Creating a sustainable future - A special supplement in conjunction with M&G

For today’s discerning financial and investment professional

A special supplement in conjunction with

Creating a sustainable future Discover how we’re helping to address society’s greatest challenges April 2021

For Investment Professionals only

INVESTING THAT EVOLVES AROUND YOU LET’S CREATE We believe in the power of creativity. Innovating and adapting to meet the needs of our investors. We create solutions around what matters most to our clients, and our investments evolve as their needs change. Together, we can work towards creating the future we want. Capital at risk

For financial advisers only. Not for onward distribution. No other persons should rely on any information contained within. This financial promotion is issued by M&G Securities Limited which is authorised and regulated by the Financial Conduct Authority in the UK and provides ISAs and other investment products. The company’s registered office is 10 Fenchurch Avenue, London EC3M 5AG. Registered in England and Wales. Registered Number 90776. MAR 21 / 550902

I NTRODUCTION

April 2021

CREATING A SUSTAINABLE FUTURE M&G Investments are one of the early adopters of ESG (environmental, social and governance) and impact investing strategies within their funds. In this IFA Magazine special supplement, we talk to three of M&G’s experts in this important field. Each one is helping to shape this new investment landscape which addresses society’s greatest challenges through the creation robust and effective fund strategies for the benefit of advisers and their clients. Fund manager Maria Municchi highlights how M&G’s new range of sustainable, risk-targeted multi-asset funds, which are spread across cautious, balanced and growth profiles, can support investors’ needs for diversification as well providing a focus on sustainability. Randeep Somel, fund manager of the M&G Climate Solutions fund, takes a look at the long-term challenge of climate change to help us to understand how it is progressing and how it may have been impacted by recent events. In his article he highlights how the climate challenge can be thought of as a three-legged stool for the stakeholders that need to participate: these are Consumers, Industry and Government. He also highlights how the fund is positioned to meet key areas for investment and growth as we transition to a carbon neutral world over the coming decades.

behind the move to integrate ESG, sustainability and impact investing into fund and portfolio management decisions. We hope you find the contents insightful and of interest. You can, of course, find more information on M&G’s approach to impact investing by visiting https://www. mandg.com/investments/professional-investor/en-gb/ solutions/investment-options/sustainability Sue Whitbread Editor IFA Magazine Important information The value and income from the fund’s assets will go down as well as up. This will cause the value of your investment to fall as well as rise. There is no guarantee that the fund will achieve its objective and you may get back less than you originally invested. The fund can be exposed to different currencies. Movements in currency exchange rates may adversely affect the value of your investment. The fund holds a small number of investments, and therefore a fall in the value of a single investment may have a greater impact than if it held a larger number of investments. Investing in emerging markets involves a greater risk of loss due to greater political, tax, economic, foreign exchange, liquidity and regulatory risks, among other factors. There may be difficulties in buying, selling, safekeeping or valuing investments in such countries. Further details of the risks that apply to the fund can be found in the fund's Key Investor Information Document and Prospectus. The fund invests mainly in company shares and is therefore likely to experience larger price fluctuations than funds that invest in bonds and/or cash. For financial advisers only. Not for onward distribution. No other persons should rely on any information contained within.

We also talk to Ben Constable-Maxwell, M&G’s influential Head of Impact Investing, who is one of the driving forces

CONTENTS Page 4

THE COMING DECADE FOR CLIMATE SOLUTIONS Randeep Somel, Fund Manager, M&G Climate Solutions Fund highlights some powerful drivers of change in the climate crisis battle.

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A POSITIVE CHARGE M&G’s Ben Constable-Maxwell talks to IFA Magazine about how and why ESG integration and impact investing are underpinning investment strategies

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DRIVERS AND DEVELOPMENTS IN SUSTAINABLE MULTI-ASSET INVESTING Maria Municchi of M&G Investments discusses how a robust multi-asset approach to sustainable investing can support advisers in delivering effective solutions

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IFA Magazine is published by IFA Magazine Publications Ltd, 3 Worcester Terrace, Clifton, Bristol BS8 3JW Tel: +44 (0) 1173 258328 © 2021. All rights reserved ‘IFA Magazine’ is a trademark of IFA Magazine Publications Limited. No part of this publication may be reproduced or stored in any printed or electronic retrieval system without prior permission. All material has been carefully checked for accuracy, but no responsibility can be accepted for inaccuracies. Wherever appropriate, independent research and where necessary legal advice should be sought before acting on any information contained in this publication. The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested. IFA Magazine is for professional advisers only. Full details and eligibility at: www.ifamagazine.com

