Increase in star-rated impact funds, finds Good Investment Review

Written by Rebecca O'Connor on 6th June 2017

The number and standard of funds described as having a positive impact in the UK has grown significantly over the last year, according to the latest figures from 3D Investing, the ethical investment consultants.

Released as part of a comprehensive review in partnership with Good With Money.com, the research shows an increasing number of positive impact funds entering the market, as well as an overall drive towards improved standards in the sector.

Despite Trump’s withdrawal from the Paris Accord on climate change, fund managers view the outlook for the sector as positive

According to a recent report from Ethex, interest in positive investment is growing faster than for traditional forms of investment. To meet this demand 3D Investing has developed a ratings system to rank investment funds for their ability to do good, avoid harm and deliver on financial expectations.

3D Investing founder John Fleetwood said: ‘Ethical and sustainable investing is a highly complex area but our review and star ratings provides an easy answer to what is the ‘best fund’ according to the our philosophy of doing good, avoiding harm and making money.’

To produce the review, 3D analysed every fund registered for sale in the UK that has some form of ethical, sustainability or environmental and social governance (ESG) mandate. However, claims of doing good aren’t always borne out in reality. As such, the 3D review highlights the ‘real leaders’ – it is based on stock by stock analysis to see the extent of positive impact, which helps ensure funds are accountable.

3D then attributes a star rating to each fund as a short hand for identifying the ‘best’ funds according to the 3D Investing criteria. The best funds in each sector then form the basis of the 3D Portfolio, a shortlist of funds approved for use in managed portfolios that truly “do good, avoid harm and make money”.

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The research identifies a total of 201 funds available in this area, totalling around £87bn assets under management. Around 30 per cent of these funds merit a rating of three stars or more, and the average star rating is 2.37, rising to 3.64 among real estate or infrastructure funds.

Despite Trump’s withdrawal from the Paris Accord on climate change, fund managers view the outlook for the sector as positive, with many investment managers seeking to broaden and improve their sustainable or ethical fund offering.

John Fleetwood, founder of 3D investing said: “It’s not ‘traditional’ ethical investment. It’s about investing in solutions to real world challenges, while avoiding the companies that contribute to the problems in the first place.

“Our star ratings have acted as a tool to drive improvement in impact reporting, with funds having been awarded a better rating following satisfied requests for more transparency in reporting.”

A number of funds have increased their rating from three to four or five stars since the last 3D review:

  • Henderson Global Care Growth Fund to a four-star rating, as the fund manager has now released a paper justifying each holding in the portfolio and the commitment of the fund manager to demonstrating impact is much clearer.

 

  • The Columbia Threadneedle Ethical UK Equity Fund has been upgraded it to a four-star rating as it has the highest proportion in solutions to social and environmental challenges of any UK equity fund.

 

  • INPP, the infrastructure fund, goes from a three to a four-star rating as the proportion of the fund in projects that are of direct environmental or social benefit merits the upgrade.

 

  • Assura takes top honours in the form of a five-star ranking, as a result of improved financial performance. This gives more confidence in its ability to deliver the expected returns, and its social impact reporting.

Becky O’Connor, co-founder and editor of Good With Money, said: “We’re really happy to partner with 3D Investing on what is a very useful, practical piece of research on the growing impact investment industry, for professionals and for investors keen to learn more about how to match their profits and principles. I’d urge anyone considering where to invest their ISA or SIPP to flick through the fund ratings to identify the very best for achieving impact and returns.”

The Good With Money / 3D Investing Good Investment Review also includes articles from a number of leading ethical investment fund managers including Impax, WHEB, and Triodos Investment Management, as well as the ethical investment platform, Ethex. Financial planners at True Bearing and Pennine Wealth explain why more clients are showing an interest in impact funds.

Jon Forster, co manager of Impax Environmental Markets, said: “2016 was a vintage year for performance and we are seeing increasing interest from investors who are now recognising the strong drivers of these markets (population growth, urbanisation, climate change, ever tighter environmental regulation) and catalysts such as the Paris Climate Agreement.”

Seb Beloe, head of research and impact reporting at WHEB Asset Management, said: “The world is genuinely at an inflexion point in how society addresses the long term social and environmental challenges that face us. These challenges have the potential to undermine the ecological and societal foundations on which stable economic systems are based.”

3D Investing has worked with Pennine Wealth Solutions to develop a managed solution that follows the 3D principles, for investors with as little as £5,000.

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