Asset managers race for sustainability top spot

Written by Rebecca O'Connor on 25th Sep 2017

Mirror mirror on the wall, who is the most sustainable fund manager of them all?

You might well ask, as in the past week, there have been enough new launches and developments to make one think the entire fund management industry is in danger of turning green.

First up, The People’s Trust, run by Daniel Godfrey, ex-head of the Investment Association turned investment pioneer. The fund was last week approved by the Social Stock Exchange Impact Panel and plans to dual list on the SSX and the main market on October 17.

Next came the news that Terry Smith’s Fundsmith, which runs one of the most popular retail funds in the UK, had registered a sustainability fund with the regulator in early September. Fundsmith has not commented on the article but if it goes ahead with a launch, this will be like a klaxon, heralding that sustainable investing is well and truly mainstream, for Mr Smith criticised Socially Responsible Investing at an industry dinner only four years ago.

As if all that isn’t enough, Barclays has launched an impact investing fund in order to meet ‘growing demand’ from clients for social and environmentally-conscious investments. The Barclays’ Multi-Impact Growth Fund is the first impact investing vehicle of its kind from a major UK bank and comes after Barclays research identified that 56 per cent of people want their money invested in this way. The fund was

The fund was advised by Big Society Capital and invests primarily in third party impact fund managers, with a few direct investments. However, only investors using the Smart Investor platform can access it.

If you look at the websites of the UK’s biggest fund managers, you might think that their daily bread is sustainable investing, with information on the Principles of Responsible Investment and “ESG” – that’s Environmental, Social and Governance – front and centre of communications on M&G’s website  (incidentally, M&G is sponsoring this year’s Good Money Week, from October 8 to 14 – and promising to be a pretty lively one). Sustainability and Corporate Responsibility also feature strongly on the Schroders home page, which seems to be backed up by back office commitment to the causes.

Other recent launches include the Impact Investment Trust, which will be available on the AJ Bell platform and backed by fund manager Obviam, which expressly wanted to target mainstream investors as the founders believed there were not enough impact options available for this “mass affluent” market. The Trust is hoping to raise $150mn before IPO and wants to invest in companies making a positive impact in the developing world.

The wealth management world is responding in turn, with EQ Investors, a Good Egg company, offering Positive Impact Portfolios and Tribe Capital creating bespoke portfolios for clients with £1mn plus.

Has the entire fund management industry seen the light? There is still work to do. Visit any of the DIY investment platforms, such as Hargreaves Lansdown or AJ Bell, and this sudden desire to save the world through fund management is not reflected by how easy it is to find information on these funds via these platforms.

To their credit, they do usually list the Morningstar Sustainability rating for funds. However, there is not much evidence to suggest this is being taken into consideration by customers, who still tend to choose popularity over other metrics when deciding where to invest.

Impact is still a small percentage of what is more widely termed “ethical” investing (although this terminology is due a serious change), partly because few know what it really means and there is widespread scepticism about greenwash. They can all use the words “sustainable” and “responsible” after all, but how do we know they truly are?

However despite some scepticism and the need for many parts of the industry to catch up, it may not be long before the win win scenario proposed by the pioneering fund managers in this still small impact space filters through to retail investors, and they begin to expect nothing less.

Mr Godfrey says: “Successful, sustainable wealth creation delivers above-inflation returns that compound beautifully over time for investors, but it also funds better jobs, more innovation and environmental protection. For society, it’s the only way to build the productivity and GDP growth that underpins better education, infrastructure and the welfare state.”

“By contrast, focus on short-term relative returns incentivises and pressurises companies to chop down the trees in their orchard because the value of the wood is worth more than the value of this year’s apple harvest. Investors and society, by contrast, want and need more trees.”

Sir Harvey McGrath, Chair of Big Society Capital, an independent wholesale social investor, said:  “At Big Society Capital, we are very encouraged to see a leading multinational bank and financial institution such as Barclays launch their own impact investment product. We are very excited by this proposition because of the potential to scale and replicate this fund. The £5m investment from our treasury portfolio demonstrates our belief in Barclays’ ability to bring impact investment to individual investors, enabling them to create a positive impact on people and planet using their personal investments.”

Which funds truly have a positive impact? Check out our Good Investment Review to find out.

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