Ethical Investing  

ESG funds ranked as popularity rises

ESG funds ranked as popularity rises

Investment services and platforms have broadened their support on ethical investments as more investors are opting to align their investments with their personal values.

Consumer platform Interactive Investor and adviser resource firm Square Mile both launched ranking systems in the past week to help advisers and investors navigate the range of ESG funds available and assess their ethical standing.

ESG – environmental, social and governance — is a standard used in the investment space to mark a fund that is dedicated to responsible investing.

But under this banner there is a great variety of ethical concepts making it hard to pin down the product that best matches a client's expectations.

Square Mile’s ESG Integration assessment grades companies and funds between zero and three, where zero means the fund has no explicit approach to ESG and three shows ESG considerations play an integral role within the process.

The assessment is applied at both company level (how a business integrates ESG considerations across all its investment processes) and at fund level, which analyses the extent to which ESG is used as an input in the fund management process.

According to Square Mile, the assessment had been introduced to meet “market demand” as it recognised an “increased awareness of the importance of environmental, social and governance factors”.

Meanwhile Interactive Investor has launched a rated list of ethical funds and investment trusts called ‘Ace 30’.

The platform selected 30 investment options which it believes are being managed in a genuinely ethical manner and have the potential to deliver strong financial performance.

Interactive Investor marked each of the chosen trusts and funds with ‘avoids’, ‘considers’ or ‘embraces’ to distinguish between those that screen against unethical investments, those that carefully consider a range of factors and those that focus on companies delivering positive or environmental outcomes.

Moira O’Neill, head of personal finance at Interactive Investor, said: “Our objective is to cater to a growing number of investors seeking to invest for good by providing a menu of high-quality ethical choices among the available investments across a broad variety of markets and investment types.

“In future, as the ethical investment sector matures, we would expect to be able to add new investments in asset groups and investment categories that are currently under-represented in the ACE 30, such as US and Japanese equities, property and smaller companies."

According to JP Morgan, even when using stricter estimates of what constitutes ESG strategies, the market is now close to $5trn globally (£4.07trn).

Jason Hollands, director at Tilney, said: “If the regularity of new product launches in the ESG investment space is anything to go by, ESG investing is seen as one of the key growth areas for the asset management industry.

“The growth of ESG has been driven primarily by demand from institutional investors, such as pension and insurance funds, but there is also evidence of increased demand from private investors too.”