ESG for income and growth

This article is part of
A guide to ESG and responsible investing

Growth spurt 

Patrick Thomas, who runs the ESG investing service at Canaccord Genuity Wealth Management, says the next stage in the evolution of ESG portfolios may be around risk levels. 

Francois De Bruin runs an ESG mandate at Aviva investors. He says getting income from ESG investments is possible, but only on a multi-asset basis

He says: “If you invest globally, and have bonds, equities and real assets then income is possible.”

Malcolm McPartlin, co-manager of the Aegon Global Sustainable Equity fund says there are more ESG compliant dividend paying companies now than has ever been the case in the past.   

He says: “We believe the universe is sufficiently diverse at this time, with yield available from a range of ESG friendly companies. Importantly, this yield should be largely uncorrelated to the yield and performance expected from traditional income sectors, which lack ESG credentials.” 

He says he does not yet feel that the asset class has reached the stage in its evolution where investors can choose between portfolios which deploy a particular investment style. adding that there are hardly any value investing opportunities in the ESG universe right now. 

New money 

This would typically be the case when an asset class becomes popular with investors. With the wall of new money, this means assets generally rise in price, leaving little opportunity for value funds which specialise in buying assets that are trading cheaply.    

Mr McPartlin added that many of the areas of the market that are particularly popular with value investors right now, are companies which would not make it into an ESG portfolio. 

Many of the companies which are widely held in ESG portfolios have the use of new technology at their core, and should be growing at a faster pace than the wider economy, while perhaps not generating much cash right now, and the cash that is generated goes straight back into the business to fund further growth.    

Noelle Cazalis, who jointly runs the ethical bond fund at Rathbones with Bryn Jones says that there are many fixed income products on the market which offer exposure that cannot be got via equities, in assets which have no correlation to the wider economy, and an attractive income yield.

She says: “The ESG universe allows fixed income investors to diversify away from the traditional sectors and to therefore improve overall portfolio diversification. For example, the charity bond market: charities tend to be uncorrelated to most traditional economic sectors. Some project-specific green bonds can also provide uncorrelated yield.