March 2023
Power shift?
Where asset managers are going above and beyond discussions about recruitment and retention to tackle racial inequity
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Winds of change
I’m starting my very first editor’s letter with a confession: I’m guilty of feeling impatient when it comes to change. Many of you may relate to starting a new job or project, or even workout routine, and wanting to prove yourself straight away. Perhaps there’s even a gendered element to this – gender being a topic explored in this magazine, released during Women’s History Month, by Ninety One’s Nazmeera Moola and EQ’s Sophie Kennedy. One area I’ve felt impatient about is the movement on diversity and inclusion. Racial equity in particular seems slow moving, although this month’s cover feature unearths some interesting ideas for the investment industry to make progress in this space. Meaningful and considered change takes time, as we know all too well from the very ethos of sustainable investing. As Goldman Sachs AM’s Luke Barrs puts it in his Q&A: “People are looking through that near-term noise to the long-term opportunity.” Luckily, this is an industry all about navigating change, and I’m looking forward to continuing to bring you its biggest news, views, data and analysis.
Spotlight
COVER feature
Natasha Turner asks where asset managers are going above and beyond discussions about recruitment and retention when it comes to tackling racial inequity
Head of sustainable investment at Liontrust, Peter Michaelis, tells Natalie Kenway why he’s more excited than ever about sustainable investing, despite the recent negative rhetoric
‘Reporting only gets you so far’
Ninety One’s Nazmeera Moola shares how teams can build trust and confidence to bring their A-game
‘My manager makes me feel seen’
Also in this issue ...
Luke Barrs of Goldman Sachs Asset Management discusses wise water management, tech solutions and addressing the just transition
Charting our water future
EQ Investors’ Sophie Kennedy explains how B Corps and inclusion go hand in hand
Women are sustainable leaders
LGT’s Phoebe Stone on asset managers’ net-zero pathways, regulation and accessing the blue economy
Engaging asset managers on net zero
Global sustainable funds are beginning the year on the front foot, writes Laura Miller
A strong start
With various jurisdictions implementing disclosure standards, firms must assess the impact of these requirements and start planning
Reporting journey
Sustainable multi-asset funds were generally more challenged than their non-responsible peers last year but several saved the day
Multi-asset marvels
Mark Allen Financial Media is a leading global media company, delivering cutting-edge analysis, insight, networking and data for financial services and business solutions communities. We offer forward-thinking products and provide high-quality information that leads to better, and informed, decisions. ©2023 MA Financial Media
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EDITORIAL
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ESG clarity intelligence
RRI
Natasha Turner Global editor, ESG Clarity
ESG Clarity Intelligence Parmenion’s Mollie Thornton unpacks key topics in ESG to look out for this year Read >>
shift?
tackling racial inequity
In the wake of the murder of George Floyd in 2020, Jacqueline Taiwo began receiving a lot of questions from fellow members of the investment industry about what they could do and how they could help. Having just set up the Black Women in Asset Management (BWAM) network a year previously, she decided to write an open letter to the community outlining some suggestions. “As Black women professionals in the asset management industry, we call on investment firms and institutional investors in our industry to go beyond solidarity statements and instead commit to action, activism and accountability to dismantle the racial inequities plaguing society,” the letter began. Taiwo wants the conversation about racial equity in investment to go beyond discussions of talent recruitment and retention, and so the letter included a commitment to building anti-racist portfolios. “The real power the asset management industry yields is in its investment strategy, and its stewardship of trillions and trillions of dollars, in deciding where capital is allocated,” she tells ESG Clarity. BWAM has even set out steps to do so, which include: • Setting metrics to examine a company or issuer’s demonstrated commitment to racial diversity during the research, diligence and assessment process. • Evaluating both positive and negative impacts of the company’s impact on Black populations to expose material risks and opportunities. • Innovating or divesting from companies/issuers that benefit from business models that perpetuate racial inequities or target vulnerable communities such as prison labour, immigration detention and surveillance software. • Communicating clear expectations to portfolio boards about the importance of considering racial implications in strategic decisions (just as we do on issues such as environmental sustainability and good governance).
Jacqueline Taiwo, CEO, Black Women in Asset Management
it should be’
Justin Onuekwusi, co-founder, #TalkAboutBlack, head of retail investments, EMEA and head of retail multi-asset funds, Legal & General Investment Management
Ethnicity pay gap reporting In terms of public policy, engagement on racial equality in the UK has come in the form of renewed calls for mandating ethnicity pay gap reporting, although this may not specifically address racial equity or racism. Earlier this month, Business in the Community published an open letter calling on UK prime minister Rishi Sunak and opposition leader Keir Starmer to introduce mandatory ethnicity pay gap reporting for UK employers with more than 250 employees, which the UK government has been kicking down the road for several years. “It’s a metric that can really help a company identify if there is racial inequality and racial issues within its own workforce, and then it can tackle it,” says Kohinoor Choudhury, senior campaigns officer at ShareAction. As with gender pay gap reporting, asset managers may then be able to use these metrics to inform their assessments of companies. Almost a year on from the launch of ShareAction’s ethnicity pay gap reporting campaign, in which the NGO initially targeted FTSE companies in the financial sector to voluntarily disclose their pay gap, it is launching a toolkit in June to help firms do just that. “The main issue that seems to be around reporting is their low self-disclosure rates, and the other is around disaggregating data,” Choudhury says. But adds: “If investors push companies to voluntarily report then the government will have no choice but to agree.” Policy change is another action point in BWAM’s letter, which asks asset managers to “commit to using your corporate voice to advocate for public policies and implement internal policies that tackle racial injustice”. “Just thinking about it is a start,” Taiwo says, and by using the tools and resources at their disposal, investment firms and institutional investors have the power to spur progress.
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outcomes’
Lindsey Stewart, director of investment stewardship research, Morningstar
Yet so far, there has not been much take-up. “Am I aware of any asset management firm that read this letter and then made a change? No,” she says. “But the reason why we keep it up on our website and why that was the first recommendation is because that’s where the real power shift can occur.” Justin Onuekwusi, co-founder of #TalkAboutBlack, head of retail investments, EMEA and head of retail multi-asset funds at Legal & General Investment Management, is also not seeing many asset managers committing to building racial equity principles into portfolio decision-making. “We could do more,” he says. “I don’t think racial equity is explicitly thought about in portfolios, but within an ESG portfolio it should be.” (See more from Onuekwusi on racial diversity here.) One place asset managers might be making strides, however, is in their approaches to stewardship. Onuekwusi points to Schroders and his own firm LGIM as good examples in this area. “They are voting against companies without ethnic diversity on their boards. Those types of moves have a massive impact on the industry,” he says.
