FundCalibre has launched a set ofEnvironmental, Social, and Governance rankings to tackle the lack of trust in asset managers’ ESG claims.
The group will rank each fund as either ESG explicit, ESG integrated or ESG limited.
These rankings will be included on all of its research notes for all 228 elite rated and radar fund notes.
“More and more funds are either being launched or are being given an ESG make-over,” commented Ryan Lightfoot-Aminoff, senior research analyst at FundCalibre.
“With each fund manager doing something different, it has become very difficult for investors to know exactly how responsible a fund really is,” he said.
“What’s more, a lack of trust in asset managers’ ESG claims remains a barrier to investment.”
The ESG explicit ranking will be for funds that have a sustainable approach at the forefront of their investment philosophy.
Lightfoot-Aminoff said these managers will go above and beyond simple integration, with an ESG filter used as a primary feature and ESG considerations having a "fundamental impact" on the stock selection process.
“Funds in this category are likely to have an independent panel or consumer survey to determine ESG criteria and they will either actively avoid (negatively screen) certain companies or industries, and/or will actively target (positively screen) certain ESG characteristics,” he said.
FundCalibre said an example of this fund is the BMO Responsible Global Equity.
ESG integrated will be funds that embed ESG analysis within the investment process as a "complementary" input to decision making.
The investment universe will not necessarily be restricted in any way, but later analysis will be used to enhance the final investment decisions, with at least two ESG inputs considered before including a stock in the portfolio, Lightfoot-Aminoff said.
“Managers that hold stocks that have questionable ESG credentials will need to evidence strong rationale for including the stock in the portfolio and show that extra analysis has been undertaken to accommodate the ESG risk.
FundCalibre used the example of Brooks Macdonalds’ Defensive Capital Fund.
ESG limited will be for funds where the overall portfolio is not materially influenced by ESG.
“These funds may still have some element of ESG in their process or be managed by a company that enforces certain negative screens, but the overall portfolio will not be influenced by ESG,” said Lightfoot-Aminoff.
An example used by FundCalibre is the Allianz Strategic Bond.