Are you an ethical investor?
For the majority, recycling and looking after our planet is something that is important to us – so something that should be considered equally as important is the standards of the companies that individuals invest in
World Earth Day, on April 22, served as a great opportunity for investors to reflect on their investment strategies and consider their environmental impact
In recent years, there has been a major uptake in awareness and desire to drive positive change from investors via their investments – This has translated into an increase in investments directed towards companies that are profitable, whilst actively working to reduce their environmental footprint. Investors therefore play an integral part in promoting sustainable business practices
For investors, investing in ESG or ethical funds really means making investment decisions that align with their values by gaining insights into a company’s risk management practices and its ability to adapt to changing societal expectations and regulations as well as by evaluating its long-term sustainability and profitability
What is ESG Investing?
ESG stands for environmental, social and governance. It’s an approach to investing that evaluates organisations based on their ethics as a company, not just on their ability to make a financial return.
Although Ethical investing is a highly broad term covering a vast range of topics, what it boils down to is it really means choosing investments based on companies’ moral behaviour – not just their ability to make you large financial gains.
Why has ESG Investing become so popular?
The history and patterns of Ethical investing goes back more than a hundred years, although more widely known in the last five years as it’s gained widespread traction, prompted by the rise of the climate emergency and campaigners such as Greta Thunberg
Because of the spotlight placed on ESG investing, companies have had to refocus their focus attention on an ESG agenda in order to remain competitive, whilst offering the best service to clients
How can your pension affect ESG?
Ethical investing really gives you the opportunity to dig deep behind a company’s corporate social responsibility values, and uncover the structures and processes that make them ‘green’
When you first start paying into your employer’s pension, your contributions, along with employer contributions and tax relief, will be invested through a default fund. You will usually have several fund options to choose from
Increasingly, as well as investing green, new research has identified that people are specifically choosing employers based on their ‘green pensions’. Today’s workers expect employers to show true leadership and offer pensions which are invested responsibly
Demonstrating a genuine commitment to ESG priorities is not only the right thing to do for the planet, but it could also be a game changer for attracting and retaining the best talent
Business leaders have a real opportunity to show staff that they are serious about doing the right thing
Many companies remain unaware of how their current employee pension schemes can undermine the progress they are making to develop more sustainable operations, primarily due to sizeable investments in high ESG-risk sectors such as coal, oil sands and tobacco
Which ESG funds can I invest in?
NMTBP is NOT a financial advisor but here are five funds to consider that both lead the way in responsible investment, in demonstrating the force for good that their investments are having, and in producing positive returns
FP Wheb Sustainability
Founded in 2009, WHEB Asset Management is a pioneer in responsible investing and the co-managers of the Square Mile Responsible AA-rated FB Wheb Sustainability fund believe passionately in responsible investing
Their investment process sets a high hurdle for stocks to be included in the portfolio – all investments are framed within nine themes focussed on five environmental and four social challenges: cleaner energy, sustainable transport, resource efficiency, environmental services, water management, well-being, health, safety and education. A stock can only meet one of the nine themes if at least 50% of its revenue or profits are attributable to the theme
The team then conduct a proprietary impact assessment on each stock and multiply it by the proportion of revenues attributable to the product or service to obtain an overall impact intensity score for the stock
More information is detailed in the fund’s in-depth annual impact report. In addition, an impact calculator and map are publicly available on the firm’s website. We view favourably on such transparency and detailed reporting.
Ninety One Global Environment fund
The Ninety One Global Environment fund, which holds a Square Mile Responsible A rating, aims to contribute to and benefit from the drive to a decarbonised world
Its managers believe that sustainable decarbonisation will require the following three thematic shifts: renewable energy generation, electrification of transportation and improved energy efficiency and all fund holdings are exposed to at least one of these themes. To be investable, a company must derive at least 50% of its revenues from environmental solutions linked to one of the three themes
The fund’s impact report details the carbon footprint and carbon avoided of the strategy versus the index as well as the renewable energy produced for every $1m invested. The managers want all their companies to report carbon emission reduction targets approved by the Science Based Targets Initiative (SBTI) by 2030, putting the portfolio on track to be carbon neutral by 2050
As at September 2022, approximately 42% of the portfolio met this requirement
Schroder Global Energy Transition
The managers of the Square Mile Responsible A-rated Schroder Global Energy Transition fund focus on identifying companies that are driving the transition to lower carbon sources of energy. This leads them to consider companies involved in areas such as renewable energy equipment and generation, transmission and distribution, energy storage and efficiency, and hydrogen power. It also applies a range of exclusions across fossil fuels, nuclear power, weapons, tobacco and alcohol companies
The team regularly engages with companies on, and provides non-financial impact reporting, for the Luxembourg-domiciled Schroder ISF Global Energy Transition fund which is managed along identical lines to this fund. The reporting uses the firm’s proprietary impact tool, SustainEx, which quantifies the various positive and negative externalities of companies
Royal London Sustainable World Trust
The team behind the Royal London Sustainable World Trust, which carries a Square Mile Responsible A rating, recognises that investing sustainably is subjective and that views on sustainability can change over time. They therefore maintain a fluid, adaptable process
Indeed, the success of the fund has partly been down to this adaptability. By traditional metrics, it could be considered as lighter green than many other peers. However, the managers impose a high hurdle rate for inclusion
Any concerns over a holding’s environmental, social and governance (ESG) credentials are analysed in a similar way to financial considerations to re-assess its inclusion in the portfolio, rather than it automatically being removed
The managers use third-party research and ratings on a business’s sustainable characteristics as a starting point for their own proprietary research and not as the ultimate arbiter for inclusion. The team’s approved list is independently reviewed by an external advisory committee, which include experts from charities, governance and socially responsible practices
Pimco Climate Bond
Responsible Positive Prospect-rated PIMCO Climate Bond strategy is built and managed from the bottom-up, bond by bond, based in the belief that the insights from the research team are essential to spot the likely winners of the transition to a net-zero carbon economy
It invests in issuers demonstrating global leadership of climate action through labelled and unlabelled green bonds targeting specific low-carbon investments, as well as climate leaders demonstrating innovative approaches to environmental sustainability
The fund invests in three key segments. First, green bonds issued explicitly for environmental or climate-related projects. Secondly, unlabelled green bonds issued by companies in sectors structurally low in carbon emissions, such as solar panel companies and electric transport. Finally, climate leaders which can be bonds from any sector but must be from issuers that lead in mitigating carbon emissions in the way they operate