EQ Investors launched Positive Impact Portfolios in 2012. They are available from a minimum investment of £1,000. They are designed for investors who:
- Seek strong financial returns over the long term.
- Prefer to invest in industries and businesses that aim to deliver social and environmental benefits through their activities.
- Are concerned about the damage that certain industries and types of business can cause to society and the physical environment.
They can be used as a stand-alone investment solution for those who view social and environmental considerations as paramount to their investment objectives, or as separate specialist portfolios.
Each investor has their own portfolio which is invested in a well-diversified mix of 20-25 funds and actively managed by EQ. They can be held both in ISA (tax-free savings) or SIPP (personal pension) accounts.
There are six levels of risk available, with the maximum equity exposure ranging from 35% to 85%.
Stockmarkets are volatile – EQ suggests its customers take a five-year view (although portfolios can usually be liquidated on seven days notice).
Delivering strong financial returns
EQ says its Positive Impact Portfolios are “not just about selecting investments that do good, they are also about selecting good investments.”
It explains: “Negative screening techniques inevitably result in nil, or minimal, exposure to some sectors such as tobacco which have often been highly profitable investments for a century or more. Therefore, it is not surprising that some studies have demonstrated that a ‘sin portfolio’ outperforms an ethical one.
“However, the positive impact approach leads to selecting companies that are actually trying to do good and run their business in a sustainable manner. Such companies avoid fines and other penalties; they have stronger relationships with their customers, suppliers and staff. Furthermore, they tend to operate in sectors with high growth potential.”
EQ’s analysis of past performance suggests that there is little or no correlation between impact and financial return – the adverse impact of negative screening seems to be compensated by the benefits of the positive impact investments. On that basis there is no reason to expect a positive impact approach to have an adverse impact on performance. This is backed up by several studies.
How EQ builds portfolios
Each portfolio is constructed from between 20 and 25 funds that have been approved by a Selection Committee. It has developed a rigorous and systematic approach for impact assessment, which takes into account that different fund managers screen their investments in different ways. The investment team conducts parallel research and due diligence processes.
EQ scores investment funds more highly, the greater the positive contribution they make to people and planet. So a fund that excludes potentially harmful industries will pass an initial test, but is less likely to reach our portfolio.
|Positive issues (maximum score of 64 for positive inclusion)||Negative issues (maximum score of 16 for negative screening)|
|Affordable housing||Natural food production||Alcohol||Human rights abuses|
|Clean fuels||Natural resource conservation||Animal testing for cosmetics||Medical research (Stem & Tissue)|
|Community engagement||Pollution control||Animal testing for medicine||Mining|
|Education||Public transport||Armaments||Nuclear energy|
|Empowerment||Recycling||Banking sector||Oil & Gas|
|Energy conservation||Renewable energy||Fur trade||Ozone depleting chemicals|
|Environmental focus||Social change||Gambling||Political corruption|
|Ethical employment||Sustainable agriculture||Genetic engineering||Pornography|
|Health care||Sustainable forestry||Government debt||Tobacco|
|Job creation||Water resources|
Using a scorecard enables EQ to identify the managers that are making the most impact in areas such as climate change, conserving natural resources, improving health and reducing inequality.
If EQ decides to invest, it says: “this is just the start of an ongoing conversation. If we see a holding that doesn’t meet our expectations then we question it. And as a result of our dialogue we have seen managers divest in companies that we’d rather avoid.”
Investors receive quarterly updates from EQ.