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THE COMING DECADE FOR

CLIMATE SOLUTIONS

Randeep Somel, Fund Manager, M&G Climate Solutions Fund, is finding reasons to be cheerful as he uncovers some of the powerful drivers of change which are set to influence climate solutions in the months and years ahead

n what has been a very volatile start to the decade in humanitarian, economic and political terms, let’s take a look at the long-term challenge of climate change to understand how it is progressing and how it may have been impacted by recent events.

of solar is a tenth of what it was a decade ago, both solar and onshore wind are now cheaper alternatives to natural gas, despite commodity price falls.

WILL THE COLLAPSE IN FOSSIL FUEL PRICES DESTROY THE ECONOMIC CASE FOR RENEWABLE ENERGY?

Over 50% of global CO2 emissions are caused by power generation, therefore it remains a critical part of reducing CO2 emissions. Yet, renewable energy alone will not be able to solve this issue, other areas of emissions will need to be scrutinised and solutions found.

Subsidies for renewable power have been in the process of being phased out for some time. This is a positive step not a negative one. As scale has increased and the industry’s journey along the learning curve has continued, solar and wind are able to compete without external support. The cost

Source: Lazard Levelized Cost of Energy Analysis, Version 13.0. OurWorldinData.Org, December 2020.

CLIMATE SOLUTIONS…MORE THAN JUST RENEWABLES?

Promoting the use of sustainable timber will also encourage the wider adoption of sustainable forestry, which addresses the release of CO2 in the industry. Companies such as US listed Weyerhaeuser, which operate over 25m acres of sustainable forests in North America will play a vital part. Buildings are one of the biggest consumers of energy, improved technology enables them to be more efficient today. For example, a company such as Danish-listed ROCKWOOL International provides stone wool insulation for new builds and for retrofit. It enables a vast reduction in energy consumption of a building and helps reduce the amount of power generation needed. It will play a crucial part in addressing the climate challenge.

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The circular economy will have a significant role to play in reducing emissions. We need to increase ‘re-use, reduce and recycling’ in order to stop products going to landfill at the end of their usefulness and reduce the level of pure product required for new products. This will have a major impact as up to 45% of non-energy greenhouse gases could be addressed by these measures according to some estimates¹. An example is US-listed decking producer Trex, which makes outdoor decking from recycled plastic. It has shown itself to be a higher-quality, more durable and loweremission alternative to traditional timber decking.

April 2021

THE US AND CHINA: ENTER THE EAGLE AND THE DRAGON In the space of six short weeks in 2020, the future of the Paris Climate Deal was transformed by two significant events. On 22 September 2020, shortly after US President Donald Trump called the Paris Agreement “a one-sided deal” and criticised China for being “the world’s largest source of carbon emissions”, President Xi Jinping of China announced that China would scale up its intended nationally-determined contributions (under the Paris climate agreement) by adopting more vigorous policies and measures. In practice, this would see China achieving a peak in carbon dioxide emissions before 2030 and carbon neutrality before 2060. Xi added that “the human race cannot ignore the warnings of nature over and over again”. He also urged other countries to pursue a “green recovery of the world economy in the post-COVID era”. Then on 3 November 2020, the US elected a new President, and one that has a very different approach to the challenges of climate change. Joe Biden made climate change one of the key pillars of his campaign and has re-joined the Paris Climate Deal in one of his first acts as the 46th President. Biden’s team have already started planning to restrict oil and gas drilling on public lands and waters, increase

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mileage standards for cars, block new pipeline projects that transport fossil fuels, provide federal incentives to deploy renewable power, and mobilise other nations to make deeper cuts in their own carbon emissions. The new treasury secretary, Janet Yellen has also publicly discussed a carbon tax. As governments across the world look for new methods to pay for the huge deficits run up due to the COVID-19 pandemic, a carbon tax may be a politically palatable option. Market mechanisms have begun rewarding environmentally-friendly companies with higher valuations. This is due to them being recognised as less exposed to regulation and less likely to become redundant over the longer term. The more this continues, the more we will notice management teams incorporating climate solutions into their operations, products and services. Climate challenge can be thought of as a three-legged stool for the stakeholders that need to participate: Consumers, Industry and Government. Studies from across the world now show populations are concerned about climate change and are willing to change their own behaviour. Industry can now see the economics working in favour of sustainability and are willing to commit capital to the

