For advisers, what all this means is that they will need to be all the more selective in how they assess funds to meet their clients’ needs. It is very difficult to tell the investment funds that take sustainability seriously from those that are merely greenwashing.
Making a real impact
Here are some tell-tale signs that a sustainable or ESG-labelled fund you are invested in, or considering, might not have the positive social or environmental impact your clients would expect.
Blinded by buzzwords?
Is it clear how sustainable outcomes form part of the investment strategy, the process used to achieve the strategy, and reporting on achieving sustainable outcomes?
What’s hiding in the fund holdings?
A recent report found ESG-labelled funds invested over $1.5bn (£1.2bn) into fossil fuels. WHEB has called for every sustainable-labelled fund to disclose its entire portfolio holdings, not just the industry standard top 10 fund holdings.
Adviser due diligence should extend to annual reports and sustainability reports of such funds, given the dual objective of such funds.
Beyond green screens
Beware of sustainable-labelled funds whose investment process is limited to a basic screening of stocks using a third-party data provider. This is not inherently wrong, but it may not match with investment conviction claims.
Corporate commitment
See what other funds the manager runs and judge the manager’s overall commitment to sustainable investment.
Does the same team or business also run funds with no commitment to sustainability? This indicates the level of personal and corporate commitment, the ‘skin in the game’ the firm has.
Some find managers invest in companies driving the transition to sustainability and net zero in order to achieve a measurable positive social/environmental impact alongside a financial return for clients.
Known as impact investing, the double dividend this style of investment generates is appealing to both retail and institutional investors. For some, this in turn has driven a 18 per cent compound annual growth rate in impact investing over the past five years.
While the initial reaction to Sunak’s announcements is disappointment, we would not be surprised to look back on it as a positive catalyst moment.
The reaction has put together an unlikely coalition of stakeholders including investors, businesses, public opinion and even Sunak’s own party who simply say no, and coalesce around a strengthened commitment to the reduction of fossil fuels and a speedy transition to a low carbon, sustainable economy.
Seb Beloe is partner and head of research at WHEB Asset Management
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