Stewardship and engagement The data seems to back this up. For US Black History Month in February, Lindsey Stewart, director of investment stewardship research on Morningstar’s global manager research team, analysed resolutions specifically targeting racial equality issues last year in the US. Fifty-one such resolutions were voted on in the 2022 proxy year, more than double the level in previous years. US shareholder resolutions on racial equality issues
Support for these resolutions was at 36%, which is down from 40% in 2021 but higher than that seen pre-pandemic and the murder of George Floyd. This should mean asset managers are taking these issues more seriously, Stewart tells ESG Clarity. “It’s for them to demonstrate that’s what they’re actually going to do and [to emphasise their] sustainability objectives.” What kinds of engagement is Stewart seeing? “Below board and sometimes manager level, there’s not so much,” he says. “There’s plenty of talk around board leadership diversity. The wider, what they call, human capital dimension and how racial inclusion leads into that – there’s not a lot of meaningful conversation around those areas. “There is a lot of reporting of activity across broad themes. And increasingly there is a need to demonstrate what part of your engagement you feel is most impactful. Where have you pressed the hardest? Because at the moment it’s very difficult to differentiate between, say, a whole meeting on racial inclusion versus a letter that you sent to the chair that maybe didn’t get read, because both get the same tick in the table. “For most asset managers, divestment is not going to be anywhere near the top of the list for engagement outcomes, particularly for very large asset managers whose portfolio is almost certainly going to have to reflect the underlying capitalist recipe. So that engagement lever is crucially important.” Stewart adds where we can expect to see meaningful engagement is with companies holding directors accountable by voting against election or re-election where needed, supporting shareholder resolutions wherever accessible, and trying to extend public policy engagement. “We’ve seen engagement from regulators in the UK and abroad on what kind of diversity and inclusion approach they’re expecting from a governance perspective,” he points out. “You would expect asset managers who are conscious of those topics to be engaging on those kinds of outcomes. So there are a few levers to pull.”
choice but to agree’
Kohinoor Choudhury, senior campaigns officer, ShareAction
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Natasha Turner asks where
Head of sustainable investment at Liontrust, Peter Michaelis, tells Natalie Kenway why he’s more excited than ever about sustainable investing, regardless of the recent negative rhetoric
After record inflows into sustainable funds during 2020 and 2021, last year was a rockier time for sustainable investments. With the vast majority of the ESG fund market not invested in oil, strategies struggled to outperform and sentiment in the US took a nosedive, with some states banning ESG investments for being ‘woke’. Yet the Liontrust Asset Management sustainable investment team, who have been managing these types of funds for more than two decades, are more excited about the prospects for investing sustainably than they have been for years. “I am very confident about the future prospects for these strategies,” Peter Michaelis, head of sustainable investment at FTSE 250-listed Liontrust, tells ESG Clarity. “We’ve been running portfolios for more than 20 years now and that sort of experience allows us to have the perspective that gives us confidence. “A legitimate challenge to our approach would be to ask whether our sustainable investment themes have run their course. This would only be the case if we had solved every problem and satisfied every need; we are a long way from that. There’s still plenty of growing to do for sustainable companies.” Add to this “a more sluggish general economic backdrop” with higher inflation and interest rates no longer at zero, and Michaelis says the volatility of the past year has been an opportunity for the team, who run £11.2bn – a third of Liontrust’s total assets (as at 16 January 2023). They have been taking advantage of the market sell-off by adding to companies the team “have long admired in every aspect except valuation”. “Those few companies that can demonstrate growth because they’re developing treatments for diseases or zero-carbon technologies, or they’re helping secure our world online, for instance, are growing independently of what’s actually happening in the economy,” says Michaelis. Watch the video interview with Michaelis for more on Liontrust’s sustainable strategies
‘We want to invest in the exciting companies that are creating the solutions, not the ones that have been around for hundreds of years and are just part of the system that has to change’
Sustainable solutions ESG Clarity recently reported on the debate about whether to exclude heavy polluters or invest in them to ensure they are on a path to decarbonisation. Liontrust prefers the former approach. “We want to invest in the exciting companies that are creating the solutions, not the ones that have been around for hundreds of years and are just part of the system that has to change. We’re not saying they’re evil or bad but that there are many more exciting companies with more growth and dynamism that are replacing that energy system. And that’s where our clients want us to be invested as well,” Michaelis says. As a result, the team expects the funds to be labelled as ‘sustainable focus’ under the Financial Conduct Authority’s Sustainability Disclosure Requirements if current proposals go ahead. Mega trends The companies within the Liontrust sustainable investment strategies are chosen for their influence or impact on 20 specific themes identified by the team, but these also sit within the three mega trends: better resource efficiency (cleaner); improved health (healthier); and greater safety and resilience (safer). “Our societies and economies evolve to deliver not only growth in GDP but also a better outcome for people in a progression to a cleaner, healthier and safer world,” says Michaelis. He adds there has recently been real momentum behind the circular economy (watch the video interview above for more on this) as consumers move from “take, make and chuck into a landfill” to recycle and reuse. He also points to innovation in medicine as companies are now able to treat medical conditions with gene therapy at a much lower cost. But even companies focused on a more sustainable world have decarbonisation challenges. In 2021, in the run-up to COP26, as part of their engagement and following conversations with their advisory committee, the team embarked upon what was named The 1.5C Transition Challenge. They asked portfolio holdings to be more ambitious with their emissions reductions targets – specifically a 50% reduction in absolute emissions this decade. The firm’s 2021 engagement report said: “We are not asking for companies to divest automatically from the more carbon-intensive parts of their business, especially if this is enabling customers to reduce emissions by using their products. Instead, we want businesses to innovate and come up with creative ways to operate in step with an ultra-low carbon economy.” “Even though we don’t invest in oil companies, decarbonisation is relevant to most companies,” notes Michaelis. “The outcome at the end of 2022 was we had contacted 93 companies and spoken in detail with 72 companies about their strategy to be successful in an ultra-low carbon world. Of these companies we have engaged with, over half have either committed to or set science-based targets and the majority of these are aiming for reductions consistent with 1.5 degrees. “We’re continuing to engage on it and encouraging them to do more.” The 17-strong team has also engaged on gender diversity with success: within the global portfolios 40% of the boards have more than a third of female representation, whereas this was 20% in 2016. “Everyone recognises [diversity] is a good thing. It’s different if you get into Japan, the reception is bit different. But I’d say in the UK people feel it’s a matter of time, we just have to recruit but also be realistic about how fast things can change.” Staying with the social element, Liontrust is also one of the 100 investment managers representing $12trn (£9.81trn) in assets aligned with the Workforce Disclosure Initiative (WDI). “Every chair or CEO will say how people are their most important asset but looking into their annual report there’s very, very little about their people. The WDI is asking for more disclosure on how they’re training and investing in the workforce so the company has great prospects for the future,” Michaelis explains. Liontrust contacted 83 companies held in portfolios and 34 are now participating in WDI. “It’s been reasonably successful, and we are going to