As governments across the world look for new methods to pay for the huge deficits run up due to the COVID-19 pandemic, a carbon tax may be a politically palatable option

effort and starve funding for ‘de-merit’ activities. That then leaves Government – while European governments have taken a lead, the final awakening of both the Chinese and US governments will provide the much-needed impetus to reach our carbon targets over the coming decades. In the M&G Climate Solutions Fund we have a focus on clean energy, green technology and the circular economy. All key areas for investment and growth as we transition to a carbon neutral world over the coming decades. Source: Ellen MacArthur Foundation, Completing the Picture, Adapted from Material Economics Analysis for the Energy Transition Commission, Mission Possible, Reaching Net Zero Carbon emissions from harder to abate sectors by mid-century, (2018).

The value and income from the fund’s assets will go down as well as up. This will cause the value of your investment to fall as well as rise. There is no guarantee that the fund will achieve its objective and you may get back less than you originally invested. For financial advisers only. Not for onward distribution. No other persons should rely on any information contained within. This financial promotion is issued by M&G Securities Limited which is authorised and regulated by the Financial Conduct Authority in the UK and provides ISAs and other investment products. The company’s registered office is 10 Fenchurch Avenue, London EC3M 5AG. Registered in England and Wales. Registered Number 90776.

About Randeep Somel Randeep joined M&G in 2005 as a fund managers’ assistant on the Equities team. At different stages between 2013 and 2019 he was fund manager or deputy manager of the Global Themes, Managed Growth, Global Recovery, Global Select, Pan European Select and Positive Impact strategies. In November 2020, he became manager of M&G’s newly-launched Climate Solution strategy. Prior to joining M&G, Randeep worked for State Street in a fund accounting role. He graduated from Birmingham University with a degree in economics in 2003. Randeep has the IMC and is a CFA charterholder.

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A POSITIVE

CHARGE Ben Constable-Maxwell, Head of Impact Investing at M&G Investments, is one of the driving forces behind the move to integrate ESG, sustainability and impact investing into fund and portfolio management decisions. In this Q&A, he talks to Sue Whitbread, Editor at IFA Magazine, about how and why ESG integration and impact investing are underpinning successful investment strategies for the future

IFAM: WHY SHOULD ADVISERS BE INTERESTED IN ESG? BCM: There are a number of compelling reasons! It is widely accepted that environmental, social and governance factors (ESG) could have a material impact on long-term investment outcomes. Understanding ESG issues – both risks and opportunities – is therefore fundamental to accurately interpreting long-term risk and return. Advisers also have a responsibility to understand how their clients’ investments are being managed in ESG terms and to use that to hold fund managers to account. For example, there is an important distinction to be made between ESG integration – the explicit and systematic inclusion of ESG factors in investment analysis and investment decisions, where these are meaningful to risk and potential return – and investment products that have an explicit sustainability or impact-related goal. Advisors can play a hugely important role in helping their clients to build this understanding. There is then investment performance to consider. We believe incorporating ESG factors improves the investment decision-making process and can potentially lead to better risk-adjusted financial outcomes for investors.

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Finally, there is client interest. A growing number of investors are focused on social and environmental issues and are interested in how their investments relate to them. It is important today that advisers are prepared to discuss this with their clients, and can introduce them to suitable products, whether the desired focus is on ESG primarily for risk management purposes or whether they want to put their investments to work in a sustainable or impactful way. We think this dialogue can further build the relationship between advisors and their clients. IFAM: WHAT DO YOU SEE AS THE DRIVING FACTORS BEHIND THE SHAPE OF THE ESG LANDSCAPE THIS YEAR? BCM: New regulations will continue to push companies and asset managers to disclose more information. In Europe, Sustainable Finance Disclosure Regulation (SFDR) came into effect in March 2021 and will lead to enhanced disclosure by asset managers that promote sustainable investment funds. The aim is to increase transparency and comparability for investors, which can only be a good thing.

