Increasing awareness of the threat posed by climate change is pushing fund managers to find ways to protect investors' assets from the risks to stock market returns.
Bryn Jones, who runs the £813m Rathbone Ethical Bond fund, which only invests in companies that pass his ethical screens, said he has long had the impact of climate change as one of the criteria he examines before investing in a company’s bonds.
He said he looks at the “environmental or high-carbon impact” of an investment.
This leads Mr Jones to avoid companies investing in mineral or aggregate extraction, fossil fuel exploration and production.
He will also not invest in agrochemical production, production of genetically modified seeds or foodstuffs, unsustainable sourcing of commodities linked to habitat destruction, or the manufacture of vehicles based on hydrocarbon fuels.
Bond issuers with convictions for serious or persistent pollution offences are not invested in by the fund.
Instead Mr Jones invests in the bonds of companies he believes are having a positive impact on the climate.
These are investments “supporting mitigating industries and technologies such as sustainable transport, small-scale onshore wind farms, offshore wind grid connection infrastructure and commercial biomass project too”.
The Rathbone Ethical Bond fund has returned 49 per cent over the past five years, compared with 31 per cent for the average fund in the IA UK Sterling Corporate Bond sector in the same time period.
Simon Edelsten, who runs the £154m Mid Wynd Investment Trust, is a thematic investor. He seeks to find the long-term global themes he believes will drive stock market and economic performance over the long-term.
The need to reduce carbon in the atmosphere is one such theme.
Mr Edelsten said there are many ways of investing in carbon reduction, and he invested in those, before selling all of those investments when US President Donald Trump withdrew his country from the Paris Climate Change Agreement.
Mr Edelsten is now revisiting those investments as the share prices have fallen, but has so far found investment opportunities “few and far between.”
He said battery technology and Tesla’s smart cars are amongst the potential investment opportunities of the future.
The Mid Wynd Investment Trust has returned 75 per cent over the past three years, compared with 57 per cent for the average trust in the AIC Global sector in the same time period.
Neil Brown, who jointly manages a range of sustainable equity funds at Liontrust said he believes reaction to the US decision to withdraw from the Paris agreement has been “overstated” as the trend towards carbon reduction is long-term and will outlast the current US president.
EdenTree Asset Management runs a sustainable fund called Amity International. The company measures the carbon exposures in the fund on an annual basis, and said this has fallen 35 per cent over the past year.
The company said that as its investment time horizon is longer than the mandate of any politician, so the recent actions of the US government have not caused it to later course.
Those comments come in the context of the New Zealand Super Fund, a £7.95bn pension fund, having shifted 40 per cent of the fund into low carbon investments.
Alistair Cunningham, financial planner at Wingate Financial Planning in Caterham, Surrey, said that while he occasionally has clients who enquire about ethical investments, those enquiries tend not be as specific as to relate specifically to climate change.
David.Thorpe@ft.com