keep going with it,” he says. Disclosure Are Michaelis and the team excited about the increased level of disclosure across other areas that’s coming up? Alignment with the Taskforce for Climate-related Disclosure is becoming mandatory in the UK, the International Sustainability Standards Board is rolling out its global baseline of standards next year and the European Sustainability Reporting Standards are also in development. “Reporting only gets you so far,” Michaelis says. “If sustainable investing is going to work, we have to move to a cleaner, healthier, safer world. Just reporting on what you’re doing doesn’t achieve that. It helps to disclose who’s positioned where, but the emphasis should be on governments effecting the change and delivering the change we need. That’ll sort the companies that are well positioned from those that are poorly positioned. “That’s what you hear from companies as well, they just want predictability – ‘show us the transition, and then we’ll plan’.” Coming full circle, Michaelis reiterates his optimism for sustainable investing and how although it has seen huge growth, he doesn’t regard it as ‘whole of market’, even as more people accept the logic of investing in companies that are improving the world. “It has clearly moved from being a niche area that only really committed people were interested in to being recognised as a credible investment strategy. Businesses now recognise their social purpose is aligned in importance to the success of their business overall. When I started doing this in the early 2000s, the idea of linking your financial performance with a social outcome or environmental outcome was laughable; it’s clearly not now. “But I don’t see it ever being the whole market because we’re always trying to be the leading edge, finding those companies that perhaps have not been uncovered by others or where potential hasn’t been uncovered by other investors. “Align that with things like the US Inflation Reduction Act, which was $370bn earmarked for clean technology, and you can see why we have so much confidence.”
Peter Michaelis’s biography
Peter Michaelis is head of the 17-strong Liontrust sustainable investment team. He joined Liontrust in April 2017 as part of the acquisition of Alliance Trust Investments, where he was head of investment. Michaelis has been managing money in sustainable and responsible investment for over 20 years. After completing a PhD in environmental economics, he started his career working for the Steel Construction Institute as an environmental engineer. He then moved to Henderson Global Investors, where he was able to use his experience as a sustainable and responsible investment analyst and assistant portfolio manager. In 2001, Michaelis joined Aviva Investors, where he was promoted to lead portfolio manager on a number of its sustainable and responsible investment funds, before being made head of sustainable and responsible investment.
Click to read Peter Michaelis’s biography
Click to see full breakdown of Liontrust sustainable themes
Click to see full Liontrust sustainable fund range
Liontrust sustainable themes
Better resource efficiency • Improving the efficiency of energy use • Improving the management of water • Increasing electricity generation from renewable sources • Improving the resource efficiency of industrial and agricultural processes • Delivering a circular materials economy • Making transportation more efficient or safer Improved health • Enabling innovation in healthcare • Delivering healthier foods • Building better cities • Providing education services • Providing affordable healthcare globally • Enabling healthier lifestyles • Connecting people • Encouraging sustainable leisure Greater safety and resilience • Enhancing digital security • Increasing financial resilience • Saving for the future • Insuring a sustainable economy • Better monitoring of supply chains and quality control • Leading ESG management
Liontrust sustainable fund range
• Liontrust GF Sustainable Future Global Growth £254.16m • Liontrust GF Sustainable Future Multi Asset Global £54.92m • Liontrust GF Sustainable Future Pan European Growth £147.21m • Liontrust Sustainable Future Cautious Managed £1,061.7m • Liontrust Sustainable Future Defensive Managed £1,068m • Liontrust Sustainable Future European Growth £355.6m • Liontrust Sustainable Future Global Growth £1,662.4m • Liontrust Sustainable Future Managed £2,726.4m • Liontrust Sustainable Future Managed Growth £980.1m • Liontrust Sustainable Future UK Growth £803.8m • Liontrust UK Ethical £615.5m • Liontrust GF Sustainable Future European Corporate Bond £25.91m • Liontrust Sustainable Future Monthly Income Bond £619.8m • Liontrust Sustainable Future Corporate Bond £710.8m
‘My manager made me feel seen’
We all know women are woefully under-represented in financial services and asset management, especially in more senior roles. The causes are many (but still less than the number of books written on the subject!) so let me not rehash them all. Instead, I’ll focus on one factor I’ve spent some time thinking about how to alleviate in the teams I’ve been involved: that confidence is situational. To some that statement will sound blatantly obvious; to others, it will sound absurd. I know because I’ve spent some time convincing people (mostly men) of that. For example, in 2018 I took on a new role as head of Africa investments at Ninety One. My previous role, covering South African economics, was taken over by a woman who came from a village in one of the country’s poorer and more remote provinces with the most basic of amenities. At the same time, there was a man in the team who sat two seats down from her and attended one of the country’s best schools. Both smart and successful, but from completely different walks of life. Part of our role as managers is to help colleagues bring their A-game to work by making them feel confident enough to produce their best work. That’s not particularly easy when the discussion over the desk is about golf or the best wines. Fortunately, the team in question has established a strong camaraderie that allows for robust discussion on work output that never feels personal. This is due to the strong trust built between teammates, led by a manager who prioritises this. Mentoring musings Supportive team dynamics are a big part of the solution. Mentorship is another component. It was more than a decade into my career when I realised how lucky I was in my first job. I began my career at Merrill Lynch, and my first manager, Jos Gerson, was a former academic who took me out for coffee or lunch most days (and sometimes both) to discuss some aspect of the global economy. What stays with me most is that he always listened to what I had to say and made me feel seen. Mentorship can take many forms. From a direct manager, it allows someone the opportunity to learn from an individual who has a great deal of knowledge and experience. Receiving one-on-one guidance can help facilitate an individual’s personal and professional development. Beyond the amazing Gerson, I’ve had several great mentors. For example, a then competitor who also became a close friend provided many hours of advice on content and delivery. A more recent manager actively pushes me out of my comfort zone and mentally challenges me, in a good way, which also reminds me that I am always learning, growing and developing. In addition to this, several industry peers have made themselves available throughout my career to provide professional guidance and insight at critical points. You may see a common theme here. Freedom to create The lesson I take is that I have benefited enormously from people who have generously shared their time with me, and I continue to benefit from this. Therefore, I try to give other (particularly younger) women and men my time. Ninety One has a self-starter culture and flat structure that provides plenty of freedom to be yourself but also is very focused on results. This has strengths and weaknesses. The weakness is there is no detailed organisational sketch you can hand to a new joiner. The strength is once you figure out how it works, a great deal of innovation can be accomplished with limited bureaucracy. In short, there is a freedom to create. However, many people need a bit of aid to navigate the journey. And while men tend to bond more easily and informally, from my experience, around cycling and golf, women often need a bit more help to form those relationships in the workplace. That is not to say women need to behave like men to build relationships. Managers should be focused on providing them the opportunity to bring their A-game to work, mentoring them and helping them develop camaraderie and nurture their confidence. I have an 11-year-old daughter, and I would hope that by the time she is in the workplace we will not need an International Women’s Day. I fear that won’t be the case, but I’m also hoping she finds people who share their time and help her build her confidence to produce her A-game.
