Socially Responsible Investing

Environmental impact of SRI portfolios

• Clean water and sanitation
• Affordable and clean energy
• Sustainable cities and communities
• Life below water
• Industry, innovation and infrastructure
• Climate action
• Responsible consumption and production
• Life on land

How are the SRI portfolios helping to combat environmental issues?

Each of the funds in our SRI portfolios invest in companies that are contributing to positive environmental change, or exclude companies deemed to be causing environmental damage. Additionally, the fund managers of our SRI portfolio have strong records of actively engaging with the companies in which they invest, to push for action on climate change. Below are some examples of the funds we have in our SRI portfolios.

EdenTree

EdenTree is a pioneer in the field of SRI, with its roots dating back to 1887, and they launched some of the first socially responsible funds in the UK in the 1980s. Climate change is a key component of EdenTree’s responsible investment engagement strategy – across their entire product range, they assess companies based on their contribution to climate change; and the managers engage with businesses on a range of environmental issues such as decarbonisation and biodiversity. Under their SRI Transparency Code, EdenTree regularly publishes details of its research and engagement on its website.

In addition to their funds, EdenTree has demonstrated that they are truly committed to combating environmental issues at a much higher level. They’re a member of the Institutional Investors Group on Climate Change (or IIGCC for short), whose mission is to drive significant and real progress towards a net zero and resilient future by 2030. EdenTree is also a signatory of the COP21 Paris Pledge, the central aim of which is to strength the global response to the threat of climate change.

WHEB

WHEB was founded in the 1990s as an environmental corporate finance boutique by Rob Wylie and Kim Heyworth, hence its name: Wylie Heyworth Environmental Business. Today, WHEB is responsible for a single global equity strategy: FP WHEB Sustainability. The companies it invests in must be aligned with their sustainability investment themes, of which five are environmental: Resource Efficiency, Cleaner Energy, Environmental Services, Sustainable Transport, and Water Management.

WHEB is a Certified B corporation, where the B stands for benefit. This means that WHEB “meets the highest standards of verified social and environmental performance, public transparency, and legal accountability to balance profit and purpose”.

Ninety One Global Environment Fund

In April 2022, we introduced the Ninety One Global Environment fund across our SRI portfolios. The fund focuses on investing in companies aligned with sustainable decarbonisation – for example, renewable energy (e.g. solar, wind), electrification (e.g. electric vehicles) and resource efficiency (e.g. waste management). The fund’s managers work closely with the CDP (formerly the Carbon Disclosure Project) so they have greater access to high-quality carbon emissions data. From this, the managers then engage with companies to improve their carbon footprint or, where data is not available, to improve their disclosures.

Each of the funds in our SRI portfolios must be aligned with one or more of the United Nations’ Sustainable Development Goals, such as ‘Climate Action’, ‘Clean Water & Sanitation’ and ‘Affordable and Clean Energy’; and they must demonstrate and can evidence that a socially responsible investment culture is intrinsic to their approach.

Learn more about the environmental, social and governance impacts of SRI portfolios.

Negative screening

Every fund in our SRI portfolios has a negative screen in place, as this is the fundamental factor that makes them SRI funds and includes:

• Avoid unethical companies (Fossil fuel, alcohol, tobacco etc…)
• Support those making a positive contribution to the environment and/or society

Positive screening

This is an additional layer to applying a negative screen, meaning the funds go beyond the approach of ‘avoiding the bad’ and also seek ‘good’ companies trying to benefit the environment and the communities in which they operate and include:

• Supporting companies making a positive contribution to the environment and/or society through their products and services, such as combating climate change and standing for social justice.
• Dynamic shareholder engagement where shareholders enter into dialogue with management to encourage behavioural change.
• Every fund in our SRI portfolios must have engagement and proxy voting policies and procedures in place.
• ESG Rating Agencies look at a fund’s underlying investments, and scores them based on specific ESG criteria.
• Additionally, use our own judgement, to assess whether we think a fund is suitable for inclusion in our portfolios, regardless of any ESG label they may have been given.
• Fund Manager Meetings are an integral part of our investment process, as it allows us to satisfy ourselves that the funds we invest in really are ‘good’ as they say they are.

