June 2019
SUSTAI NABLE I NVESTI NG
SORTING THE WHEAT… FROM THE WHEAT As an adviser, how can you ensure that you meet your clients’ needs by making use of the similarities and differences between the different sustainability funds which are available in the UK today? Julia Dreblow, Director SRI Services and founder of the Fund EcoMarket fund tool, sheds some light on this exciting sector which is growing rapidly in importance
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y previous article which appeared in the May edition of IFA Magazine ended with a climate change related quote from Mark Carney, Governor of the Bank of England where he said ‘…the task is large, the window of opportunity is short, and the stakes are existential’. Since his speech in March the focus on this area has increased dramatically. Extinction Rebellion has grabbed headlines calling for the recognition of a ‘climate emergency’, Greta Thunberg has taken the country by storm, David Attenborough has articulated his fears in the documentary ‘Climate Change the Facts’ - and the Climate Change Committee has mapped the UK’s route to ‘net zero’ carbon emissions, by 2050. Some of this you may love. Some you may loathe. But unless you have been away on a desert island you will have found it impossible to have missed it all. As members of the somewhat elite finance and investment ‘gatekeeping community’ you should not seek to overlook it either. Your work puts you (and your interested clients) in a fantastic position to do something about climate change - and if that is not enough, it is very clear that much money will be made and lost as a result of climate change and sustainability issues over the next few years. INVESTMENT ANALYSIS But how do you carry out effective due diligence on the investment funds which operate in this exciting sector? In this article I will explore the variation in sustainable investment fund choices and why they suit particular clients with their differing opinions and financial objectives.
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THE STARTING POINT Firstly, you’ll need to identify fund options that have a genuine emphasis on sustainability, either through their themes, screens, objectives or investment universe. However, understanding how funds with sustainability stategies actually operate can be somewhat baffling – and a genuine concern, given that Googling fund holdings is an ever-present option for clients. (‘Greenwash’, for the record, is a genuine risk in this area, but the far greater risk is misunderstanding funds through a lack of information.) The way forward lies in understanding fund strategies and gathering ‘evidence’ as required. THE POWER OF THREE The first point to recognise is that there are many ways to support and encourage more sustainable business practices and therefore lifestyles. Fund managers have three main strings to their bow: deciding ‘where to invest’ (positive stock selection), deciding where ‘not to invest’ (avoidance – whether explicit or implicit) and through the relationship they have with investee companies (responsible ownership/stewardship). All three are important but need not be employed in the same way by all funds.
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