‘Part of our role as managers is to help colleagues bring their A-game to work by making them feel confident enough to produce their best work’
Nazmeera Moola Chief sustainability officer, Ninety One
LGT’s Phoebe Stone tells Natalie Kenway about her views on asset managers’ net-zero pathways, regulation and accessing the blue economy
Stewardship is an important part of the investment process. Tell us about your recent stewardship successes with asset managers? Our stewardship work is conducted through a rigorous process whereby third-party fund managers are reviewed on their securities purchases, their own stewardship efforts and by a detailed questionnaire covering seven sustainability areas, such as biodiversity, climate and human rights. From these exercises, we’re able to compare our results by region, fund manager or sustainability issue. The results show areas of excellence around certain issues such as climate change, but also reveal where the understanding around the integration of biodiversity or human rights into investment processes is still lacking. During 2022, given the polarisation around sustainability and ESG issues, we engaged with many of our managers on their corporate sponsorships. While we were reassured by the information provided by the majority of our managers, it also allowed us to identify those who hadn’t mapped out their corporate spending or were supporting causes that didn’t align with their own sustainability mandate. This prompted us to undertake a larger engagement stream on the incongruency of lobby spending, including asking companies and fund managers to publish political expenditure reports, including nominal spending amounts and linking these donations back to mission statements and internal values. What actions would you like to see asset managers take in the next steps of transition to net zero? While 70% of our fund managers have set public net-zero targets, many are still not clear on how they will achieve these reductions in their portfolios. We would like to see our managers set out clear actions for investee companies in line with credible sectoral decarbonisation pathways, and clear escalation plans where these actions are not met. To date, our managers’ voting track records are mixed, with some not yet translating unsatisfactory engagement outcomes into votes. See video interview with Stone discussing how private wealth can contribute to the decarbonisation of the economy and demand for ESG investments despite negative rhetoric
‘We would like to see our managers set out clear actions for investee companies in line with credible sectoral decarbonisation pathways’
How will upcoming regulations or standards – SDR, ISSB, for example – help you in your work? Advisers have been positively engaged with the FCA’s proposals and are looking to us to continue to educate their clients on these matters; we’ve seen a real uptick in requests for our specialists to speak at conferences or away days to advisers and their clients. With regards to the management of portfolios, our assessment of our managers is much more in-depth than a label and remains unchanged since the regulation has come in (we didn’t see any managers get downgraded within the EU’s Sustainable Financial Disclosure Regulation and our original assessments remain unmodified). Regulation abroad is arguably more exciting to us; with net-zero by 2050 commitments concentrated largely in the West, many of the proposals and listing regulations in Asia will have huge implications for better ESG data in that region. Equally, we are seeing really sophisticated and interesting local expertise emerging: from environmental taxonomies in Malaysia, to support for net zero in Japan via specific fund provisioning measures for climate by the central bank. How can investors mitigate biodiversity loss in portfolios? Why is this important? Biodiversity loss presents a key risk to businesses and the economy.The World Bank estimates that biodiversity loss will cost $2.6trn (£2.12trn) a year in lost GDP. Biodiversity remains a significant challenge for investors, but fundamentally it comes down to understanding each company’s impact and dependence on nature. Is the business one that uses a specific flowering plant in the composition of its main product, or an IT business that exists wholly in the cloud, with virtually no demand for raw materials? Is it a commodity sourcing business or one that sells kitchen roll and wood pulp products? Sectors such as cosmetics, luxury goods, forestry, household furnishings and food producers are all highly dependent on nature, while resource and mineral extraction, oil and gas, and construction are sectors with a high impact on nature. As investors, it’s important to understand these dynamics when choosing companies and funds, so data points can be helpful – things such as water usage and water stress, pesticide or chemical usage. However, it’s important to understand how those numbers affect the end environment. Data on habitat destruction or deforestation, where the end-impact is already taken into account, is more useful, but harder to measure. Newer providers are beginning to use satellite data to map the proximity of companies to key biodiversity areas or world protected sites. They can also use this imagery to track changes over time, such as deforestation, which is a game changer when it comes to corporate liability. How can investors invest in the blue economy? We know that our seas, oceans and marine spaces are crucial in tackling climate change. As the single biggest carbon sinks, we need to recognise, protect and celebrate what our oceans provide, in our positions as global custodians. SDG 14: Life Below Water is one of the least-funded UN goals, needing an annual investment of $175.52bn for us to make a difference to underwater biodiversity ecosystems. The blue economy is still an emerging space: many of the companies are still in beta-testing phases, available only to private market investors or simply not yet scalable. While opportunities in the area are now growing, it’s important that capital is channelled to those that are safeguarding biodiversity of the oceans and operating sustainably. In 2018, the World Bank launched the first sovereign blue bond, a 10-year bond issued by the Republic of Seychelles towards the management of marine protected areas and the development of sustainable fisheries. Phoenix Capital estimates there are 220+ ocean funds globally, with 196 of them based in Europe, with a total of €37.6bn (£33.1bn) committed in these funds. However, many of these funds still focus on themes such as offshore wind and power (while important, clean energy sources have a detrimental effect on ocean species’ health) and others on companies that are only tangentially linked to the blue economy. For us, the real opportunities are found in the solutions, such as seaweed: from bioplastic alternatives to its carbon sequestration properties, seaweed has also been proven to be an interesting food additive to reduce methane emissions in livestock. We have celebrated International Women’s Day this month. Where would you like to see more gender diversity progress in the industry? Last year, we joined the 30% Club UK investor working group to continue to engage with boards and executives on their gender and ethnic diversity. Despite recent successes in the UK, such as FTSE 250 constituents averaging over 40% of women on boards, the issue further down the pipeline remains. In fact, women only account for 15% of partners in financial services firms (Fox & Partners survey, 2021) and, from our own fund manager questionnaire, we still see a drop-off in women fund managers (ie sustainable fund managers are hiring more women in at a 48:52 ration of men to women, but across the investment teams the split is still 74:26 men to women). The 30% Club investor working group has set new targets around tackling the ‘one and done’ boards that only hire one woman sometimes to tick a box, the intersectionality of roles and the executive teams to target broader inclusion into C-levels.
