A five-minute guide to investing in sustainable bonds
In recent years, environmental, social and governance (ESG) factors have become a big topic in terms...
Millennials get a bad rap.
If you’ve read Time magazine. you’ll know we’re the ‘me me me generation’: lazy, entitled, selfish and shallow – a generation of narcissists!
While our parents, the Baby Boomers, embarked on social revolutions in the form of student protests, the civil rights movement, the first gay pride parade and nuclear disarmament, we just spend our time in coffee shops eating avocado toast.
But while a group of Generation X and Baby Boomers sat around a table and adopted the UN’s 2030 Agenda for Sustainable Development in 2015 – it’s us Millennials they are now relying on to see them through.
‘As consumers, we have so much power to change the world by just being careful in what we buy.’ — Emma Watson, actress
The 17 Sustainable Development Goals (SDGs) are at the heart of a shared blueprint for peace and prosperity for people and the planet, now and into the future. They were adopted by all United Nations Member States in 2015 in an urgent call for action by all countries – developed and developing – who recognised that ending poverty and other deprivations must go hand-in-hand with strategies that improve health and education, reduce inequality, and spur economic growth – all while tackling climate change and working to preserve our oceans and forests.
A bit of a project then. And a project that will cost an estimated $5-7 trillion over the next 12 to 15 years.
While the SDGs don’t explicitly target financial inclusion, it’s obviously a clear factor for many of them. As such, it’s become a rallying theme for asset managers and businesses alike to use the SDGs as a basis for impact investing: the third generation of ‘responsible investing’.
In contradiction to the Time magazine article, a recent study from First State Investments showed that an overwhelming 80% of Millennials surveyed reported being interested in responsible investing, with 78% saying that expertise in responsible investing would be a reason for choosing an asset manager or provider over another.*
So it’s clear that current managers need to think beyond simply risk and return when building and shaping their investment process – they now need to think about Millennials as their new ‘end user’ by considering their impact and contribution effects to the various SDGs. And it might not just be a financial aspect but a cultural or qualitative feature of the companies. For example, is there a clear gender equality in the staff both in personnel, but also in pay?
But at the same time, this shouldn’t become a ‘me too’ marketing push with every fund manager claiming they have integrated the SDGs into their process. Millennials want to know they are doing so for the right reasons and they are doing it properly.
Let’s take a look at how these four Elite Rated funds approach the UN’s Sustainable Development Goals.
Using the UN’s SDGs as a guide, manager Bryn Jones excludes a number of companies from the portfolio that are deemed to be unethical: those involved in mining, arms, gambling, pornography, animal testing, nuclear power, alcohol and tobacco.
All portfolio holdings must also have at least one positive environmental, social or corporate governance quality. For example, Rathbones has engaged with companies in the oil and gas industry to accelerate a move towards sustainable non-fossil fuel energy. The investment group has also encouraged confectionery makers to ensure better human practice in the cocoa supply chain.
Manager Lesley Duncan uses a ‘no compromises’ ethical screening to construct a portfolio of best ideas. All companies held must have two things: strategic intentions – operating models must be designed to achieve specific positive social and/or environment impact – and this impact must be measurable.
To achieve this, Aberdeen Standard uses the UN’s SDGs as a framework. Using 232 indicators to measure progress towards the various SDGs, it has also developed its own impact process and analysis to ensure the companies it invests in are truly having a positive impact.
Fund manager David Harrison focuses on selecting stocks with strong cash generation, but will actively avoid businesses involved in unethical or unsustainable practices. To ensure this, he uses the help of Rathbone Greenbank, a dedicated ethical and sustainable investment division that provides screening services.
Rathbone Greenbank’s ethical research team have also developed a tool to quantify the carbon footprint of individual portfolios. This looks at the carbon emissions reported by companies and the percentage of each company’s shares owned within a portfolio. These are then aggregated to determine the amount of carbon ‘owned’ by a portfolio through its specific shareholdings.
EdenTree are pioneers of ethical investing. All potential investments must pass a rigorous multi-factor screening process against a full range of environmental, social and governance indicators. From those that do, manager Sue Round looks for stocks that are currently undervalued and out-of-favour, but with the potential to increase in value.
Similar to Rathbones, EdenTree has also ‘carbon footprinted’ its portfolios for the past three years, which means EdenTree can now begin to identify wider trends, with a greater degree of accuracy. Comparing the results of its equity funds to their respective benchmarks also serves to highlight the carbon-aware nature of the portfolios. For example, Elite Rated EdenTree Amity UK is 50% less carbon intense than the fund’s benchmark, the FTSE All-Share Index.