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There is also the UN Climate Change Conference (COP26) coming up in November 2021. I expect this event, which is being hosted in Glasgow, to intensify the focus on climate change as an urgent risk and on how investors and companies are managing their exposure to – and addressing – that risk. Alongside the focus on climate change, rising awareness of the other systemic environmental challenge, biodiversity loss, will inevitably accelerate in 2021. As yet this has not received the attention that Climate has but that is changing. Then there is the ongoing pandemic, of course. In 2020, COVID-19 increased awareness of wide-ranging societal risks in investors’ minds, from public health to social inclusion, and this will continue this year. And the issue of diversity will continue to shape the ESG landscape as we go through this year. Importantly, I think investors’ focus will expand beyond gender to other aspects of diversity. IFAM: M&G HAS BEEN A LONG-STANDING EXPONENT OF ESG AND IMPACT INVESTING. YOU HAVE THE SPECIFIC FOCUS FUNDS BUT HOW DOES THIS APPROACH PERMEATE MORE BROADLY THROUGH M&G’S FUND RANGE AND DIFFERENT ASSET CLASSES IN WHICH YOU INVEST? BCM: We should start by trying to distinguish between these terms – of ESG and Impact Investing. They are linked but distinct. All our investment strategies are committed to integrating ESG with the aim to deliver improved long term outcomes for our funds and our clients. This process has been ongoing for some time, certainly accelerating in recent years. Sustainability and Impact investing are further up the curve, recognising not just the effect of ESG/ sustainability issues on our investments but also that our

investments could have an impact on real-world social and environmental challenges and outcomes. Some think of ESG as being an ‘outwards-in’ approach, that it’s about how external ESG factors affect our investments, very much linked to our fiduciary duties. Impact investing is the other way round almost - more of an inwards-out effect. It’s about focusing on how our investments affect the outcome of major societal challenges, as well as aiming to deliver an investment return. More and more of this latter perspective is influencing mainstream investing. Investors are thinking about the broader impact of their investments as well as developing dedicated impact investing strategies. This is the direction of travel for M&G and hopefully for our industry too. As these developments accelerate, we need to be clear about definitions and distinctions. Our impact funds have an explicit and dual objective to deliver investment returns but also to generate social and environmental impacts. The big background risk is that investors greenwash or impact wash or overclaim about what they do. So whilst we are mindful about the value of moving towards a greater focus on impact across all our investments, we need to be clear to our clients about each fund’s mandate and objective and what outcomes they are designed to achieve, thereby minimising this risk of overpromising or overclaiming. IFAM: WITH INCREASING EMPHASIS ON DISCLOSURE AND TRANSPARENCY, ARE THERE PARTICULAR TOOLS YOU FIND USEFUL FOR ASSESSING IMPACT/SUSTAINABILITY OF INDIVIDUAL BUSINESSES? BCM: Starting at the foundations, at M&G we have a well-established ESG integration programme which employs a broad range of tools and data to inform and enhance our

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investment thinking. This is supported by our sustainability and stewardship team but is really put into practice by the analysts and fund managers. We use a range of information and data sources. For us information from investee companies is the primary source of our ESG analysis and a crucial part of our stewardship role. As part of our integration approach we aggregate selected data from external providers into an internal scorecard and toolkit. This can sit on fund managers’ desks and while it incorporates information and data from companies and third parties, it also includes the M&G analysts’ informed view on the issues at hand. So it’s not just the work of the Sustainability & Stewardship team, it’s the sector analyst giving their specialist view too. It’s a collaborative effort. On alternative data sources, we’re using them more and more. We have developed tools to understand the risks and opportunities arising from various climate change scenarios, giving us a richer, more forward-looking perspective on this crucial issue. On challenges like health, supply chains, biodiversity and others, there are varied data sources that can support our analysis. On biodiversity for example, investors need to consider how our investments are reliant on the natural world and can either support it or damage it. Useful tools here include using geo-spacial mapping data to help us understand the ecological footprint of an investment, highlighting where a company might be contributing to deforestation through its business activities. Impact investors can invest in companies providing solutions to address this huge challenge, for example by rebuilding natural eco-systems. Which brings us to our impact investing approach, where we use all these approaches and more. When a fund has an objective to contribute to the Sustainable Development Goals (SDGs), we need to assess that contribution and measure the impacts as effectively as possible. We conduct

