Helping provide clarity
Shaunak Mazumder, who runs the Future World Global Equity Focus fund at Legal & General Investment Management, says the increase in the number of types of ESG funds has been met by an increase in the number of ratings agencies assessing products, and the services of such agencies can help to provide clarity.
He says the UN has published a range of SDGs, and a client can understand what the priorities of a fund are by seeing which of these goals the fund focuses on.
Sebastian Thevoux-Chabuel, ESG analyst and portfolio manager at Comgest, says some types of investment products will find it much more difficult to invest in line with ESG principles.
He says hedge funds have a mentality that is too short-term, while the popularity of ESG strategies right now means that lots of capital is chasing the assets, which makes it more difficult for value investors to operate.
He added that value investors tend to focus “on the numbers” so the more thematic approach that is part of ESG is not their natural habitat.
Angus Parker, who runs the HSBC Global Equity Climate Change fund, says the different terminologies used reflect different “levels of ambition” that providers have.
He says: “There is a spectrum of approaches that reflects degrees of ambition and objectives ranging from “do no harm” via thematics, to explicit positive impact funds. Having understood what the end client really wants, the adviser must feel comfortable with the product being offered.
"The portfolio manager must be able to explain what they are doing and why – preferably with some academic research to substantiate their approach. Subsequent portfolio actions made by the manager must then be demonstrably consistent with the investment approach articulated. Finally, independent third-party validation can help demonstrate that the fund is doing what it says it is doing.”
Maria Municci, fund manager on the multi-asset ESG team at M&G, says that in addition to regulatory and ratings agency information, “a detailed ESG/sustainability policy published by the fund manager could be a useful document for investors, providing information on the non-financial objectives, the responsible investment approach adopted to achieve them, and the criteria used to implement it (such as carbon footprint, alignment with UN SGDs, minimum ESG thresholds etc).
"While sustainable investing continues to evolve, transparency and communication regarding the fund’s criteria, approach and expected outcomes is crucial.
"For example, for our sustainable multi-asset strategies we publish a document describing our ESG and impact criteria as well as an annual report with details on the sustainable characteristics of our holdings and overall portfolios."
Paul Niven, head of multi-asset portfolio management at BMO Global Asset Management, says: "Regulatory changes will soon mean that advisers must ask about responsible investment preferences as part of the know-your-client process. The demand for ESG-related solutions has increased significantly and that’s a trend we see continuing.