David Winborne, a fund manager at sustainable investment specialist Impax, says the task of assessing whether an investment is truly sustainable can be divided into two: one task is about the products or services the company produces, and the other about how the company runs its own affairs.
He says: “The first is to rigorously analyse how individual companies’ business activities may fit into the transition to a more sustainable global economy, both in terms of opportunities and possible risks.
“The second is to examine how these companies approach their own environmental, social and governance structures to develop a sense of how a firm conducts itself.
“Taken together, this is the ‘what’ (sustainability alignment) and the ‘how’ (ESG practices) of the investment process, which is a common feature embedded across all Impax investment strategies.”
Hard work avoids greenwashing
Craig Bonthron, co-manager of the Kames Global Sustainable Equity fund, says: “The only way to keep the fund free of greenwashing is through hard work.
“We do our work by looking from the bottom up at what these companies are doing. You find that some of the very large companies that talk about their commitment to sustainable investing are actually spending more on lobbying than they are on sustainability.
“We like a company called Kingspan, which does insulation; it is very clear what it does and the impact it has, which is to remove carbon.
“Whereas we think some of the traditional car companies, for example, have too many competing priorities and so won’t invest in them. We like Tesla, and have owned it for a long time, as it is very clear what it does.”
Problem of diversification
Mike Fox, who runs the Royal London Asset Management Sustainable Leaders fund, says the challenge to be properly sustainable in how one invests is similar to the challenge active fund managers of any kind face to provide investment returns.
He said: “Generally speaking, the more diversified you are, the worse it is.
“That diversification in a portfolio, if it goes too far, is a negative.
“And I think the same applies in a sustainable portfolio; more diversification is likely to make it worse, that is, less sustainable.
“The first thing I would say is, if you are calling your fund global equities, then it cannot just be about Europe and the US. What we try to do is focus on a few areas – chemistry, engineering and energy, for example – and be as global as we can.”
He adds that despite all of the capital that has gone into the sector, sustainable funds continue to represent less than 3 per cent of the total of all assets managed within the various Investment Association sectors.