The funds we hold in our SRI portfolios must demonstrate a commitment to key areas of responsible investment, and that a socially responsible investment culture is intrinsic to their approach.

To measure and assess a fund’s Environmental, Social and Governance ( ESG) credentials, we have various tools at our fingertips.

United Nations Sustainable Development Goals (UN SDGs)

We must be able to associate each fund with one or more of the UN’s SDGs. These are 17 goals that the UN has identified will transform our world for the better, such as ‘Climate Action’ and ‘No Poverty’, and importantly, ensuring they are all achieved by 2030.

Organisations can align themselves with the SDGs using negative and positive screening processes:

Negative Screening

Negative screening deliberately excludes companies involved in activities deemed to be unacceptable such as alcohol, tobacco, and fossil fuels. A challenge here is determining whether a company should be excluded if only part of its operations are involved in these activities. To address this, de minimis levels may be applied – in other words, the percentage of a firm’s revenue generated from the excluded activity, that’s deemed to be acceptable.

Positive Screening

Positive screening seeks to support companies making a positive contribution to the environment and/or society through their products and services, such as combating climate change and standing for social justice.

Shareholder Engagement

One of the most important issues for SRI investors is shareholder engagement. Here, shareholders enter into dialogue with management to encourage behavioural change. This is based on the view that SRI investors could sell their non-green assets; but the assets may simply end up in the hands of a less ethically minded investor, so this does little to improve the way those businesses are run, and the impact their operations have on the environment and society. It’s for this reason that every fund in our SRI portfolios must have engagement and proxy voting policies and procedures in place.

ESG Rating Agencies

ESG rating agencies look at a fund’s underlying investments, and scores them based on specific ESG criteria. These ratings help as a starting point in our research process, but it’s important to remember that agencies use their own methodologies to scrutinise businesses; and along with subjective interpretation, this can result in ratings varying dramatically for the same product. We therefore have to use our own judgement, to assess whether we think a fund is suitable for inclusion in our portfolios, regardless of any ESG label they may have been given.

Fund Manager Meetings

This is an integral part of our investment process, as it allows us to satisfy ourselves that the funds we invest in really are ‘good’ as they say they are.

Over the years, we’ve developed strong relationships with many fund houses, including several high-profiles names with a huge global presence, that are responsible for billions of pounds of assets. This means we have access to one-to-one meetings with the managers, enabling us to fully understand their investment processes, how they incorporate ESG factors, the risks they’re exposed to, and how their funds are expected to perform in various market conditions, to name a few.

We will meet the managers of every single fund in our SRI portfolios, before we invest, to ensure their products are aligned – and, going forward, will continue to be aligned – with our clients’ ESG or ethical beliefs; because at the end of the day, these fund houses are custodians for our clients’ money, and everything we do comes from understanding our clients.

SRI – where people, profit and planet can live together

The 2030 Agenda for Sustainable Development, adopted by all United Nations Member States in 2015, provides a shared blueprint for peace and prosperity for people and the planet, now and into the future. As part of our commitment to our clients, as socially responsible investors we are committed to supporting the SDGs, so much so that every single fund we hold can easily be associated with one or more of these goals.

Learn how each of our funds ties in with the United Nations sustainable development goals to reassure you

Socially Responsible Investing(SRI)is an investment strategy which seeks to consider both financial return and sustainable social/environmental good to bring about positive social change, without causing harm to current or future generations.

SRI allows you to align your values to your investment objectives

But what is an SRI investment fund and how do you gauge their credentials?

At Ellis Bates all our SRI funds are screened and chosen in alignment with the 17 United Nations Sustainable Development Goals (SDGs).

The 2030 Agenda for Sustainable Development, adopted by all United Nations Member States in 2015, provides a shared blueprint for peace and prosperity for people and the planet, now and into the future. At its heart are the 17 Sustainable Development Goals (SDGs), which are an urgent call for action by all countries -developed and developing -in a global partnership. They recognize that ending poverty and other deprivations must go hand-in-hand with strategies that improve health and education, reduce inequality, and spur economic growth –all while tackling climate change and working to preserve our oceans and forests.

