Good Money Week starts on 2 October. It’s an annual event to help empower investors to make investment decisions that align with their personal values.
Responsible investing can look different for everyone. For some it’s excluding certain sectors and for others it’s choosing a best-in-class company in a controversial industry. Responsible investment doesn’t have to mean giving up financial gains in exchange for doing good – you can do both.
To tee up Good Money Week, we’re looking at three of the most popular companies held by our clients through a responsible investing lens.
Like any financial metric, responsible investing shouldn’t be looked at in isolation, but instead as part of a comprehensive analysis.
Learn more about responsible investing
This article isn’t personal advice. If you’re not sure an investment is right for you, seek advice. Investments and any income from them will rise and fall in value, so you could get back less than you invest.
Investing in an individual company isn’t right for everyone because if that company fails, you could lose your whole investment. If you cannot afford this, investing in a single company might not be right for you. You should make sure you understand the companies you’re investing in and their specific risks. You should also make sure any shares you own are part of a diversified portfolio.
BP
The oil and gas sector is particularly tricky when it comes to responsible investing. It’s no secret that companies like BP are under fire from environmentalists who say they should be doing more to wean the world off the black stuff.
But there’s also a business case for pushing oil majors like BP to become less of the problem and more the solution. If the direction of travel is net zero, then oil and gas companies that aren’t prepared for a low-carbon future are at risk of being left behind in the transition.
BP’s long been heralded as managing these transition risks well compared to others. However, the recent decision to backpedal on its climate commitments has raised red flags.
The group’s emissions targets have been lowered in the near term, prompting outrage among climate-focused investors. Notably, BP hasn’t thrown in the towel on its lower-carbon ambitions, the group’s still a leader when it comes to managing the carbon risk.
But on top of the climate considerations, the softer emissions goals also raise a governance question since the original targets had been approved by shareholders less than a year before.
Some additional governance questions were raised recently when CEO Bernard Looney announced he would step down after misleading the board about personal relationships with colleagues. This leaves a sizable gap in the leadership team, and until a successor is announced, it throws the group’s future green energy plans into question.
View the latest BP share price and how to deal
Lloyds Bank
When it comes to the banking sector, the ESG risks fall mostly in governance. Lloyds is no exception. The bank is primarily focused on the UK, so it’s especially exposed to changes in UK monetary policy and regulations.
For the most part Lloyds is managing these risks well, but there are some red flags to be mindful of.
The group boasts strong ethics policies and programmes, but they’ve done little to prevent a barrage of lawsuits about interest rate manipulation.
Its policies on things like bribery, corruption, and money laundering have some gaps to fill, and overall management of these types of risks lags behind peers.
There’s also work to be done when it comes to making sure it isn’t taking advantage of its customers with mis-sold products or complicated offerings. This is an important business risk. It’s one that’s cost the bank over £2bn and counting thanks to the payment protection insurance (PPI) scandal over the past few years.
However, it’s encouraging to see that Lloyds is working to improve its performance in this area, with regular monitoring of customer service and employee rewards linked to good customer outcomes.
On the environmental side, Lloyds is a strong performer. Many climate-conscious investors point out that although banks don’t necessarily come with a huge carbon footprint, they finance lots of the companies that do.
Coal, in particular, is a sticking point for many. Some of that depends on the bank’s location – banks based in Asia where coal power is more prevalent, for example.
But some is linked to the bank’s commitment to phase out the dirtiest fossil fuels – something Lloyds has done. The group won’t finance any new UK coal-fired power stations, a pledge that’s been in place since 2022.
It’s also aiming to weaken support for existing UK coal projects ahead of the government’s 2024 target.
A connected party of the author holds shares in Lloyds plc.
View the latest Lloyds share price and how to deal
Rolls Royce
Rolls Royce finds itself between two industries that have become controversial among responsible investors, aerospace and defence.
About half of the group’s revenue comes from developing massive jet engines that power long-haul aeroplanes. And just over a quarter comes from providing materials and technology to countries around the world to bolster their defence programmes.
Both sectors come with serious carbon concerns. It’s a risk that Rolls Royce is committed to reducing, but there are some areas of weakness.
Notably, the group’s pledged to commit 20% of its annual research and development budget to low-carbon solutions. It’s also been working to create more efficient aircraft and is testing sustainable aviation fuels. But disclosure at Rolls is relatively weak, which takes away from the group’s credibility among ESG investors.
Maybe the thorniest problem at Rolls is its ties with the defence sector. The group’s trade in military equipment and sensitive technology, puts its deals under the microscope.
There’s a lot of red tape to clear to protect Europe’s best interests, and that makes for a difficult operating environment. Plus, public scrutiny over defence companies’ contracts often lead to reputational damage – particularly if they’re dealing with controversial governments.
There are some who’ll say defence contractors have no place in a responsible portfolio. But others with more lenient outlooks might see Rolls as a good example of a company managing ethical risks well.
The group’s got strong ethics and whistleblower policies in place and hasn’t been implicated in any major ethical controversies in recent years.
View the latest Rolls Royce share price and how to deal
Sign up for updates on Rolls Royce
Net zero government rollbacks – 3 fund ideas to make a difference
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.
Share Insight: our weekly email
Sign up to receive weekly shares content from HL.
Please correct the following errors before you continue:
Hargreaves Lansdown PLC group companies will usually send you further information by post and/or email about our products and services. If you would prefer not to receive this, please do let us know. We will not sell or trade your personal data.
Our fund research is for investors who understand the risks of investing and that investing in funds isn't right for everyone. Investors should only invest if the fund's objectives are aligned with their own, and there's a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a diversified portfolio.