Phoebe Stone, head of sustainable investing and head of intermediary investment services, LGT Wealth Management
For more on the blue economy, watch our interview with Goldman Sachs’ Luke Barrs
Phoebe Stone’s biography
Phoebe Stone, partner, head of sustainable investing and intermediary investment services, LGT Wealth Management, joined from Coutts in 2014. She launched and leads LGT Wealth Management’s sustainable investing proposition. Stone sits on a number of committees including LGT Wealth Management’s investment committee and fund selection committee. She is also passionate about diversity and inclusion initiatives, having launched LGT Wealth Management’s inclusion initiative in 2018 as well as a pan-industry diversity initiative, which is now a chapter of The Diversity Project. Stone is a board trustee of the Lord Mayor’s Appeal and an ambassador of two breast cancer charities.
Click for Phoebe Stone’s biography
Last year proved difficult for multi-asset investors, who had few places to hide amid a global rout of both equity and fixed-income assets. Among sustainable and ESG-integrated funds, this was amplified by a structural bias towards growth-orientated equities, which were hit hardest. The key driver of negative returns in 2022 stemmed from higher inflation and the speed and ferocity of interest rate hikes as central banks reacted. The immediate effect was the widespread selling of risk assets, with most sectors down heavily during the first quarter. Elsewhere, fixed-income securities failed to provide protection against equity market volatility, as yields on government bonds and credit rose due to their sensitivity to rising rates. Sustainable multi-asset strategies were generally more challenged than their non-responsible peers, with around two-thirds underperforming their respective sectors in 2022. The equity exposure of these funds is typically focused on growth assets, which are most sensitive to interest rates changes. In addition, funds with ethical exclusions generally would have zero exposure to energy, which was by far the best-performing sector globally. Although performance concerns have slowed investor interest in responsibly managed multi-assets, the majority of funds were subject to moderate inflows last year. There were also a number of new strategies launched during 2022, though this was somewhat muted in comparison to recent years and the asset class remains underserved relative to the wealth of options available to equity investors. Trojan Ethical The manager of this fund, Charlotte Yonge (pictured), aims to preserve capital as well as grow it above inflation during a full market cycle, defined as five to seven years. In practice, Yonge is trying to provide a similar return to equities over the long term, but with a significantly lower level of price volatility. However, in the medium term, a reasonable expectation for returns is RPI plus 2-5% over a rolling five- to seven-year period. This fund was launched in March 2019 and so its track record is more limited. However, it follows the same consistent investment process that has been employed on Trojan’s flagship fund since 2001, with the only difference being that this fund applies ethical exclusion criteria. Yonge is still relatively inexperienced as a lead portfolio manager, having been deputy manager on the Trojan fund since 2018. However, she is very capable and has all the attributes needed to be successful. The fund invests subject to ethical exclusion criteria and will principally hold equities, high-quality fixed income, gold and cash, actively managing the allocation between each asset class. The ethical approach is a simple exclusionary one, and for equities follows criteria such that businesses involved in armaments, tobacco, adult entertainment, fossil fuels, alcohol, gambling and high interest rate lending cannot be held in the portfolio. The ethical criteria used to determine the fixed-income portfolio is straightforward. The fund will only invest in the securities issued or guaranteed by the G7 countries: Canada, France, Germany, Italy, Japan, the US and UK, or by a single local or public authority of those countries. For precious metals, the team seeks to minimise exposure to gold mined prior to 2012, after which date it can be ascertained it has been sourced in compliance with the London Bullion Market Association’s Responsible Gold Guidance. The simple investment approach, along with its transparent exclusionary policy, will appeal to investors wanting capital growth but who also wish to avoid specific industries and businesses when allocating their cash. Royal London Sustainable World Trust This fund is run by the Royal London Sustainable Investment team, led by Mike Fox, Sebastien Beguelin and George Crowdy (pictured left to right). Their process is based on the idea that the sustainability of a business will drive its financial performance providing it is fundamentally sound, and therefore they seek companies that have a positive impact on society, exhibit strong ESG characteristics and show leadership in their field. This generally leads them towards companies that are innovative and have long-term growth potential. The managers understand that investing sustainably is subjective and will mean different things to each investor. They also accept that views on sustainability can change over time, so ensure their approach remains relatively fluid and adaptable. The team embraces the subjective nature of this approach to investing and adapts to the times. In fact, the success of the fund has partly been down to its adaptability. The fund’s approach, by traditional methods, would be considered as lighter green than many others in the market. However, it should be stressed there remains a high hurdle rate for inclusion. While the approach is mainly driven by positive screening, there are exclusions in place which seek to avoid more controversial sectors. This includes any company that is or is likely to be exposed to human rights abuses, tobacco and armaments manufacture, products that involve experiments on animals (except for those conducted for the benefit of human or animal health) and the generation of nuclear power. The fund also avoids companies that generate more than 10% of their turnover from any one or a combination of the following: animal fur products, adult entertainment, irresponsible gambling, irresponsible drinking and worker exploitation or exploitative consumer practices. The managers aim to provide capital growth over the long term from a portfolio of mainly equities, with some exposure to bonds, which have all been selected based on their sustainability characteristics and the net positive benefit they have on society. Using this sustainable investment approach, they aim to outperform the composite benchmark of 80% MSCI World and 20% iBoxx Sterling Non Gilts All Maturities over rolling three to five-year periods. We see the fund as a strong option for investors who wish to invest in a mixture of equities and bonds from companies with sustainable business practices. Liontrust Sustainable Future Managed Growth This fund is co-managed by Peter Michaelis (see ESG Clarity’s interview with Michaelis here), Simon Clements and Chris Foster, who are part of the experienced Liontrust sustainable team. The investment process is based on a core belief that sustainable businesses can provide better growth and are more resilient than the market gives them credit for, and the managers look to deliver outperformance across this mainly equity portfolio. The team aims to invest in the economy of the future by favouring companies proactively managing their own interactions with society and the environment. They have identified 20 sustainable themes, linked to better resource efficiency, improved health and greater safety and resilience, which they feel are contributing in different ways to creating a cleaner, healthier and safer planet. Each of the companies they own must fit into one of these themes. They want to own companies with leading processes in place to manage the issues key to their business. This will clearly depend on the industry in question, but it includes areas such as customer relationships, employee satisfaction and retention, and supply chains, as well as energy efficiency, waste reduction and material recycling. The team’s primary focus is on finding companies that are positively exposed to long-term transformative themes, while limiting their investment in companies exposed to activities that cause damage to society and the environment. These restrictions include alcohol production or distribution, animal welfare, climate change, deforestation, gambling, genetic engineering, human rights, infrastructure projects, intensive farming, labour standards, nuclear, ozone-depleting substances, adult entertainment, tobacco and weapons systems. The fund will invest directly in global equities, with some potential exposure to fixed income and cash, such that it retains a level of risk consistent with Dynamic Planner risk profile 7. The managers will invest 60-100% of the portfolio in equities, but in practice are likely to be towards the upper end of this range. The equity portfolio will be relatively concentrated and consist primarily of international companies. This is a strong choice for investors looking to grow their capital by investing in companies that are making a positive contribution to the planet and society. The heritage of the investment team and the experience they have gained over many years, managing client assets in this consistent way, gives them an edge over competitors who have only recently grasped the responsible investment nettle.
