Responsible investing's future  

How to select the right funds

The risk-profiling business now gives advisers access to MSCI’s ESG fund research, as well as information on ESG issues for 36,000 funds.

What it does not do, however, is reverse-engineer the solution.

“This is where the advice firms need to be very comfortable with their own research in this space,” Henning says.

A tool that can be used by advisers to match up clients with funds is Fund EcoMarket.

This is a free-to-use database of sustainable, responsible and ethical investment funds designed for financial services professionals.

The site’s founder, Julia Dreblow, says the tool’s classification system is essentially designed to help guide intermediaries, and to assist them in matching the right fund to the right client.

The majority of the information comes directly from fund managers in order to avoid researcher bias.

“[It aims to] reduce the risk of users thinking a fund is ‘greenwashed’ simply because they do not understand the fund strategy,” Dreblow says.

“[This] effectively takes the place of [advisers] having to carry out [their] own research.”

If the adviser wants to explore the funds themselves, there are a number of ways to do that, says Steve Kenny, chief distribution officer at Square Mile Research.

This includes the Investment Association’s responsible investment framework, which provides good guiding principles, outlined by the industry trade body.

He adds that company websites are also a good place to start with fund selection, and can show how the business treats certain issues.

Most fund managers will have a section of their website dedicated to sustainability, and many have their own sustainability frameworks that outline their own thoughts on how they invest.

“[It’s important to look at] the prominence of responsible investment on the fund group’s website,” he says.

“This will speak volumes in terms of the importance they attach to this area. 

“For example, is it a small component with little information, or is it a dedicated, easily accessible area of the website, illustrating key metrics and detailing governance actions?”

He adds that advisers should look for sustainability reports for the fund group, and independent assessments.

“From a fund perspective, what does that say about its objective and ambitions? And how are they evidencing achievement of expected responsible investment outcomes?”

It is increasingly up to the adviser to do the research on sustainability credentials within funds. Hopefully tighter regulation in the future will be able to ease this burden.