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our own analysis which incorporates company-reported information and independent data sets, but where there are gaps in the data we can also look, for example, at academic reports into how social inclusion can be boosted by access to finance, or scientific studies on improved health outcomes from a particular treatment. We are exploring tools which allow us to conduct an independent ‘net impact’ assessment of a portfolio, supporting our analysis to ensure that our investments, while contributing to one goal, are not negatively affecting another goal. IFAM: HAVING IDENTIFIED TARGET INVESTEE COMPANIES, DOES LIQUIDITY CAUSE MANY PROBLEMS FOR YOU? BCM: This will vary for different asset classes. For impact investors in public markets, investing in listed equities for example obviously makes liquidity easier. Part of our aim in setting up a positive impact investment approach was to help democratise impact investing – to be able to make these investments available to the general investing public. The higher liquidity in public markets is important in enabling us to deliver on that goal. But within listed markets there are still ranges of liquidity. In our Positive Impact strategies in Equities we focus on three types of investment. It starts with ‘Pioneers’ or early-stage – sometimes less liquid businesses which are using innovation to deliver positive long-term impacts on social, environmental and economic challenges. Then we go up the scale towards ‘Leaders’ , the more mature, established business models that tend to be more liquid. In the middle are ‘Enablers’ which are using technology or other skills to help others generate a positive impact. We think in a listed-equity strategy it makes sense to have a focus on those earlier-stage pioneering

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businesses, but in the interests of overall portfolio liquidity you need a decent balance between smaller, medium and large-sized businesses. So, in listed-equity, liquidity helps you define the type of investment and provides context to the type of impact you can have, but it’s not a massive challenge. In the traditional home of impact investing – private market or Venture Capital investing – liquidity is clearly more of an issue. Such strategies represent the origins of impact investing but are not necessarily available to the public through investment funds. We have impact-focused strategies in private & illiquid debt and private equity, and in development in Alternatives, which invest for impact where liquidity is more of a constraint. However, investment opportunities are growing fast in these areas as the world recognises the need to scale up the capital needed to solve the most urgent societal challenges. IFAM: IS THE POPULARITY OF RESPONSIBLE INVESTING LEADING TO MARKET ANOMALIES? BCM: In public markets, the shift towards sustainable investing - and an increasingly supportive regulatory backdrop - has been leading investors towards a focus on certain types of company, most obviously in areas such as clean tech or renewable energy. As a valuation-focused investor we’ve got to be mindful of that. Long term fundamentals in this area are compelling but we avoid over-heated areas where momentum has extended beyond those fundamentals. We need to be able to see a return on our investment over the long term. For our listed equity impact approach, our rigorous “triple i” impact investment approach means that we are strict about the types of investment we make. We are looking for companies not only with high quality business models but with a clear societal purpose and measurable, positive

impacts, where we want to understand the proportion of the revenues which contributes to the positive impact. Our stringent approach here naturally steers us away from some of the hotter areas that don’t live up to our scrutiny. However, we should add that the more sustainability is incentivised by technology, societal preferences and regulators, the more the investible market grows, and more and more companies enter our universe as potential ‘positive impact’ candidates. IFAM: HOW POWERFUL IS THE GROWING FORCE OF INVESTOR INTEREST AND CONSUMER DEMAND BEING FELT BY THE BUSINESSES THEMSELVES AND, IF SO, IS IT DRIVING ANY DIFFERENT HABITS AMONGST THOSE BUSINESSES? BCM: We’ve seen transformational change here in recent years. Investors are piling pressure on companies to articulate their sustainability strategy, to disclose better ESG data and increasingly to articulate their purpose and how it will enable them to deliver on their societal responsibilities. This has led to a sea–change in corporate disclosure and strategy around sustainability. It is now top of the agenda at board meetings and is increasingly being put directly into incentives for management such as executive remuneration targets. This pressure has moved beyond the need for policies towards a focus on actual performance and evidence. Beyond investors, huge pressure is now being exerted by consumers, regulators and civil society. Is this pressure being felt by businesses? Yes, it absolutely is. Companies are having to face the fact that if their business model is unsustainable they are going to have to change or become defunct. Not all businesses are embracing this change, but more and more are, which is a much-needed development. One of our roles as investors is to check whether companies