‘The investment process is based on a core belief that sustainable businesses can provide better growth and are more resilient than the market gives them credit for’
‘While the approach is mainly driven by positive screening, there are exclusions in place which seek to avoid more controversial sectors’
‘The simple investment approach, along with its transparent exclusionary policy, will appeal to investors wanting capital growth but who also wish to avoid specific industries and businesses’
Alex Farlow Head of multi-asset fund research, Square Mile Investment Consulting and Research
Natalie Kenway speaks to Luke Barrs, global head of fundamental equity client portfolio management at Goldman Sachs Asset Management, about wise water management, tech solutions and addressing the just transition
Why is it so important for us to direct capital towards a sustainable water future? Water is a basic human need. Whether we’re talking about drinking water or sanitation, we know access to water is something that’s going to be crucial to the longevity of the human race. We also know the stresses on the water system are only going to get worse. We have a global population that is likely to peak at about 10 billion inside the next three or four decades, resulting in a net aggregate demand increase for water of around 30%. This means we potentially have a supply gap between the aggregate demand versus what we can supply in terms of clean and usable water of around 25%. Unless we find technologies and solutions that can help to improve this picture, it’s going to be a major challenge. I’d add here that people tend to associate water mainly with drinking water and sanitation, but it also has significant parallels to food and agriculture. If you look at water withdrawals – the amount of water that’s taken out of the system each year – 68% of that goes into agriculture. And if you think about total consumption, that’s net of the recycling of that water, food now accounts for 92%. Unless we can think about new ways of securing our water and investing capital in new technologies that can help with desalination or water recycling, there are going to be even greater stresses on the system than we’re seeing today. What are the major challenges to this? We imagine climate change is having a massive impact. Everything we’ve just said doesn’t necessarily even reflect the significance of climate change and how that’s putting even greater stress on the system. Take Lake Mead, for example, which people will know as the largest reservoir in the US associated with Hoover Dam. [In 2021], water levels in Lake Mead hit their lowest level on record since its establishment in the 1930s. We’re seeing weather patterns change, surface temperatures are increasing and that’s putting a lot of pressure on the system. When we think about how we can solve that, evidently there are technologies we can develop and invest in that can help improve the availability or the desalination or recycling of water. Closer to home, if we took all the white water pipes we have in our system in England and Wales, they would run around the earth roughly eight times. Now, if you think about the leakage from that system, that’s roughly three billion litres of water a day that are lost as a function of poor monitoring and poor repair cycles. The technologies we need in 30 or 40 years’ time are going to be crucial. But the simple technology of how you monitor your system and repair leaks more quickly is going to be critical. Click on video to hear Barrs discussing Goldman Sachs’ themes and investments for a secure water future.
What would you define as wise water management and are there solutions that will help with this? As mentioned, where we can really make a material difference is improving the monitoring of usage, the recyclability, re-use and treatment of water. But it’s also basic things, like how do you know when there is a leak that needs fixing in your pipe networks? Our portfolios are very much focused on broad environmental challenges and solution providers to those challenges, and we are investing in companies that are providing those monitoring systems. They’re providing systems that can improve the efficiency of water usage in areas such as agriculture. It’s about solving at source, and solving efficiency and productivity of usage, and then thinking longer term around some of the technologies. One of the earlier-stage businesses we’ve invested in is also focused on improving the energy efficiency of desalination technology. At present, desalination technology is a very thermal-based and involves a lot of energy. They are trying to push that towards a reverse osmosis process, which is much less energy intensive. This is technology you can think about on a 30-year basis, but there are simple things we can do today to improve the efficiency of our network. If you do those concurrently while investing in solutions to those current challenges, there’s a lot of potential to improve the system. How are you considering the just transition in your investments? Part of what we do as an investor is to think long term and thematically around where capital is flowing and where there is an investment opportunity. Do you have unique, innovative technologies that can solve some of these issues, because there will be demand tailwinds that benefit those companies if they do? But then we also have to think about the viability and justification of that business. That very much aligns to the just transition because we want to invest in businesses that not only solve the overarching challenge, but are doing the right thing in terms of their internal protocols and practices. But taking one step back and thinking about water scarcity and sustainability as a theme in the context of the just transition, we should not be blind to the fact that a lot of the stresses that are being put on the system, especially around climate change, are being felt most in developing economies. For example, the Pakistani floods at the back end of last year were not just an issue in terms of access to water for communities who have been displaced by flooding – which again, we’ve seen severe weather events increase in frequency and severity – but it was also about access to water post that event. There is an issue around sanitation and then, in due course, nutrition, because a lot of those systems have been broken as a function of that. We have to think about investment in the solutions and also about the long-term direction of capital flow to make sure these aren’t just focused on developed market solutions, but are flowing back into the developing world. How can these types of companies hold up in a more challenging market/recessionary environment? From an investment standpoint, we try to think long term both in terms of the thematics we want to try and align our portfolios to – water scarcity, sustainability, desalination and recyclability – but also about the viability of those businesses over a full cycle. And we don’t want to get too focused on just the near-term dynamics because markets can gyrate pretty severely. That said, there are businesses within this space that can perform well, not just long term, but in the near term as well. You’re seeing significant flow of capital on the part of governments, corporates and also on the part of consumers who are being more thoughtful in terms of how they are using water and other resources. That means these companies that have unique solutions are benefiting from materially increased demand. The past year has been tough for longer-duration assets, so think of this as long-term growth equity. In an environment where inflation went up, interest rate expectations moved materially higher and the discounting of those future cashflows was a significant challenge for a lot of these growth assets. But actually a lot of the names we invest in this space held up relatively well because people are looking through that near-term noise to the long-term opportunity. As people have been able to refocus on the fundamentals of the businesses at the start of this year rather than having to fixate on the exogenous and existential threats of the past 12 months, we’ve seen strong performance in a lot of those areas.