We meet with the fund managers each year and create a matrix of how each of the 17 goals relate to each of our SRI funds.

Many of our funds are aligned with several of the 17 goals, for example:

This fund aims to achieve capital growth, by investing primarily in companies that are contributing to sustainable decarbonisation. The management team have identified three underlying drivers of sustainable decarbonisation: renewable energy (e.g. solar, wind), electrification (e.g. EVs) and resource efficiency (e.g. waste management, homes & buildings). We have therefore identified that the fund is aligned with SDG 7 (Affordable & Clean Energy), SDG 11 (Sustainable Cities & Communities) and SDG 13 (Climate Action), at the very least.

To learn more about the 17 SDGs visit https://sdgs.un.org/goals

Social and environmental good as well as financial returns

Building wealth for the future is important, but increasingly people want their investments to do more than make money and ethical investing means different things to different people.

According to a new global survey[1], almost eight out of 10 millennials now prioritise socially responsible and impactful investing. Environmental, social and governance issues are now their top priority. They understand that it is perfectly possible – and increasingly necessary – to make a profit while positively and proactively protecting people and the planet.

Environmental, Social and Governance (ESG)

Some 77% of millennials – people who were born in the time period ranging from the early 1980s to the mid-1990s and early 2000s – cite Environmental, Social and Governance (ESG) investing as their top priority when considering investment opportunities.

To understand the matters that millennials deem deserving of their investment, let’s consider what the ESG acronym stands for. The ‘E’ is for ‘environment’ and includes issues such as climate change policies, carbon footprint and use of renewable energies. ‘S’ is for ‘social’ and includes workers’ rights and protections. ‘G’ is for ‘governance’ and includes executive compensations, diversity of the board and corporate transparency.

Progressive and forward-looking investment decisions

This survey underscores that whilst traditional factors – such as anticipated returns (10%), past performance (7%), risk tolerance (4%) and tactical allocation (2%) – are important factors in millennial respondents’ investment decision making, they are no longer enough.

The findings highlight that ESG considerations now sit at the heart of that process. It’s millennials today that appear to be leading the charge in socially responsible and impactful investing. They are keen to look for investment solutions that are progressive and forward-looking.

Ethical investing in sustainable, impactful business models

A study by Morgan Stanley[2], which evaluated more than 10,000 funds and managed accounts, shows that investing in sustainability has usually met, and often exceeded, the performance of comparable traditional investments. This is on both an absolute and a risk-adjusted basis, across asset classes and over time.

Additionally, according to the study, when compared with non-millennial investors, millennials are incorporating sustainability not only into investment decisions but overall consumer behaviour, with millennials achieving greater integration of their money and values by seeking personal fulfilment in their careers, applying a global consciousness to purchases, and investing in sustainable, impactful business models.

Responsible, ethical investing increasingly becoming mainstream

As responsible investing becomes increasingly mainstream, and millennials become the major beneficiaries of the transfer of wealth, we can also expect institutional investors (such as pension funds, amongst others) to broaden their exposure to ESG over the next few years, with wealth and asset managers seeing a significant influx of investor funds flowing into sustainable investments.

Much has been made of the demographic changes underfoot in each generation, but none more so than that of millennials, who are far from being old enough to retire but have reached working age. They not only have a major influence on consumer trends, particularly in the digital arena, but also disposable incomes that will grow with age and look set to have their own demands and characteristics in terms of financial services.

Meeting your investment goals

Interested in finding out more? You might be thinking about investing with a specific goal in mind, or you may just be aiming for a more financially secure future. Speak to us about how we can help.

Source data: [1] Global poll of 1,125 people was carried out by deVere Group 2 January 2020 [2] Sustainable Signals: The Individual Investor Perspective – Morgan Stanley – https://www.morganstanley.com/sustainableinvesting/pdf/Sustainable_Signals.pdf, accessed 1 June 2016

Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation are subject to change. The tax benefits relating to investments may not be maintained. The value of investments and income from them may go down. You may not get back the original amount invested. Past performance is not a reliable indicator of future performance.