ESG Funds have grown in popularity over the past 18 months as the asset management industry wakes up to investor demand for investment vehicles that provide some good, as well as a financial return.
There is a wide range of fund structures and investment mandates that could fall under the ‘ESG Fund’ banner. This is illustrated below in three funds that vary in their approach from ones that set out make a measurable positive impact to those that simply try to avoid allocations to unethical companies.
iShares MSCI World ESG Enhanced UCITS ETF
The first fund demonstrates portfolio construction that selects companies with strong environmental, social and governance characteristics that on the face of it, may look like a straightforward equity fund.
This ETF’S top holdings are dominated by US technology shares such as Apple, Microsoft and Facebook, and looks very similar to any other ETF tracking the world’s largest companies.
However, the ETF excludes companies in sectors such firearms, tobacco and thermal coal.
This approach means investors avoid investing in unethical companies through the screening out of certain sectors.
However, this may not go far enough for investors that are seeking to invest in companies with goods and services that are tackling pressing matters such as global warming and extreme poverty head on.
The Tech For Good SEIS & EIS Fund
Whilst the prior fund simply excludes those deemed to be unethical, The Tech For Good SEIS & EIS Fund, run by Bethnal Green Ventures, actively seeks out investments in companies that are providing positive social and environmental impact.
The focus is on technology companies that can provide a positive impact at scale. The fund has so far backed 127 ‘tech for good’ ventures with initial funding rounds of
Examples of portfolio companies include aeroponic food venture, LettUs Grow, and EdTech firm Chatterbox that trains refugees to tach languages online.
The fund is structured as a EIS fund only open to high net worth and sophisticated investors and will not be available to retail clients. This reflects the high risk nature of the Tech for Good Fund compared with the other funds included in this article but has the aim of returning £2.00 for every £1.00 invested, net of fees.
The guidance term for the fund is seven to ten years.
The Baillie Gifford Positive Change Fund is clear in it’s mandate to seek out companies that directly contribute the United Nation Sustainable Development Goals (SDGs).
The managers of the fund undertaking a significant level of SDG mapping to ensure the companies in the portfolio are actually driving a positive change.
Baillie Gifford also say they want to avoid companies ‘merely aligning with a theme at a superficial level’ or want to appear to be helping the SDGs through business practises as opposed to underlying business activities or objectives.
As a note, the first fund mentioned in this article in ‘iShares MSCI World ESG Enhanced UCITS ETF’ may be labelled by some as falling into the category of superficial ESG, or even greenwashing.
As of the end of June, the top holding was in the Baillie Gifford Positive Change Fund Tesla with 9.5% of the fund. Dexcom, the producer diabetes management systems accounted for 6.6%.