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Opportunities for sustainable investment increasing

22 August 2019

As the opportunities for sustainable investing increase, so do the risks and the need for fund managers to have the right processes in place, says David Harrison, manager of the Rathbone Global Sustainability Fund.

With many more companies tackling the sustainability of their businesses, the investment opportunities for ethical fund managers are growing, says David Harrison, manager of the Rathbone Global Sustainability Fund.

“There are companies that were under the radar in terms of what they did, which now, in terms of the technology they might have or the solution they might provide within the industrial space or alternative energy, are coming to the fore. We are seeing more and more of those companies coming through,” Harrison says.

However, with that rise in numbers and greater choice come disadvantages and risks. One of the major risks is ensuring companies are as sustainable as they say they are. “Where we caution in this respect is in the difference between ‘walking the walk’, as they say, and the sustainable tag being more a marketing ploy.”

In this respect processes and taking the time to get under the skin of a company is essential, Harrison stresses. Alongside the experience of the managers at Rathbone, all companies that could be potential additions to the portfolio are first looked at from the point of view of a stock-picker – is it a quality company, with a durable franchise and will it deliver growth or value over time – and then screened on ethical/sustainability grounds by Rathbone Greenbank, an ethical research company. Rathbone Greenbankwill analyse the company looking for potential ethical weaknesses.

“We have a traffic light system. They will say whether it’s a green, or whether there might be two or three issues to raise which make it an amber, or a red.  They will come back with a detailed analysis of whether it works or it doesn’t.

“We will approach the company’s senior management with any questions we have. Ultimately, it is Rathbone Greenbank which has the final say on whether the company is included in the fund’s portfolio. Everything that we might buy goes through the same process.”

With the intention to hold a stock for the long term, Harrison will take the time necessary to ensure it is right for the fund. “We might spend a month or six months looking at it, because of the risk within the space. As with anything there are unscrupulous operators and that’s what I am very nervous about having seen how the industry has developed

“We have a very pure approach, and a long-term view, so we have a process we follow again and again because what we don’t want to do is buy something that we later find isn’t what it says on the tin. It’s everybody’s responsibility to be vigilant as asset owners.”

Ethical fund performance

A change in the market that Harrison says has manifested in the last 10 years is the idea that to invest ethically investors have to give up something in performance. “If anything, we would argue you are gaining additional benefits,” he says.

“A company that is more sustainable and more ethically minded is more likely to be opening up new revenue streams as well as protecting themselves on the reputational side.

“Finding those kinds of companies is much easier for a global investor. We have exclusions on the fund – oil, tobacco, arms etc – but we can still invest in it a huge proportion of the global index and we can look at large and small companies.

“It’s important that people realise that they don’t have to give things up in terms of the investment performance.”