How Sustainability Is Shaping the Future of Investment
Milton Friedman wrote in 1970 that a business’s primary responsibility is to maximise its revenue and increase returns to shareholders. He was wrong, wasn’t he?
The future of investments is being shaped by Environmental, Social, and Governance (ESG) factors. The traditional belief that businesses should focus solely on maximising revenue and returns to shareholders is being challenged.
Today, a new consciousness is emerging. Businesses have an important role in society that goes beyond simply making profits. As a result, investors are increasingly seeking investment opportunities aligned with their values and the desire to create positive change.
Why investing with purpose is becoming increasingly important
As society progresses, people crave to be part of something greater – a company that is creating superior value for their customers and communities.
In addition, many companies also see the benefits of sustainability such as increased efficiency, creating a great brand image which provides a competitive advantage, and attracting and retaining employees.
Research shows that when companies look after their employees and customers they both stay loyal to the firm.
In addition, 84% of investors are interested in impact investing, or putting their money behind companies that make a positive difference in the world.
As Jeff Bezos put it, “the most important thing is to focus obsessively on the customer. Our goal is to be the most customer-centric company on earth.”
If you take care of your customers, they will take care of you, leading to higher profitability and happier employees, customers, and shareholders.
We believe for a company to be successful they have to have scale economies shared with their customers.
Think about it this way, would you invest in a company that neglects its employees? No, because that will jeopardise the eventual greatness of the business.
This is one of the fundamental principles of our investment philosophy – to invest in a business that will create wealth for both our investors and society at large.
For example, we ask these questions for ourselves before we make an investment decision:
How does the company connect with customers? Do they place customers at their heart?
Is the company underpaying its employees, mistreating its suppliers, violating its customers’ trust, or engaging in any other shortsighted behaviour that could jeopardise its eventual greatness?
Is this company strengthening its relationship with customers by providing: superior products, fair prices, paying fair wages, providing good working conditions, progressive compensation plans and efficient service?
Is the CEO allocating capital in a rational way that will enhance the company’s and customers’ long-term value?
We look at customer retention rates to see if the company is doing the right thing to retain and attract customers.
We also look at how employees rate the company’s CEO on Glassdoor.
This demonstrates our commitment to selecting companies that meet our criteria and have proven to be responsible.
What also sets us apart is our unwavering commitment to responsible investing.
We believe investments shouldn’t be just about maximising returns but also about how companies generate them.
We are members of Principles for Responsible Investment (PRI), we are a B Corp and we have a four-star sustainability rating on Morningstar.
The future of investments is being shaped by the recognition that businesses have a broader role in society, with sustainability, customer-centricity, and responsible practices being crucial factors for successful investments driven by ESG considerations.
Therefore, the YFS Intelligent Wealth Fund fully embraces these considerations, allowing us to make informed investment decisions that shape a better tomorrow. Join us on this transformative journey.
Awet Ghirmay, Head of Investment Research
If you want to learn more about this topic, please find the link here.
More information about our fund can be found here: Hargreaves Lansdown or AJ Bell
Risk warnings
The value of investments and the income derived from them may fall as well as rise. You may not get back what you invest. This communication is for general information only and is not intended to be individual advice. You are recommended to seek competent professional advice before taking any action. All statements concerning the tax treatment of products and their benefits are based on our understanding of current tax law and HM Revenue and Customs practice. Levels and bases of tax relief are subject to change. This blog is based on my own observations and opinions.
