Jake Moeller, senior investment consultant, Square Mile Investment Consulting and Research identifies five fund that fit with Good Money Week’s focus on sustainability.
Since launch in 2005, Good Money Week has become a leading event promoting sustainability across all areas of the financial services industry. Over the intervening 18 years, responsible investment has come of age, evolving from an approach to managing money that was largely at the fringes of the asset management industry and focussed largely on avoiding ‘sin’ sectors of the market. It now sits in the mainstream, offering investors a broad spectrum of strategies reflecting their differing expectations of how savings should be put to play to help tackle the severe challenges facing society and the environment.
There are undoubtedly many investors who still favour funds that exclude polluting industries that contribute to climate change or deemed harmful to society such as armaments and gambling. However, as the responsible investing sector has grown, many strategies have been launched that channel capital flows to firms that can have a positive impact on the environment or that can provide solutions to societal challenges.
As its names suggests, the T. Rowe Price Global Impact Credit fund aims to deliver both income and value growth alongside a positive impact. It invests in bonds issued by companies that generate more than 50% of their revenue from themes related to the UN Sustainable Development Goals (UN SDGs) which include reducing greenhouse gas emissions, promoting healthy ecosystems, advancing the circular economy, and fostering sustainable innovation.
The managers apply a thematic and impact structure analysis alongside positive and negative screens in constructing the portfolio. Our analysis of its holdings show it to have a significant exposure to healthcare-related companies, due to its high-level theme of Social Equity & Quality of Life, which includes sub-themes focussed on social equity, improving health, and enhancing quality of life. Fund holdings that align to this theme include the paediatric hospital Children’s Hospital of Philadelphia, and the pharmaceutical giant, AstraZeneca.
The UBP Positive Impact Emerging Equity fund also aims to provide a positive impact by investing exclusively in companies contributing to social and environmental solutions through their core operations and its portfolio encompasses 15 of the 17 UN SDGs. The managers implement an exclusionary negative screen to weed out sectors such as tobacco, thermal coal extraction and military weapons. They also employ a proprietary scoring system to evaluate companies’ strategies, competitive advantages, and revenue sources for positive impact before conducting a financial analysis.
According to our most recent analysis, the fund’s holdings show an aggregate 80% alignment towards social and environmental solutions, such as healthcare, renewable energy and ethical finance. Examples of the fund’s investments include Cipla Ltd, which specialises in respiratory and cardiovascular diseases; LONGI Green Energy Technology Co, which develops solar wafers, and Bank Rakyat Indonesia, an institution which supports underserved individuals.
The managers of the WHEB Sustainability fund seek to invest in high-quality global companies, analysing their revenue streams and operational practices to avoid involvement in controversial activities. The first stage of the fund’s process involves the application of an exclusionary screen to exclude controversial sectors. The team then identifies companies that derive at least 50% of their revenues from addressing environmental and social issues and over 95% of the fund’s exposure is to firms that provide solutions to these.
The M&G Climate Solutions fund is an actively managed global equity strategy that invests in companies providing solutions to the world’s major climate-related challenges. Its manager focusses on three key areas: clean energy, green technology, and the development of a circular economy. Using a proprietary methodology, the fund identifies companies with a high degree of impact while applying an exclusionary screen to remove companies engaged in weapons, nuclear power generation and coal mining.
The fund’s framework considers factors such as competitive positioning, mission statements, and levels of revenues aligned with the UN SDGs. It also maintains an ongoing engagement with companies that demonstrate potential for improvement in terms of their negative impact and controversial activities identified by key performance indicators, such as tonnes of CO2 emissions avoided. Furthermore, the framework categorises these companies as pioneers, enablers, or leaders.
We calculate that 92% of the fund’s holdings are aligned with environmental solutions. For example, Schneider Electric SE specialises in developing products which improve a building’s energy usage efficiencies and reduce demand on the grid.
The team running the Regnan Sustainable Water and Waste fund recognises that companies involved in water and waste management activities stand to benefit from drivers such as urbanisation, a supportive regulatory environment, and a physically constrained world. Although up to 30% of the portfolio can be invested in companies outside of this scope, most holdings are in companies that derive more than 40% of their revenues from water and waste chains. In allocating assets, the managers apply an exclusionary screen, while also using third-party scoring data based on companies’ ESG risks, as well as their own sustainability assessment.
We have identified two primary portfolio themes: Natural Capital and Circular Economy. Companies within these two themes will either be responsible for the sustainable use of natural resources, such as water, or contribute to a reduction of waste through recycling, reusing, and reselling. Typical holdings include Veolia Environment, a French-based waste, water and energy solutions provider, and Xylem Inc, a manufacturer and designer of water infrastructure.