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are ‘walking the talk’ with regards to their sustainability agenda. As well as setting out a polished, high-level strategy or signalling a change in objective, what are they actually doing on the ground to demonstrate the genuineness in their purpose, via tangible actions, performance and capital allocation? The best examples have their purpose flowing clearly right throughout the organisation and its culture. IFAM: WHAT DO YOU BELIEVE WILL BE THE KEY FACTORS AND DRIVERS OF GROWTH FOR ESG IN THE YEARS AHEAD? BCM: I think a continuation of these broad drivers, including regulation and societal preferences, will drive the long-term growth of ESG investing - and increasingly impact investing too. ESG integration is now (rightly) expected as standard for all investments. Investors are no longer just seeing ESG as a risk that needs managing, but as a positive opportunity too. There is growing recognition that we can invest for positive impact – to address the challenges facing the planet and its people, while patiently pursuing financial returns. There is also mounting recognition amid the accelerating climate and other crises that we need to rethink how the economy is set up. To address climate change and environmental degradation, we need to move towards a more circular economy, where inefficient production and consumption models give way to those where materials are reused, repurposed or recycled and where waste can be used as a valuable resource in a closed loop system. Businesses and industries that embrace this will be well positioned. I expect this to align with a need for solutions to address the growing focus on nature and biodiversity, on which the global economy is fundamentally dependent. As we are now in the Decade of Action to achieve the UN’s Sustainable Development Goals (SDGs) by 2030, there is

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an urgent imperative to address society’s greatest challenges, with sustainable and impact investors having a crucial role to play. Guided by the SDGs, these investors can help galvanise efforts to raise impact capital and to mobilise it in a targeted, measurable way towards these solutions. For financial advisers only. Not for onward distribution. No other persons should rely on any information contained within. This financial promotion is issued by M&G Securities Limited which is authorised and regulated by the Financial Conduct Authority in the UK and provides ISAs and other investment products. The company’s registered office is 10 Fenchurch Avenue, London EC3M 5AG. Registered in England and Wales. Registered Number 90776. The value and income from the fund’s assets will go down as well as up. This will cause the value of your investment to fall as well as rise. There is no guarantee that the fund will achieve its objective and you may get back less than you originally invested. The views expressed in this document should not be taken as a recommendation, advice or forecast. While we support the UN SDGs, we are not associated with the UN and our funds are not endorsed by them.

About Ben Constable-Maxwell Ben Constable-Maxwell is Head of Sustainable and Impact Investing, leading M&G’s strategy on impact investing as well as covering sustainability issues such as climate change and the circular economy. He has been central to the development of ESG integration within M&G’s investment processes and has supported the development of ESG solutions for clients across asset classes. Ben plays an active industry role as a member of various sustainable and impact investment initiatives, interacting with companies, policymakers, NGOs and other investors. He is a Trustee at Firefly International youth organisation, which provides educational and mental health support for young people in conflict-affected areas in the Balkans and Middle East. Previous to joining M&G in 2003, Ben spent four years with the Equities team at Invesco Perpetual. Ben has an honours degree in Classics from the University of Newcastle-upon-Tyne.

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DRIVERS AND DEVELOPMENTS IN SUSTAINABLE MULTI-ASSET

INVESTING

Maria Municchi, fund manager, M&G Investments’ Sustainable Multi Asset Fund Range, discusses how a multi-asset approach to sustainable investing can support advisers with effective solutions to help meet clients’ needs

ustainable investment approaches look to the future, by investing responsibly and supporting the environment and society. So, sustainable investment strategies should aim to achieve objectives that include meeting financial goals, as well as preserving our planet’s resources, recovering its climate and making life better, more equal and inclusive. A multi-asset approach to sustainable investing allows investors to make use of a diverse range of asset types to achieve their objectives. Diversification offers investors

