David Harrison, global sustainable equity fund manager at Rathbones, says there are about 3,000 stocks in the world he can look at, even after he has eliminated the companies that fail the initial screening for not meeting the criteria.
He says those 3,000 stocks comprise 80 per cent of the global equity market, and from those, about 30 are selected as meeting the criteria for investment, and placed into his fund, after a second screen is carried out to ensure it meets the sustainability goals of the fund.
Defining objectives
Ursula Marchioni, head of BlackRock portfolio analysis and solutions for EMEA, says: “Diversification when building a sustainable global equity portfolio can be achieved in different ways.
“The concentration risks could arise across sector, country and individual ‘E’, ‘S’, and ‘G’ criteria.
“Simply investing in companies with the highest ESG score could result in unintended biases towards specific regions, just as investing in companies with the highest measurable ‘impact’ could result in a bias towards the ‘environmental’ pillar.
“Therefore, it is important to first define the portfolio objective, and carefully monitor all characteristics to ensure that objective is fulfilled without introducing unintended tilts or concentration effects.”
Peter Michaelis, head of the sustainable equity team at Liontrust, says: “We invest across 20 sustainable themes and these give our portfolios diversified exposure to equities, with a few exceptions.
“Industries and sectors that damage society and the environment are susceptible to either enforced regulatory change and/or evolving consumer habits, both of which can be detrimental to long-term returns.”
Stephane Monier, chief investment officer at Lombard Odier, says he expects the Covid-19 pandemic to boost the investment case for many sustainable investment sectors.
He says: “Fiscal stimulus packages may provide a boost to green infrastructure.
“In the EU, at least, it appears likely that any long-term support programmes will be aligned to the EU’s green deal announced last year.
“Elsewhere, an increase in the availability of low-cost loans and capital will make investments in energy efficiency and renewable technologies more attractive, both of which require an upfront capital outlay but offer a positive economic return.”
David Thorpe is special projects editor at FTAdviser and Financial Adviser
