EdenTree Amity UK also applies a simple and pragmatic ethical screen to its stock selection process, starting first with a negative screen, before looking at a positive screen to make sure companies have good practices.
Stewardship refers to the extent to which managers engage with the companies they invest in to drive change. Engagement with companies is an increasingly large part of sustainable fund management according to Jamie Jenkins, manager of BMO Responsible Global Equity, who said in a recent interview that companies now look towards them as consultants.
That brings us to integration. Integration means that ESG factors are considered in the decision-making process and the investment analysis. It’s not about excluding companies, or screening, but being aware of their sustainable characteristics. All of our Elite Rated ethical funds have a degree of integration in their process, it’s what makes them responsible.
However, one that stands out is Liontrust Monthly Income Bond. Not having the word ‘ethical’ or ‘sustainable’ in the name it can slip through the cracks for many when researching where to invest, but the fund managers use an integrated sustainability matrix as part of their investment process, to assess a company’s ESG credentials. They gave us some examples when we last caught up with them.
And in a recent podcast with EdenTree’s Head of Responsible Investment Policy and Research, Neville White, we asked Neville how the research team gets the information back to fund managers when making stock decisions.
The fourth type is more direct. These are funds that invest specifically in sustainability related themes, such as low carbon, clean energy or water. An excellent example of an out-and-out thematic fund is Elite Rated Pictet Global Environmental Opportunities. All companies within this portfolio must operate within a ‘safe operating space’ for each of the nine environmental challenges identified within the planetary boundaries framework. Fund manager Luciano Diana, explains the framework – and why they chose to use it as part of the investment process – in our recent podcast.
Many funds use a mixture of the four approaches above, and more and more generalist or mainstream funds are also incorporating some of these elements in their investment processes today. Thankfully, while we are investing to protect the future of our ourselves and our families, more fund managers and companies are thinking about how their choices are impacting that future too.
The views of the author and any people interviewed are their own and do not constitute financial advice. However the knowledge that professional analysts have analysed a fund or trust in depth before assigning them a rating can be a valuable additional filter for anyone looking to make their own decisions. Before you make any investment decision make sure you’re comfortable and fully understand the risks. If you invest in fund or trust make sure you know what specific risks they’re exposed to. Past performance is not a reliable guide to future returns. Remember all investments can fall in value as well as rise, so you could make a loss.