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Which socially responsible investment strategy is right for your client?


Sustainable and responsible investing has developed a lot over the last decade, with the choice of funds increasing to meet demand from clients showing a greater awareness of environmental, social and governance factors.

SRI has evolved from the traditional ethical investment approach where investors focus on areas they wish to avoid, such as animal testing. For those who still favour this approach, a number of funds continue to use a negative ethical screening strategy. Good examples of this can be seen with Kames’ Ethical Equity and Ethical Corporate Bond funds.

Positive screening

More recently, however, we have seen a move towards positive screening and a focus on sectors that make a positive environmental, social and governance contribution. A number of funds are now managed with this thematic approach, concentrating on companies benefiting from, or creating solutions to, one or more of these factors.

Some thematic SRI funds adopt a targeted approach, looking at an individual theme or a small number of them. Take the Jupiter Ecology fund, for example, which concentrates on companies providing an environmental solution or protection of the environment.

Other SRI funds focus on sustainability, spotting specific issues and identifying the beneficiaries and solutions at sector and company level. This approach is adopted by the team at Alliance Trust through its range of Sustainable Future funds. It has identified four broad ESG themes: climate change and efficiency, quality of life, sustainable consumption and risk management.

This issue of sustainability is also the focus of the FP WHEB Sustainability fund.  SRI investing is central to this relatively small investment firm and its recruitment of several people from Henderson, including fund manager Tim Dieppe, has created a strong team.

Some fund groups apply SRI criteria on a wider scale. Stewart Investors, for instance, has been considering the theme of sustainability in its range for some time. This led to the launch of its Asia Pacific Sustainability and Global Emerging Markets Sustainability funds, which are sadly now closed to new investors. Following the success of these strategies, however, the group launched the Worldwide Sustainability fund in 2012, which looks for socially and environmentally efficient companies with responsible business practices.

Other fund managers prefer to adopt the more balanced approach of combining negative and positive screening. EdenTree is a good example of this. Its Amity fund range avoids traditionally “unethical” investment areas such as armaments and animal testing, while at the same time supporting companies that make a positive contribution to society and the environment.

Performance issues?

One common concern about SRI funds is that their restrictive approach means they will underperform their non-SRI counterparts. This is not a view we subscribe to. SRI funds usually have an inherent bias either at sector level (for example, avoidance of tobacco or a preference for technology) or market capitalisation (focus on medium/smaller companies). Should these sectors or styles be out of favour, SRI funds are likely to underperform. Should they be in favour, the opposite is more likely.

As is the case with all funds, it is important to do your research and undertake both a quantitative and a qualitative assessment. This should help you identify managers with the experience and process to produce strong returns that align with the ESG priorities of your clients.

Jon Lycett is business development manager at RSMR


Fund firms screen out SRI

Aviva is the latest mainstream investment house to pull away from offering specialist sustainable and responsible investment funds. Last week, the firm, which runs £1.1bn in SRI funds, announced plans to move the funds and the team to another institution. It will tackle environmental, social and governance issues through a new global and responsible investment […]


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There are 2 comments at the moment, we would love to hear your opinion too.

  1. Answer: Probably none if the client wants to make money. For example over the last 10 years to date those funds that contained (just a selection) – Raytheon (Defence, missiles etc.) has put on 185.4%. Even BaE has made 50%. Paddy Power (gambling) has produced a magnificent 656.4% and In Bev (booze) will have given you 224.1%.

    Socially conscious investments may make some feel good but sin stocks (and unfettered investing) makes you money (the purpose of investing?). I know which my clients preferred.

  2. I guess old Harry didn’t actually read the article. As an real investor knows, ESG has little to do with sin stock screening. I am sure there are just as many sustainable companies one could cherry pick and come to the same conclusion as Harry’s “picks”. Maybe I should retire on a fund featuring just Raytheon, BoE and Paddy.

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