Should you consider ESG factors when building your portfolio?

Joss Murphy 01/10/2025 in Sustainable investing

Investors today face a key question when building their portfolio: should your money also reflect your values? From climate change and clean energy to fair working practices and corporate accountability, the world of investing is now packed with ESG (environmental, social and governance) considerations. But for many investors, the hardest part isn’t deciding whether these issues matter; it’s navigating the maze of jargon, competing claims and the risk of greenwashing. That’s where clear frameworks, like FundCalibre’s ESG categories, can help you separate substance from spin and start building a portfolio that balances performance with purpose.

Why ESG matters

  1. Risk management
    ESG factors are increasingly seen not just as ethical or “nice-to-have,” but as real risk signals. For example, a company with poor governance or weak environmental oversight might face regulatory penalties, reputation damage, or stranded asset risk (e.g. fossil fuel exposure). 
  1. Changing tailwinds & opportunity set
    The global push toward decarbonisation, social equity, and stronger corporate accountability is reshaping markets. New entrants in clean energy, waste management, or sustainable infrastructure may offer outsized returns. Meanwhile, companies that fail to adapt may lose market relevance or incur transition costs. Read more on how clean energy still shines.
  1. Alignment of values and capital
    If you care about climate, human rights, or corporate ethics, ESG gives you a way to express that in your portfolio. That said, it’s important to balance values and performance, not neglect either.
  1. Regulatory and disclosure momentum
    In the UK and EU, regulators are pushing for greater transparency around sustainability. Funds now must adhere to Sustainable Disclosure Requirements (SDR). Greenwashing may soon find it harder to hide.

What ESG means

Given these forces, it’s wise to at least consider ESG, but the key is doing so in an informed way. One of the trickiest things is that “ESG” means very different things in practice. That’s where FundCalibre’s qualitative ESG labels can help. 

At FundCalibre we assess each fund and their approach to ESG in their investment process before giving one of three labels: ESG Explicit, ESG Integrated, or ESG Limited.

  • ESG Explicit: These are funds that make ESG/sustainability central to their philosophy. Their investable universe is often filtered, they may actively avoid certain sectors, and ESG criteria actively influence every stock choice. Engagement with companies and independent ESG panels are common.
  • ESG Integrated: These funds embed ESG analysis within their investment process, as one of several inputs. Their investment universe may not be restricted, but ESG scores or risk metrics help tip decisions or act as a filter post-screening. They must consider at least two of E, S, or G when selecting a stock.
  • ESG Limited: These funds may have some ESG elements (for example, exclusion of tobacco or controversial weapons), but ESG does not materially influence the portfolio. ESG is secondary or peripheral, not central.

It’s important to note that these ESG labels are qualitative and meant to complement (not replace) regulatory labels under SDR. Rather these labels were designed to provide a useful shorthand: you can scan a list of funds and see roughly how committed each is to ESG. Then you can dig deeper.

How to get started with ESG in your portfolio 

Here’s a step-by-step approach you might follow:

  1. Decide your ceiling of compromise
    Ask: How much return trade-off am I willing to accept (if any) to gain on ESG? Some investors want full ESG alignment; others want a balanced approach. Decide whether you want “all-in” or gradual.
  1. Use your core funds but overlay ESG screens
    You could keep your core global or regional funds, and layer in a few ESG-oriented ones. That way you don’t “bet the farm” on ESG before you get comfortable.
  1. Start with ESG Integrated funds
    If you’re new, jumping into a portfolio constructed of only “Explicit” funds may feel intimidating (because you’re trusting their ESG thesis). ESG Integrated funds may offer a middle ground.
  1. Check the ESG section of FundCalibre’s research
    For each Elite Rated fund you’re considering, read the ESG commentary — or better yet, listen to the fund manager explain their approach in their own words in our talking factsheet series. Look for caveats: sometimes a fund may have good returns but weak ESG practice (e.g. lots of carbon-intensive holdings). The ESG section helps you judge how seriously the manager takes ESG.
  1. Watch for greenwashing and consistency
    Don’t rely solely on labels. Look at holdings, exclusions, engagement policies, proxy voting record, and ESG metrics over time.
  1. Rebalance, monitor, and iterate
    ESG is not static. Regulations change, controversies emerge, and companies evolve. Review annually whether your ESG funds still deliver financially and maintain their ESG credentials.

Six sustainable funds to consider in your portfolio

Let’s look at a few examples that illustrate how ESG can be embedded across different asset classes (equity, fixed income, property, dividend) and not just in “green” funds.

FP Carmignac Emerging Markets — This is a high-conviction fund designed to capture the growth potential of large and mid-sized companies across emerging economies. The fund has twin objectives: to provide investors with access to the dynamic growth of emerging markets, and to contribute to sustainable development, including the reduction of greenhouse gas emissions.

CT Responsible Global Equity — The fund invests in quality growth companies from across the world, with a focus on sustainability. The managers also have the help of an independent sustainability team to ensure standards are maintained and backed-up by strong engagement with company management post-investment.

Rathbone Greenbank Global Sustainable Bond — This global bond fund follows a ‘best ideas’ approach, focusing on sustainable themes aligned with the UN Sustainable Development Goals and investments that contribute to a more sustainable world. Early performance has shown the team can invest responsibly without sacrificing investment returns.

Artemis Income — This fund is designed to offer a diversified, eclectic mix of cashflows from different companies to ensure a sustainable and durable income. ESG analysis is integrated into the investment process based on the belief that good or improving ethical and social practices can be beneficial to a business.

TM Gravis UK Listed Property — This UK-listed property fund provides investors with access to durable thematic trends while benefiting from a low correlation to equities and bonds. Ethical screening is conducted on all portfolio holdings, and ESG issues are factored into investment decisions. For a holding to be deemed suitable, it must demonstrate a commitment to environmental improvements.

Brown Advisory US Flexible Equity — A strong candidate for those looking for a core US equity fund. The manager of this fund has access to Brown Advisory’s ESG research team, to help him avoid exposure to material ESG risks. This team gathers its own proprietary information to identify risks and also works to identify those that are willing to engage to improve their practices. 

It’s all about balance

For many investors, ESG can and should play a role. Of course, it doesn’t have to be all-or-nothing from day one, for many, gradually adding exposure to these themes will be most natural. To begin, use FundCalibre’s ESG labels and ESG sections in our fund research as your guardrails. Test the waters with one or two ESG-oriented funds (explicit or integrated), monitor performance and alignment over time, and gradually tilt your portfolio as you gain confidence.

ESG is not a passing fad: it’s increasingly baked into regulation, investor demand, and corporate behaviour. But as with any investment strategy, the key is doing it thoughtfully, critically, and transparently.

This article is provided for information only. The views of the author and any people quoted are their own and do not constitute financial advice. The content is not intended to be a personal recommendation to buy or sell any fund or trust, or to adopt a particular investment strategy. 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.Past performance is not a reliable guide to future returns. Market and exchange-rate movements may cause the value of investments to go down as well as up. Yields will fluctuate and so income from investments is variable and not guaranteed. You may not get back the amount originally invested. Tax treatment depends of your individual circumstances and may be subject to change in the future. If you are unsure about the suitability of any investment you should seek professional advice.Whilst FundCalibre provides product information, guidance and fund research we cannot know which of these products or funds, if any, are suitable for your particular circumstances and must leave that judgement to you. Before you make any investment decision, make sure you’re comfortable and fully understand the risks. Further information can be found on Elite Rated funds by simply clicking on the name highlighted in the article.

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