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Retreat 2018: ‘Shouldn’t every investment be sustainable?’

ESG investing was the talk of this year’s New Model Adviser® Retreat, but advisers tell Jack Gilbert managers must prove their green credentials.

Retreat 2018: ‘Shouldn’t every investment be sustainable?’

Sustainable investing was a prominent theme of this year’s New Model Adviser® Retreat, with the word ‘sustainable’ coming up time and again in fund manager presentations. 

Specific environmental, social and governance (ESG) funds were being talked about with advisers. But a large number of mainstream equity funds were also keen to express how they were investing in companies with a ‘sustainable future’ or that had ESG credentials.

Among the fund managers keen to emphasise their commitment to ESG principles was Citywire A-rated Mark Denham.

Denham, who runs the Carmignac Portfolio Grande Europe fund (see performance below), told advisers Carmignac has an ESG approach embedded in the investment process across all its funds.

The Carmignac fund uses a broad exclusion list (including coal and adult entertainment for example), and a carbon emission screen.

Denham’s risk metrics include an ESG assessment and ESG factors are then monitored after the portfolio has been constructed. The fund has a minimum 40% invested in companies rated A-or-above by the MSCI ESG index.

It was not only the Carmignac fund stressing sustainability at the event. Legg Mason also said in its workshop, led by Citywire AA-rated emerging markets portfolio manager Divya Mathur, how it looks at the ESG policies of companies it invests in. His team carried out 81 private engagements with firms in 2017 to discuss their governance.

M&G Investments also included the term ‘ESG’ in its presentations, while the terms ‘sustainable’, ‘sustainability’ and ‘sustainable income’ featured in descriptions of eight out of 20 fund manager workshops.

 

Lip service

Jeannie Boyle is executive director of London-based EQ Investors, which runs its own range of impact portfolios. The portfolios are used by its clients and other advice firms looking for specialist investments.

Boyle said she saw a ‘huge increase’ in ESG being included in fund presentations at this year’s New Model Adviser® Retreat.

‘This was a common theme among a lot of presentations where they would throw in phrases like: “of course we have ESG overlay,”’ she said. ‘I honestly think there is a growing focus on people who look at these factors but most people are using it as a bit of greenwashing.’

Jon Bean, financial planner at County Durham-based Eldon Financial Planning, said it was good to see ESG ‘coming through as a theme’, however he did think it was in danger of becoming a ‘buzzword’.

‘My only reservation with ESG is it needs to be something that is not just lip service. It needs to be incorporated if you are going to use that within your marketing strategy,’ he said.

‘It was good to see [ESG] coming through as a theme, certainly more so than previous years, and it is good it is on the radar. But if it is going to be what you invest in, you need to make sure it is a river that runs right through the fund and not something people just say because it is the next big thing.’

Geoff Morrey-Jones, a financial planner at Exeter-based Prydis Wealth, said advisers need to ask more questions of fund managers about their investment decisions.

‘You have to look below the headlines and dig deep to see exactly where they are investing the money,’ he said. ‘And then to see what those companies are doing. I don’t think there is enough of that going on.

‘[Advisers] have to ask more questions of the fund managers and make them responsible for digging deeper and providing the answers you are looking for.’

As well as ESG, the phrase ‘sustainability’ was hard to ignore at retreat fund manager presentations. But it would be fair to ask: what fund manager, adviser or client does not want sustainability?

Boyle said the phrase ‘sustainability’ on its own was ‘meaningless’. ‘The word “sustainable” sounds great doesn’t it? Everyone wants something that is sustainable,’ she said. ‘But shouldn’t every investment be sustainable?’

Standout funds

Boyle (pictured above) said one of her favourite sessions was given by Sarasin & Partners. It was led by Citywire AA-rated Henry Boucher, who runs the Sarasin Food & Agriculture Opportunities fund (see performance below).

Boyle said she was impressed by the way the Sarasin fund used the United Nations’ Sustainable Development Goals to look at their portfolios and see what their impact will be on trying to achieve goals such as ending world hunger.

‘Not all of their holdings are brilliant, depending on what your views on things like dairy farming are,’ she said. ‘But anything that makes food more accessible to those who really need it and farming less harmful [is good].

‘One of the brilliant examples [Boucher] was talking about was a new pesticide spray that is deployed using a camera to recognise the leaf from the weed. So it only sprays the weed instead of spraying the whole field with harmful pesticides.’

Another presentation that impressed Boyle was by Hamish Chamberlayne, portfolio manager of the Janus Henderson Global Sustainable Equity fund (see performance below).

Last year the fund was renamed from the Global Care Growth fund following the merger of Henderson and Janus Capital. On becoming the Janus Henderson Global Sustainable Equity fund, it revised its investment policy, no longer allowing itself to invest in an unfettered range of investable assets and income. Instead it aims to invest in companies with products that provide beneficial solutions to address environmental and social megatrends.

This also involves excluding stocks based on a screening process. The fund screens out certain companies automatically, such as fossil fuels and tobacco companies.

But Chamberlayne said negative screening has not dramatically changed the fund. Because companies that make a positive difference present superior investment opportunities, he said they should be selected over less sustainable models regardless of the screening. 

Courting controversy

Chamberlayne questioned how managers offering suitability could hold companies such as Facebook, which he said had ‘fundamental conflicts’ in its business model.

Why single out Facebook? Scandals such as the release of user data to Cambridge Analytica have caused Facebook’s share price to plunge in recent months, falling 20% in July.

‘We want to see a clear link between the vision and strategy of a company, its business model and its relationship with its customers,’ he said. ‘There is a fundamental conflict in Facebook’s proposition between its vision and the way it makes money.

‘We, as a sustainable fund, feel there have been too many controversies associated with Facebook to include it within the context of our sustainable fund. We don’t understand how it can fit into a sustainable investment strategy.’

Chamberlayne said his fund had also recently ‘managed its position’ in car manufacturer Tesla, which has been mired in controversies in recent weeks thanks to its erratic chief executive Elon Musk (pictured above).

‘We believe in the long-term strengths of the company,’ said Chamberlayne. ‘[However] we have been concerned about the way the company has been behaving recently and we have managed our position accordingly.’

Izabella Grzyb, a partner at London-based Winter Dean Partnership, said she liked that the Janus Henderson pitch stressed funds should be measured in their own right, rather than just selected because of ESG features.

‘Funds need to stand up against their peers, rather than just be promoting their ESG credentials,’ she said. ‘They have to have a good argument full stop.

‘We select some of these ESG funds purely because they stand up well against their peers rather than because they are ethical.

‘[Janus Henderson] reflected something I have thought for a while. Some of these ESG funds promote themselves because they are ESG, rather than because they are just a good fund. That was quite refreshing to hear.’

NMA Retreat 2018: sneak a peak at the snaps from day 2!.

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