As the rise of responsible investing has gathered pace over the past few years, so too have the claims of ESG credentials.
“More and more funds are either being launched or are being given an ESG make-over,” commented Ryan Lightfoot-Aminoff, senior research analyst at FundCalibre. “With each fund manager doing something different, it has become very difficult for investors to know exactly how responsible a fund really is. What’s more, a lack of trust in asset managers’ ESG claims remains a barrier to investment.”In response to this, FundCalibre has launched a set of simple ESG rankings which are now included on each of its research notes – notes that are publicly available and freely accessible to all investors.“We launched a Responsible Investing sector in 2015,” continued Ryan, “highlighting the funds in this category that our research team believe to be among the very best.“We have now gone one step further and have included an ESG assessment on each of the 228 Elite Rated and Radar fund notes on our website.”
FundCalibre’s ESG rankings
To keep things simple, FundCalibre assesses each fund as either ESG ‘Explicit’, ESG ‘Integrated’ or ESG ‘Limited’.
ESG – Explicit
“ESG – Explicit funds are those that have an ESG/sustainable approach at the forefront of their investment philosophy,” explained Ryan. “The managers will go above and beyond simple integration, with an ESG filter used as a primary feature on the investable universe, and with ESG considerations having a fundamental impact on the stock selection process.“Funds in this category are likely to have an independent panel or consumer survey to determine ESG criteria and they will either actively avoid (negatively screen) certain companies or industries, and/or will actively target (positively screen) certain ESG characteristics.“All three environmental, social and governance factors will need to be considered when building the portfolio and there must be ongoing engagement with investee company management.“The wider asset management company must be a signatory to an ESG appropriate body.”To see an example, click here: BMO Responsible Global Equity
ESG – Integrated
“ESG – Integrated funds are those that embed ESG analysis within the investment process, as a complementary input to decision making,” said Ryan.The investment universe will not necessarily be restricted in any way, but later analysis will be used to enhance the final investment decisions.“At least two environmental, social and governance inputs will need to be considered before permitting a stock into the portfolio.“Managers that hold stocks that have questionable ESG credentials will need to evidence strong rationale for including the stock in the portfolio and show that extra analysis has been undertaken to accommodate the ESG risk. “The wider company will need to be a signatory to an ESG body.”To see an example, click here: Brooks Macdonald Defensive Capital
ESG – Limited
“Funds in this final category are those where the overall portfolio will not be materially influenced by ESG,” concluded Ryan“These funds may still have some element of ESG in their process or be managed by a company that enforces certain negative screens, but the overall portfolio will not be influenced by ESG.”To see an example, click here: Allianz Strategic Bond