A multi-asset approach to sustainable investing allows investors to make use of a diverse range of asset types to achieve their objectives

returns. These are likely to include traditional asset classes of equities, bonds and cash, but also may now incorporate such things as infrastructure, green bonds, social bonds and speciality funds. ASSET ALLOCATION Equities within a sustainable strategy provide an ownership stake in businesses that are following a sustainable business model or are transitioning towards one. Bonds, or fixed income securities, represent a way of lending to companies that take a responsible approach, or even directly to fund specific projects or initiatives that aim to make a positive difference, often from supranational entities. We also include buying bonds issued by governments in our sustainable strategies, as governments around the world will typically use the bulk of their income, be they tax revenues or bond proceeds, for the good of their society. This may be in the form of providing education, welfare payments, healthcare or public pensions. Of course any government may undertake practices that some find unpalatable, and we will refrain from holding their bonds where we believe the negatives sufficiently outweigh the positives. A GLOBAL APPROACH

the opportunity to spread their risk, with the intention of avoiding concentration in one or a few themes or assets classes that might introduce unwanted volatility in their

The pressing challenges facing environments and society know few borders and investors have extended their scope

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worldwide, so taking a global approach is a necessity in our view. In our sustainable strategies, we aim to find value opportunities that we believe are attractive, wherever they may arise. ASSESSING SUSTAINABILITY CRITERIA The techniques and tools applied in investing sustainably continue to evolve. What may have previously amounted to simply excluding investments in certain sectors has developed into more sophisticated approaches. These approaches may require greater and more detailed analysis on the work companies are doing to meet their sustainability objectives, as well as identifying and measuring their achievements. This may involve extensive resources, which may only be available to the larger organisations. As the spectrum of sustainable investing has developed, we have incorporated additional features to existing first stage exclusions on such factors as adherence with United Nations Global Compact Principles, as well as sector and industry exclusions. Considerations of how a potential investment may be judged on its environmental, social and governance (ESG) behaviours and contributions have now been integrated into our investment process. We believe that adopting a positive ESG-tilt approach, by looking to focus on investing in entities that have more positive ESG characteristics compared to their peers, should form a core element of how we build portfolios of sustainable assets. To achieve this, we believe it is appropriate to use the access we typically have, as large-scale investors, to the management and ownership of companies, to engage with them to gain clearer insights into the sustainability of their business plans and processes. Engagement can help clarify investor understanding, encourage greater transparency and identify tools to measure progress towards sustainable

Individual savers and institutional investors alike have recognised that investing to sustain the planet’s resources, improve its social wellbeing and look to the world’s future, can go hand in hand with seeking to achieve financial security

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objectives. Beyond that, we also seek to incorporate investments that actively aim and intend to make a positive impact on some of the world’s pressing environmental and social challenges. Across the investment world demand for sustainable or responsible investment products is growing and even gaining momentum. Individual savers and institutional investors alike have recognised that investing to sustain the planet’s resources, improve its social well-being and look to the world’s future, can go hand in hand with seeking to achieve financial security and M&G feels equally strongly about that and have been developing processes and products to help meet those goals. SUPPORTING CLIENTS’ NEEDS We understand that while Sustainable multi asset investing at M&G investors may have objectives Climate Focus relating to a sustainable future that are similar, their expectations for financial Positive returns and their tolerance Impact Positive ESG tilt for risk may differ. To meet that demand, M&G has launched a new range of sustainable multi asset funds, which we believe can satisfy Source: M&G, January 2021 these alternative appetites. Spread across cautious, balanced and growth profiles, these actively-managed, risk-targeted solutions combine strategic and dynamic asset allocation decisions originating from our long-standing Multi Asset team, invested in assets that incorporate positive ESG-tilt and positive impact characteristics. All those decisions are encompassed with an overarching climate focus, which concentrates on carbon intensity and climate adaptability, which we believe is crucial to achieving a more sustainable global economy. For more information on M&G's approach to sustainability, please click here. (https://www.mandg.com/investments/professionalinvestor/en-gb/solutions/investment-options/ sustainability) The value and income from the fund’s assets will go down as well as up. This will cause the value of your investment to fall as well as rise. There is no guarantee that the fund will achieve its objective and you may get back less than you originally invested. For financial advisers only. Not for onward distribution. No other persons should rely on any information contained within. This financial promotion is issued by M&G Securities Limited which is authorised and regulated by the Financial Conduct Authority in the UK and provides ISAs and other investment products. The company’s registered office is 10 Fenchurch Avenue, London EC3M 5AG. Registered in England and Wales. Registered Number 90776.

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Creating a sustainable future - A special supplement in conjunction with M&G | April 2021

Articles inside

DRIVERS AND DEVELOPMENTS IN SUSTAINABLE MULTI-ASSET INVESTING