‘We’re seeing weather patterns change, surface temperatures are increasing and that’s putting a lot of pressure on the system’
Luke Barrs, global head of fundamental equity client portfolio management, Goldman Sachs Asset Management
Luke Barrs’ biography
Luke Barrs is a managing director in fundamental equity within Goldman Sachs Asset Management, serving as global head of client portfolio management. In this role, he co-ordinates the strategy, business expansion and client communication efforts for the fundamental equity business. He advises clients on their strategic asset allocation and equity investment decision-making process, particularly related to gaining appropriate access to emerging markets and other long-term secular growth themes. Barrs joined Goldman Sachs in 2009 as an analyst and was named managing director in 2019.
Click here for Luke Barrs’ biography
Expected increase in demand for water over the next 30 to 40 years
30%
Share of water withdrawals accounted for by agriculture sector
68%
Year in which water levels in Lake Mead hit their lowest level on record
2021
With various jurisdictions implementing disclosure standards, companies will need to assess the impact of these requirements and start planning
ESG is a topic that’s become embedded in corporate conversations. Boardrooms from Paris to Washington are deliberating how they can be more proactive on their environmental and societal impact, conscious they have a profound role to play in creating a more sustainable planet. For senior executives, the debate has moved on from ‘if’ to ‘how’. We’ve finally reached a point in time where it’s widely acknowledged that ESG has moved from corporate social responsibility initiatives to the heart of company strategies and growth plans. While it can be reassuring that many CEOs and their wider stakeholder groups are now ‘on board’ with ESG, there is a common theme and concern across multiple industries. How does a business measure and demonstrate what it is doing to tackle such a wide variety of issues – from social inequality to the climate crisis? Political leaders are facing the same dilemma and they’re now finally edging towards regulation and enforcement. The International Sustainability Standards Board (ISSB) was formed to create the IFRS Sustainability Disclosure Standards – a global baseline of sustainability standards that would give investors the information they need to make effective decisions, supporting efficient and effective capital markets. At the same time, the European Union is preparing to introduce its own requirements, known as the Corporate Sustainability Reporting Directive (CSRD). Brussels may be the birthplace of CSRD, but it will have far-reaching consequences internationally, potentially affecting approximately 50,000 businesses operating in the EU, including EU subsidiaries of non-EU parents, who will have to meet the final European Sustainability Reporting Standards (ESRS), which set out the details of what must be reported as part of the CSRD. These are not the only new developments. For example, the US Securities and Exchange Commission’s proposed climate rule is also pending, and multiple other jurisdictions are also introducing new requirements. The new reporting requirements are expected to be a step change in volume and breadth. Impacted companies will need to assess the materiality of the various requirements and build and execute a plan to gather and report relevant data — or potentially face significant consequences. Step change KPMG assessed the CSRD readiness of 200 companies across the world – and, in most cases, areas where businesses fell well short of the incoming requirements were identified. Given the scale of change ahead, it’s completely understandable that many companies are not ready. Understanding and adapting to reporting under the ESRS is a major task. Under the CSRD, based on a ‘double’ materiality assessment, in-scope companies will disclose a large amount of mandatory qualitative and quantitative information. This includes reporting on the whole value chain, as well as across environmental and social topics. Even those companies that have previously been commended for their sustainability reporting may find their current disclosure practices fall well short of the new requirements. For many companies, current environmental reporting only covers climate-related aspects but soon companies need to report on a wide range of environmental topics – including pollution, water and marine resources, biodiversity and resource use, and the circular economy – if analysis shows these to be material. Similarly, under both frameworks, companies will need to expand their reporting on relevant social topics – for example, their own workforce, workers in the value chain, affected communities and consumers, and end-users. And for governance, companies are obliged to disclose more material information about their business conduct practices. Few organisations are set up to manage and track these additional requirements across their entire enterprise. Global baseline The new reporting requirements are set to be rolled out over the coming months and years, with larger organisations expected to adhere first. What is clear is that senior executives should act now to help ensure they’re in a position to analyse and report the correct data in a timely fashion and be prepared to obtain assurance. And now the ISSB’s timelines are aligned with the EU, companies may choose to voluntarily adopt IFRS Sustainability Disclosure Standards regardless of local requirements. For those reporting under multiple frameworks, such ‘dual compliance’ would certainly make sense because the ISSB is setting the global baseline, ready for jurisdictions to layer on their local requirements. The first steps should involve a pre-assessment, taking a high-level status quo overview of where the company reporting stands in relation to incoming requirements to help understand what the future reporting journey will look like. This should be followed by an impact and readiness assessment to gain a more detailed understanding – at a disclosure requirement level – of reporting performance. Finally, a full-fledged readiness project plan should be created exploring the company’s assessments and ambition level. It should come as no surprise that political leaders and bodies are now acting to help ensure the business world sticks to its promises to play a leading role in driving a more sustainable planet. The world may be facing multiple challenges, including the conflict in Ukraine and a sluggish post-pandemic economic recovery, but ESG is expected to remain a key area of focus for decision makers and civic leaders. Now, more than ever, senior executives should take a proactive, strategic approach to help ensure their efforts are recognised.
