Investment solutions to environmental concerns

Protestors have targeted various sporting events in recent weeks as part of their efforts to focus our attention on environmental concerns. Wimbledon, the second Ashes cricket test at Lord’s, the Premiership Rugby Final, the Grand National and the World Snooker Championships have all been disrupted.

It has led to governing sports bodies meeting with police and UK Government representatives to discuss how such future problems can be avoided. The latest direct action follows months of guerrilla protests, including slow marching through London and blocking some of the UK’s busiest motorways.

Other ways to help

Those in favour insist it’s the only way to make politicians take notice; those against argue that high-profile activism makes life a misery for everyone.

Whether or not you support the action, there are plenty of ways to help safeguard the planet’s future planet that won’t land you either in jail or on the newspaper front pages.
While most investment funds today acknowledge the importance of environmental, social and governance issues, some go even further.

Here are five portfolios that are particularly focused on important ethical trends such as sustainability, wider green issues, and climate change.

Ninety One Global Environment

Our first contender is the Ninety One Global Environment fund, which prioritises investing in companies that contribute to the decarbonisation of the world economy. It’s a high conviction, concentrated portfolio that currently has just 24 holdings*. The 10 largest account for just over half of assets under management*. These names include Waste Management Inc, a North American provider of environmental solutions, and Iberdrola, the Spanish utility company*.

We like the fund’s unique approach as it involves a comprehensive and dynamic proprietary screen to build the investable universe and help ensure futureproofing of the strategy. The fund’s most recent quarterly update noted how energy security concerns and rising costs had “added to the urgency to accelerate” the energy transition and improve energy efficiency. “Put another way, we expect policymakers, companies and consumers to remain strongly motivated this year and beyond to make decisions that favour the types of business we invest in,” it stated.

Janus Henderson UK Responsible Income

This fund benefits from a well-defined approach to responsible investing – along with a tried-and-tested equity income investment process. The fund’s aim is to provide an income with the potential for capital growth over the long term. It avoids companies considered to be involved in business activities and behaviours that may be environmentally and/or socially harmful.

We like the common-sense approach adopted by manager Andrew Jones, which involves screens to filter the universe and in-depth analysis on the remaining opportunities. In his most recent commentary, Andrew noted how he was holding a blend of domestic and more internationally exposed companies in the portfolio. “We continue to focus on identifying companies with robust free cash flow characteristics and strong balance sheets that we believe are well positioned to navigate the still uncertain economic environment,” he added.

CT Responsible Global Equity 

This fund invests in quality growth companies from across the world, with a focus on sustainability. It tends to have a bias towards medium-sized companies. What makes this fund stand out from the crowd is the strength of the responsible investing team: it is a separate unit meaning bespoke analysis which is truly independent. The fund's process is also very thorough, with in-depth customised analysis of companies, making for very considered stock selection.

The managers will avoid companies with unsustainable business practices; but will invest in companies where there are problems that can be resolved. The constraints include no alcohol, gambling, pornography, weapons or tobacco, and the fund is fossil fuel free. There are also restrictions on environmental impact (with particular consideration to the Arctic & ecologically-sensitive operations), animal welfare, human rights, and labour standards. Holdings will predominantly be from developed markets, as the governance scores from emerging market companies don't quite meet the required criteria at this time.

Rathbone Greenbank Global Sustainability

This is a high conviction global equity fund that can invest in companies of any size. Manager David Harrison focuses on selecting stocks with strong cash generation and will actively avoid businesses involved in unethical or unsustainable practices. The exclusion criteria included are alcohol, animal testing, armaments, extraction of fossil fuels, gambling, nuclear power, pornography, tobacco and poor employment, environment and/or human rights practices. Each holding will also have to have at least one positive environmental, social or governance attribute.

Manager David Harrison says, “Sustainable investing means different things to different people. For us, sustainable investing is about long-term value creation for investors, society, and the environment. We invest in companies that operate sustainably and are committed to helping achieve the United Nations Sustainable Development Goals. As shareholders we work with companies to encourage best practice and highlight any concerns we have.”

Liontrust Sustainable Future Managed

Not every portfolio with an environmental slant is focused solely on equities. The Liontrust Sustainable Future Managed fund, for example, aims to deliver capital growth over the long term (five years or more) through its own sustainable process and by investing in a combination of global equities, bonds, and cash. The managers use a thematic approach to identify the key structural growth trends that will shape the global economy of the future, across a 40-60 stock portfolio.

For example, its three mega trends are: better resource efficiency; improved health; and greater safety and reliance. Twenty further themes are within this trio. According to the most recent factsheet, the financial sector has the largest sector allocation, followed by information technology and healthcare. The fund has achieved excellent returns over the past two decades by sticking to its rigorous approach to sustainability and the strength of company management. 

*Source: Fund factsheet, 30 June 2023

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The views expressed are those of the author and do not constitute financial advice.

Published on 18/07/2023