FundCalibre launches ESG ratings

19 May 2022

FundCalibre has launched a set of ESG rankings to increase the level of trust investors have in asset managers’ ESG claims.

FundCalibre will assess each fund as either ESG explicit, ESG integrated or ESG limited.

The ESG rankings will be included on each of FundCalibre’s research notes for all of its 228 elite rated and radar fund notes and will be freely accessible to all investors.

Ryan Lightfoot-Aminoff, senior research analyst at FundCalibre, said: “More and more funds are either being launched or being given an ESG make-over.

“With each fund manager doing something different, it has become very difficult for investors to know exactly how responsible a fund really is. What’s more, a lack of trust in asset managers’ ESG claims remains a barrier to investment.”

ESG explicit funds are those that have an ESG/sustainable approach at the forefront of their investment philosophy and managers that will go above and beyond simple integration, with an ESG filter used as a primary feature on the investable universe.

Lightfoot-Aminoff said: “Funds in this category are likely to have an independent panel or consumer survey to determine ESG criteria and they will either actively avoid certain companies or industries and/ or will actively target certain ESG characteristics.

“All three environmental, social and governance factors will need to be considered when building the portfolio and there must be ongoing engagement with investee company management.”

ESG integrated funds are those that embed ESG analysis within the investment process, as a “complementary input” to decision making. The investment universe will not necessarily be restricted in any way but later analysis will be used to enhance the final investment decisions.

FundCalibre said at least two environmental, social and governance inputs will need to be considered before permitting a stock into the portfolio. Managers that hold stocks that have questionable ESG credentials will need to evidence strong rationale for including the stock in the portfolio and show that extra analysis has been carried out to accommodate the ESG risk.

Meanwhile, ESG limited will be reserved for those funds where the overall portfolio will not be materially influenced by ESG.

“These funds may still have some element of ESG in their process or be managed by a company that enforces certain negative screens but the overall portfolio will not be influenced by ESG,” added Lightfoot-Aminoff.

Professional Paraplanner