‘New reporting requirements are set to be rolled out over the coming months and years, with larger organisations expected to adhere first’
Jan-Hendrik Gnändiger Global lead for ESG reporting, KPMG International
It has been a month for statistics, so I won’t let you down. Currently, only 23% of B Corporations in the UK are owned or led by women. The world of business remains male dominated, while the gender pay gap and disparity of opportunities remains. The challenges are only exaggerated for people of colour, the LBGTQ+ community, the disabled and neurodivergent. That’s nothing you don’t know already, but an interesting unfolding is the representation of women in sustainability, which tells a different story. Studies have shown that women in senior sustainability roles have increased by more than 50% in 2021 from 2019. This representation is both powerful and necessary: those 23% of women leaders or owners in the UK who are acting as change-makers shows us what is possible and it’s well documented that we need increased female leadership to tackle the climate change and other global crises. The World Economic Forum states: “Female leadership differs from male leadership in core competencies – making women better equipped to deal with certain challenges.” It’s becoming evident that women leadership traits are proving to be more effective, which is why we need to make sure they are being heard. Together we’re stronger B Corps are a community of purpose-driven companies worldwide, trying to do business the right way. Every decision we make is made with all our stakeholders in mind, from what kind of paper supplier we use, to investing in our community and – most relevant to this piece – our employment policies. We are a B Corp, and the genesis of our inclusive culture and the belief that power to create change is in all of us stems from that identity. We want our culture to be one that allows you to feel safe to be yourself and speak up, one of belonging. So should every business. As well as Women’s History Month in the UK, March is also an important time for this community – it’s B Corp Month. This year has been the biggest yet, with a campaign called ‘Go Beyond’, showcasing the many ways B Corps have chosen to pursue a more impactful path and are going above and beyond for all people and planet. For those of you who haven’t been to The Strand in London this month, Coutts is championing women B Corp business founders and leaders, redefining what’s possible. We’re challenging the status quo and we are making progress, albeit slowly. March feels like the month when the year gets going properly and let’s all keep working on this and collaborating – together we’re stronger!
‘It’s well documented that we need increased female leadership to tackle the climate change and other global crises’
Sophie Kennedy Joint-CEO, EQ Investors
During the first two months of 2023, sustainable funds globally attracted more money than in any two months in the past year, according to Morningstar data, and grew more than traditional funds despite volatile markets. In January and February, inflows into global sustainable funds amounted to almost $26bn (£21.27bn). Two-thirds of these were recorded in January when the sector registered the first positive net inflows in 10 months. There was a slowdown during February against a more challenging macro background. In terms of organic growth, global sustainable funds increased by 1% in the first two months of the year, beating traditional funds that expanded by just 0.2%. Assets in global sustainable funds rose 4.3% to $2.6trn at the end of February from December 2022. Hortense Bioy, global director of sustainable research at Morningstar, says: “Sustainable funds have had a strong start to the year, despite the continuous market volatility.”Here, we’ve taken a look at three global sustainable equity funds topping ESG Clarity’s Responsible Ratings Index. Robeco Sustainable Global Stars Equities Click here to see fund performance. This fund pre-dates WWII, launching all the way back in March 1938. It is a high-conviction, actively managed Article 8 fund, which had €3bn (£2.64bn) in assets under management at the end of January 2023, and aims to invest in the most attractive companies in developed countries across the world, based on fundamental analysis. The fund’s objective is to achieve a better return than the index; it has done so over five years, returning 10.34% versus 9.46% for its index, but not over 10 years (11.57% versus 11.63%), according to the firm. The fund has a concentrated portfolio of stocks with the highest potential value growth. Stocks are selected on the basis of high free cashflow, an attractive return on invested capital and a constructive sustainability profile. Its managers aim to select stocks with relatively low environmental footprints, and promote minimum environmental and social safeguards through applying exclusion criteria on products and business practices Robeco finds are detrimental to society and incompatible with sustainable investment strategies. Its top three holdings by sector are information technology (26%), financials (14%) and consumer discretionary (13%). GuardCap Global Equities Click here to see fund performance. Launched in December 2014, this Article 8 fund invests in just 20-25 stocks. Its investment philosophy is that ‘growth drives returns, quality protects against downside, valuation matters’. The fund is a long-only strategy focused on high-quality, sustainably-growing large- and mid-cap companies, which are selected using bottom-up analysis. All investee companies must meet the team’s 10 ‘confidence criteria’, including strong ‘foundations for sustainable growth’, which ensures a company’s ESG practices align with its potential for long-term sustainable growth. The fund’s concentrated approach enables a thorough understanding of the sustainability risks and opportunities relevant to each company and an analysis of a company’s ESG issues forms a key part of every investment decision. MS INVF Global Brands Click here to see fund performance. This Article 8 fund launched in October 2000, and now has $21bn (£17.2bn) in assets. The investment team say high-quality companies with dominant market positions and underpinned by powerful intangible assets can generate attractive returns over the long term. ESG analysis and active, portfolio manager-led engagement are fundamental to its investment process. The team uses bottom-up fundamental analysis and actively engages with company management to identify material ESG risks to company fundamentals and/or the sustainability of future returns. The fund also has a significantly lower carbon footprint than the broader market (87% lower than the MSCI World Index, according to Morgan Stanley). The fund’s top three holdings by sector are information technology (33%), consumer staples (26%) and healthcare (20%), as at 28 February 2023.
‘ESG analysis and active, portfolio manager-led engagement are fundamental to its investment process’
RRI ratings providers and methodologies
• Responsible Ratings Index (RRI) combines the scores of ESG ratings agencies. ESG Clarity’s bespoke index provides a comprehensive analysis of the top ESG funds available to investors. • Square Mile’s Responsible ratings combine a fund’s positive impact on the investor’s financial wellbeing alongside the positive impact it has on the world around them. Three factors are considered before being awarded a rating: exclusion – excluding those that have a negative impact on society or the environment; sustainability – rewarding and encouraging positive change and leaders in sustainability; and impact: those that have positive impact on society or the environment. • 3D Investing provides independent evidence of whether a fund or company lives up to its claims that it is ESG compliant. These are based on the 3D Investing Framework – Do Good, Avoid Harm, Lead Change. 3D investing is a subsidiary of Square Mile. • MSCI Ratings identifies the leaders and laggards in the ESG space. Based on their rule-based methodology, their seven stage ratings range from the top scorers (AAA, AA) to average (A, BBB, BB) to those behind when it comes to ESG (B, CCC). • Morningstar Sustainability ratings provide an objective evaluation of how funds are meeting ESG challenges. Each fund is ranked within their peer group. • MSCI ESG Fund ratings measure the resilience of funds to long-term risks and opportunities from ESG issues. • Overall Morningstar ratings award funds one to five stars based on past performance. These rankings are based on the performance over the past three years, with risk and costs also taken into consideration, and judged against funds in the same category. • Morningstar Analyst ratings provide forward-looking analysis of a fund based on five pillars: process, performance, people, parent and price. Top-scoring funds receive a ‘gold’ rating.
Click for the top 25 Responsible Ratings Index listings
MS INVF Global Brands
GuardCap Global Equity
Robeco Sustainable Global Stars Equities
‘The fund managers aim to select stocks with relatively low environmental footprints, and promote minimum environmental and social safeguards’
‘All investee companies must meet the team’s 10 “confidence criteria”, including strong “foundations for sustainable growth’’’
