSE:KPC). It’s all in the name. At the very core, this trust backs companies that will leave the planet in better shape while caring for its inhabitants.

Investment opportunities are everywhere, so take a stroll in the stock market garden, shovel in hand and do some (green) digging. One such (ESG) stock that I tipped back in November was Halfords (LSE:HFD). Someone laughed and said “You’re joking. That old bike shop?!” Well, this ‘bike shop’ has performed ever so handsomely. If the pandemic has taught us anything, it is just how much our health and environment matter. 

But if you find yourself at a crossroads, a good place to start is by examining some of your ESG-friendly habits and investigate whether they can translate into investments. If, say, you’re a nifty thrifter in search of some clean beauty, why not explore the Etsy (NASDAQ:ETSY)'s and the Honest (NASDAQ:HNST)'s of this world. Or substitute clean beauty (and Honest) with clean food and Beyond Meat (NASDAQ:BYND). Either way, you'll be filling your coffers, all while shrinking your carbon footprint. A win-win.

• Hot sector: should investors put down roots in plant-based foods?
• The ETFs you can use to help combat climate change

So, before you subscribe to the ‘ESG’ narrative, be sure that you know exactly what you are signing up for and that you are not getting ‘greenwashed’. Caring for society and our planet is so much more than an ESG (designer) label. Dare to dig a little deeper.