Would switching to sustainable investments make a difference?

Redlander

I manage my savings with Interactive Investor, and the whole amount is invested in Vanguard Lifestrategy 60. However I am very anxious about the climate crisis and was concerned to learn that Vanguard is a big invester in fossil fuels. My first response was that I should switch everything to an ESG fund, but on reflection I wondered if this would benefit the environment at all; surely simply switching  the ownership of a load of existing shares does nothing to deprive the fossil fuel companies of investment.
Is that the case, or is there after all a way I can use my investments to make a difference?

masonic

If you switch from an investment that includes the companies you don't want to invest in to one that does not, then that would mean you are no longer a part-owner of those companies, but when the shares are sold, someone else would step in. It is unlikely to have a material impact on the share price of those companies. Shareholders may be able to exert some influence on the way the companies they part-own are run. What is unclear is what advocacy might come from a fund manager like Vanguard (if any) vs whomever owns the shares next.

You may be quite surprised by what is not excluded from an ESG fund. There are more specialist investments that target renewables infrastructure and related activities, which might be worth considering, but such narrow funds carry considerable risk above a well diversified fund.

Altior

Redlander said:

I manage my savings with Interactive Investor, and the whole amount is invested in Vanguard Lifestrategy 60. However I am very anxious about the climate crisis and was concerned to learn that Vanguard is a big invester in fossil fuels. My first response was that I should switch everything to an ESG fund, but on reflection I wondered if this would benefit the environment at all; surely simply switching  the ownership of a load of existing shares does nothing to deprive the fossil fuel companies of investment.
Is that the case, or is there after all a way I can use my investments to make a difference?

You'll have had far more impact (still not measurable) when you stopped using or consuming anything that was produced using fossil fuel. 

osmarks

On the margin, you would be increasing the fossil fuel companies' cost of capital (they can raise slightly less money by selling shares).

Section62

Redlander said:

I manage my savings with Interactive Investor, and the whole amount is invested in Vanguard Lifestrategy 60. However I am very anxious about the climate crisis and was concerned to learn that Vanguard is a big invester in fossil fuels. My first response was that I should switch everything to an ESG fund, but on reflection I wondered if this would benefit the environment at all; surely simply switching  the ownership of a load of existing shares does nothing to deprive the fossil fuel companies of investment.
Is that the case, or is there after all a way I can use my investments to make a difference?

May be worth thinking about whether switching what you invest in will make any difference to how anxious you feel.

masonic

osmarks said:

On the margin, you would be increasing the fossil fuel companies' cost of capital (they can raise slightly less money by selling shares).

On the flip side, you'd be making share buybacks cheaper for them. These are in the main established companies that I don't imagine issue new shares very regularly, but some of them will be engaging in buybacks with some of their profits.

dunstonh

Would switching to sustainable investments make a difference?

Almost certainly it would.  Historically, sustainable investments have averaged lower returns than conventional investments.   So, you would need to compensate for that in your planning

However I am very anxious about the climate crisis and was concerned to learn that Vanguard is a big invester in fossil fuels

Vanguard doesn't.  Vanguard's investors do.    Vanguard are not taking an active stance to invest in fossil fuels specifically.   Most of the funds they offer are index-tracking funds and will track the benchmark/index. 

 The bigger the fund house, the more money that will be invested conventionally via them. 

Is that the case, or is there after all a way I can use my investments to make a difference?

If you are willing to put your money where your mouth is and accept lower returns, then that is your personal choice.   Individually, it wouldn't make a jot of difference, as conventional investors vastly outnumber those looking for sustainable, responsible, ESG, or ethical investments.  Note that those terms mean different things.  Climate is your concern, so an ESG solution isn't really taking your views seriously.     You need to swing to ethical, with a climate focus, and filter your investments accordingly. ESG includes a number of woke initiatives, but your comments suggest that the woke side of things is not a concern.  Just the environmental.  An ESG fund would not be the solution unless you are just ticking boxes to make yourself feel better and not taking it seriously.

Your own lifestyle changes would be a bigger influence.   

Linton

You buying or selling a share is effectively a transaction solely between you and whoever sells/buys that share. It makes no difference to the company concerned - they gain or lose nothing from the transaction.

The effect of boycotting specific companies, sectors, or countries is primarily to make you feel better about yourself at the cost of potentially greater returns.. If that is what you want to do fine, but dont imagine it is going to change anything.

A far more effective action would be to refuse to buy products from the companies you dont like and persuade others to do the same.  That does have a direct impact. 

osmarks

masonic said:

osmarks said:

On the margin, you would be increasing the fossil fuel companies' cost of capital (they can raise slightly less money by selling shares).

On the flip side, you'd be making share buybacks cheaper for them. These are in the main established companies that I don't imagine issue new shares very regularly, but some of them will be engaging in buybacks with some of their profits.

Per share bought back, yes, but I don't see any reason that should matter to them.

poseidon1

Redlander said:

I manage my savings with Interactive Investor, and the whole amount is invested in Vanguard Lifestrategy 60. However I am very anxious about the climate crisis and was concerned to learn that Vanguard is a big invester in fossil fuels. My first response was that I should switch everything to an ESG fund, but on reflection I wondered if this would benefit the environment at all; surely simply switching  the ownership of a load of existing shares does nothing to deprive the fossil fuel companies of investment.
Is that the case, or is there after all a way I can use my investments to make a difference?

You might want to research the term 'greenwashing' and the extent to which true ESG and sustainable investment funds have been difficult to find - the article below should be of concern to all would be sustainability investors - 

https://www.urgewald.org/en/medien/esg-funds-greenwashing-eu#:~:text=The new rules on the,in oil and gas majors.

Steve_s1

Unless you are Warren Buffett, I don't think the investments you choose will make any difference in the scheme of things . But if you feel strongly about climate issues you might want to invest in a fund that is specifically aimed at this area, for example iShares Global Clean Energy Transition UCITS ETF (just one example of many funds).
Such narrowly-focused investments are much more volatile than broader, global funds though.