Matching money with morals – The rise of ESG funds

Today, with a world under siege from a devastating global pandemic and increasing emphasis on climate change and wider social issues, the propensity for investors to seek out investments that provide some good to the world while offering financial returns is growing, as is the market for ESG funds that can support this objective.

In his annual letter to global business leaders (26 Jan 2021), Larry Fink – CEO of the world’s largest asset manager BlackRock said the pandemic “has presented such an existential crisis…..that it has driven us to confront the global threat of climate change more forcefully and to consider how, like the pandemic, it will alter our lives.”

BlackRock, arguably the most influential financial firm in the world, managing $8.7 trillion dollars of savers’ money is now pushing for companies to adopt the 2050 net zero emissions goal. Companies, investors and indeed governments are listening and beginning to change practices and commit to sustainability targets.

What does this mean for the investment landscape?

One of the megatrends shaping the asset management industry today is the growing popularity of Ethical, Social and Governance (ESG) investing. Simply put, ESG investing is investing in companies with good ESG practices and shouldn’t be confused with impact investing which is investing in companies that sell solutions, products, and services that help the world achieve its sustainability goals.

ESG investing covers almost all asset classes, from equities and fixed income through to highly tailored private investment vehicles. One of the distinguishing characteristics of ESG funds is their long-term focus and multi-year cycle. Despite this, profits and performance levels remain high.

According to a research report (2020) by PwC, assets held in sustainable funds in Europe will outnumber those in traditional funds in the next five years. Funds that invest using environmental, social and governance (ESG) factors will see their value jump to £6.89 trillion and increase their share of the European fund sector from 15 per cent to a colossal 57%.

While challenges remain in ESG investing, these are outweighed by the opportunities. Here is a snapshot of some of the rising stars in the ESG funding world:

RobecoSAM Sustainable Water
Robeco, an international asset manager and pioneer of sustainable investing since the mid-1990s have created what is a forward-looking concept fund focusing on water resources. With rising demand as the world’s population grows and becomes increasingly urbanised, a sustainable water supply is critical to our survival.

The RobecoSAM Sustainable Water Strategy invests globally in companies offering technology, products and services that address the challenges related to the quantity, quality and allocation of water, such as water distribution, management treatment, analysis and irrigation.

ESG is now integrated into Robeco’s investment process and portfolio representing EUR144 billion of assets under management (as of June 2020).

Baillie Gifford Positive Change
This is a relatively new fund launched in January 2017 but has demonstrated strong performance in this short time. The fund invests in a portfolio of 25 to 50 global high quality companies which can deliver positive change in one of four areas: (1)Social inclusion and education; 2) Environment and Resources needs; 3) Healthcare and Quality of Life and 4) Addressing needs of world’s poorest populations.

The fund made the news recently as it is one of the major backers behind the US biotechnology company “Moderna” which rolled out their successfully trialled Covid-19 vaccine around the world alongside AstraZeneca and Pfizer.

The fund’s largest exposure is in the health care sector (35%), while its top 10 holdings include Tesla, Alphabet, and Taiwan Semiconductor Manufacturing Company. Although it is seen as a high-risk fund and therefore wouldn’t suit every investor risk profile, fund performance and reported returns have been very good so far.

Bluefield Solar Income Fund
Established in 2013, BSIF is an investment company focused on the acquisition and management of large-scale solar energy in the UK. The fund seeks to provide investors with attractive returns and offers investors access to over 100 solar PV projects assets spread across England, Wales and Scotland. These are typically large agriculturally situated solar farms, with a small number (by energy capacity) of industrial and commercial sites. Their latest acquisition of a 15 operational solar photovoltaic (‘PV’) plants with a total installed capacity of 64.2-megawatt peak to complement their portfolio was completed on 20 August 2020.

Last Summer, the Company’s shareholders voted to broaden the investment mandate into complementary renewable technologies, such as onshore wind, hydro and storage.

Carbon Cap Management
Carbon Cap Management is a London-based environmental investment company whose mission is to raise awareness about climate change and to provide solutions directly related to the capping and reduction of carbon dioxide emissions.

Their World Carbon Fund focuses on investing globally into liquid and regulated carbon markets or Emission Trading Systems (ETS) and provides multiple opportunities to generate positive and absolute returns that are uncorrelated to other asset classes. With a market capitalisation of £509m as of 30 September 2020 and an experienced team across specialisms including carbon pricing, carbon trading, fund management and alpha generation, the fund looks to flourish and is well suited to capitalise on the climate change priorities and policies being brought forward by governments.

The Renewables Infrastructure Group (TRIG)
TRIG offers a sensible one-stop shop for investors wanting a broad exposure to renewable energy projects and assets covering solar, wind and battery storage across several countries. With £1.95bn of assets under its belt and an attractive yield, they offer diversification and are well placed to prosper from the UK’s Government offshore wind commitments and decarbonisation policies.

They have recently acquired a 17.5% stake in an offshore wind farm off the north-east coast of Scotland.

If you would like to find out more about how PR could raise your fund profile in the media, why not get in touch with a member of our award-winning team today.

This blog is for information purposes only and the content is not intended to be a qualified recommendation to invest directly into these funds.

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