Clients that are focused on sustainable investments are becoming more “sophisticated”, according to Kate Elliot, head of ESI research at Rathbones Greenbank investments.
She says clients usually do not want issues looked at in silos when considering environmental, social and governance funds – that is, some parts of a portfolio dealing with the E, some with the S, and others with the G in ESG.
Instead she says providers will have to focus on creating funds that are capable of addressing all of those issues if they want to “stay relevant”.
She notes part of the change is that clients are increasingly focused on ESG metrics that are “harder to quantify than are the environmental metrics.
"This is particularly the case in some of the social impact priorities, and so our focus now is now on that area.
"Human rights due diligence can’t really be boiled down to a single data point. So it becomes a balancing act between using as many data sources as possible, but also to use company meetings as a way of finding out how a company views social issues. It is also an area where there is quite a lot of subjectivity, and so there is a spectrum of approaches.”
One approach Elliot highlights is to study and monitor the evolving academic research in various areas, to ensure that one is in touch with the latest thinking on a particular topic.
Jake Moeller, senior investment consultant at Square Mile, says the key is that fund managers are able to access an ever-expanding collection of academic and also peer group research, combined with legislative and regulatory changes, to have a constant stream of ideas on how to update processes.
But Nathalie Wallace says the academic research is “describing the 'why' we should do something, rather than the 'how' we should do it.”
Duncan Goodwin, who runs the Premier Miton Global Sustainable Growth fund, takes a different approach.
He says he prefers to look at the work of early stage companies in the various sectors as these are a source of innovation.
Goodwin says: “The rise in sustainable funds seen over the past few years has made investing in some of the more traditional themes more challenging given our approach and valuation discipline.
"Some of the larger, more recognisable, technology companies would be a classic case in point – an area where we currently have limited exposure. While our process has remained largely unchanged over the years, the opportunities presented constantly evolve.
"Our focus on nascent, potential industry disruptors means we see a constant stream of potentially game-changing companies. While we are selective in the actual investments we make, this approach helps us in keeping abreast of new and emerging technologies and business models.”