The traditional view of SRI, rightly or wrongly, is that by omitting sectors or companies that aren’t helping towards a sustainable future then you are effectively diminishing your chances of seeing the value of your capital increase over time.
However, Appleby, who is an investment manager at Alliance Trust Investments, says that seeing the value of your investment increase and also caring about the sustainability of the planet are not mutually exclusive.
He points out that SRI funds can also be used as a way to diversify your portfolio and he says that as the effects of climate change and the depletion of natural resources have increased, more and more investors are coming around to the idea of investing for a better future.
“Firstly, Sustainable and Responsible Investment (SRI) funds give people an alternative to conventional funds,” Appleby said.
“SRI funds enable people to invest in companies that are making a positive contribution to improve quality of life and our collective environment and companies that provide solutions to help us shift to a more sustainable way of doing business.”
“Not only that, but most people are now interested in SRI.”
“A study by Blue and Green Tomorrow asking over 5,000 investors whether they would switch to SRI funds, and if not why? The results were quite revealing. 37 per cent wanted to know more about SRI, 28 per cent were concerned about the impact on investment returns, 8 per cent said they would switch and 27 per cent had no interest,” he added.
Appleby understands why some investors would be concerned about the return on investment if they were to use an SRI fund over a more conventional vehicle; however, he says investors need to see past the myth surrounding sustainable investing.
“How SRI fund performance compares to conventional funds is a hotly debated topic,” he said.
“The most comprehensive review of the peer literature was done by Mercers and the UNEP FI (United Nations Environment Programme Finance Initiative) and it showed there was no significant difference in investment performance between conventional and SRI.”
“We see no evidence of our Sustainable Future funds systematically underperforming their mainstream benchmark or conventional peers,” he added.
Alliance Trust Investments runs a number of SRI funds which focus on different sectors, regions and asset classes.
These include the Alliance Trust Sustainable Future Managed, Sustainable Future European Growth, Sustainable Future Global Growth, Sustainable Future Corporate Bond and Sustainable Future UK Growth.
One of their best performing funds has been the Alliance Trust Sustainable Future Absolute Growth Portfolio.
Our data shows that the five crown rated £78.6m fund, which is headed up by Peter Michaelis and Simon Clements, has beaten the returns of the IMA Flexible Investment sector over one, three, five and 10 years.
The fund has been top quartile over three years with returns of 33.05 per cent to the sector average’s 22.94 per cent.
Performance of fund versus sector over 3yrs
Source: FE Analytics
The fund has also been consistent, beating its sector in three of the last five one year discrete periods.
One-year discrete performance of fund and sector over 5yrs
| Name | 30/06/2012 - 30/06/2013 | 30/06/2011 - 30/06/2012 | 30/06/2010 - 30/06/2011 | 30/06/2009 - 30/06/2010 | 30/06/2008 - 30/06/2009 |
|---|---|---|---|---|---|
| Alliance Trust Sustainable Future Absolute Growth | 23.47 | -8.31 | 24.87 | 19.68 | -20.86 |
| IMA Flexible Investment | 15.27 | -6.23 | 16.86 | 17.98 | -16.4 |
Source: FE Analytics to end of June 2013
Appleby says that performance comes from sticking to a clear set of rules as to which companies can fit into the SRI criteria.
“Before investing in any company, we rate it using our sustainability matrix which measures the service or product the company provides, as well as how well they are governed and manage their interaction with the environment and society,” he said.
“There is a hurdle on this matrix to ensure we are investing in the best opportunity set of companies that are more sustainable than the market.”
Though Appleby says that a stock’s sustainability and environmental responsibility are the starting point, he says that not all good SRI companies make it into their funds as the managers are still trying to find good companies that will deliver high returns over time.
“We look for investment ideas by analysing structural shifts, most of which are related to sustainability and differentiate between potential winners and losers resulting for this change,” he said.
"For example, there will be both winners and losers from regulation to reduce carbon emissions or to improve safety in cars, or increasing the energy efficiency in buildings.”
“Also, just because a company rates well in terms of sustainability does not automatically mean it will be in the funds. We look at the business fundamentals, and what the company is worth to see if these all stack up to make a compelling investment.”
“We meet with companies and speak about sustainability issues that we believe are material to the business in the course of our conventional management meetings and we actively vote on all our equity holdings,” he added.
This article was written in collaboration with and is sponsored by Alliance Trust Investments.