Skip to the content

Square Mile’s five funds to make the world a better place

09 June 2022

Square Mile highlights five ESG funds 50 years on from the anniversary of the United Nations Conference on the Human Environment, considered the first global summit dedicated to the environment.

By Anna Mercer,

Square Mile Investment Consulting and Research

World Environment Day, which fell on the 5th of June, is one of several events throughout the year aimed at raising awareness of the plight of the planet, the human impact on the environment and potential solutions to the challenges faced by ecosystems and societies around the globe.

This year marks the 50th anniversary of the United Nations Conference on the Human Environment, the forerunner of World Environment Day, considered the first global summit dedicated to the environment.

Since the first of these events, climate change and threats to the ecological well-being of the planet have moved to centre stage and yet despite this, the future of the environment continues to be in the balance.

From an investment perspective the landscape has evolved considerably over the past 50 years. Historically, options were limited to exclusion funds, which avoided investments in harmful industries such as armaments, fossil fuel extractors and tobacco manufactures.

Today, however, investors can choose from a broad range of responsible investment strategies which we have broken down into four broad categories. The ranks of ethical exclusion funds have been joined by responsible practices funds, which seek investment opportunities among businesses that are best in class in their respective sectors in environmental and social terms.

Sustainable solutions funds invest in companies that tackle social and environmental challenges through their core products or services.

Impact funds, meanwhile, have an explicit intent to make a positive impact on society or the environment hard baked into their mandate.

In the spirit of World Environment Day, celebrated this year under the banner of ‘Only One Earth’, we highlight funds which investors might consider if they would like to be part of the solution to the challenges faced by the planet, whilst enjoying financial returns on their investments.

The Ninety One Global Environment fund aims to have a high environmental impact, championing the move to a decarbonised economy, whilst delivering capital appreciation over the longer term.

It seeks to do this by investing companies which derive at least 50% of their revenues from environmental solutions relating to renewable energy generation, electrification of transportation, improved energy efficiency, or a combination of the three.

The lead manager, Deirdre Cooper, has expertise in this approach to investing spanning 20 years and managed a strategy along similar lines to this fund between 2009 and 2018 whilst at Ecofin.

Importantly, the team produces an impressive annual impact report for the fund, providing aggregated and company level impact analysis, along with ESG engagement targets and progress made by each company in the portfolio.

The Montanaro Better World fund is another option for investors seeking to grow their capital while having a positive impact on the planet. It looks to identify high quality, typically small to mid-cap firms through a positive impact lens: each holding will generate most of its revenue from six themes, aligned to the UN Sustainable Development Goals.

This provides a clear reference point for the fund and all stocks are ratified by the Sustainability Committee prior to investment, to ensure high impact standards.

Launched in February 2016, the NN Green Bond fund has one of the longest track records of strategies of this type in the industry and is a consideration for investors seeking a level of income from their investments.

Its lead manager has considerable experience of investing in green bonds from his background at a pension fund and launched this strategy to make green bonds, and the societal change that they can affect, more accessible to a wider audience.

Indeed, his aim was and still is to provide a positive impact to the environment, whilst delivering long-term outperformance.

He has achieved this by employing a credible and structured investment philosophy and process, based on in-depth analysis of Green Bond issues, combined with strong fundamental credit analysis work.

The FP WHEB Sustainability fund is an actively managed, global equity strategy which seeks to invest in companies that provide “solutions to some of the most serious environmental and social challenges facing humankind”.

It applies a thorough, multi-layered approach to responsible investment (RI) with an in-depth ethical screening as its starting point.

The management team also considers how the operational practices of its investee companies can be improved or aligned better to positive social outcomes. Nine sustainable investment themes based on major RI-related “megatrends” further distil the investible universe.

The resulting portfolio is one that seeks to generate returns for its investors through exposure to sustainable solutions to some of the world’s most pressing social and environmental problems.

The AXA Framlington Clean Economy fund has a high-level objective of delivering a positive and measurable impact on the environment, underpinned by a strategy which primarily aims to contribute to the reduction of global greenhouse gas emissions.

This is achieved through investment in listed companies whose activities improve “resource sustainability, support the energy transition or address issues of natural resources and food scarcity.”

It adopts a thorough, multi-faceted process which starts with a negative screen followed by a secondary filter focusing on how companies fare from an environmental perspective. The resulting portfolio is made up of “Impact Leaders” (most highly rated in generating positive societal impact), “Impact Contributors” (significant impact but lower proportion of revenues contributing to SDGs) or “Transforming companies” (companies which the team will try to meaningfully engage with to effect positive change).

While the manager has a bias to the first two categories, she recognises the importance of ongoing engagement, especially relating to the extent and quality of company disclosures and reporting.

Anna Mercer, head of 3D research at Square Mile Investment Consulting and Research. The views expressed above should not be taken as investment advice.

Editor's Picks

Loading...

Videos from BNY Mellon Investment Management

Loading...

Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.