FP WHEB Sustainability (OEIC/Unit Trust)
SRI / Ethical Overview
The FP WHEB Sustainability Fund is a long-only global equity Fund, with a multi-thematic focus on investing in “solutions to sustainability challenges”. Long-term social, demographic, environmental and resource challenges are reshaping the global economic landscape; creating new investment opportunities for companies providing solutions to these challenges, and growing risks for those sectors that deplete human and natural capital. We have identified nine diverse themes with superior long-term growth prospects, ranging from Resource Efficiency and Water to Health and Education. Environmental, Social and Governance analysis, along with other long term qualitative measures of corporate strength and resilience, forms an integral part of our investment analysis.
SRI / themed / ethical assets under management – overview
- Fund Size (GBP): £155 million
- Total value of SRI/ethical/environmental/ social/ environmental or sustainability themed funds under management: £155 million
- Total value of assets covered by responsible ownership policy: £155 million
- Total assets under management: £155 million
SRI Policies (Primary strategy in bold)
- Environmental policy Find investment funds with environmental policies - ie that consider issues such as pollution, climate change, resource management, environmental impact. This will include options from all of the different SRI Styles, including funds where their core strategy is to focus on other areas such as ethical funds. See fund information for fund specific policy details.
- Health & wellbeing policies Find ethical or sustainable investment fund options that have a policy which supports (ie aims to invest in) companies that are viewed as offering positive lifestyle, health or wellbeing related benefits.
- Limits exposure to carbon intensive industries Find environmental, sustainable investment, ethical fund and other options that aim to significantly reduce or limit exposure to carbon intensive industries (ie sectors which are major contributors to climate change). Funds vary - strategies may involve excluding sectors such as coal, oil & gas, mining or airlines - or may indicate a 'best in sector' approach is taken. See fund literature for details.
- Measures positive impacts Find funds that measure the positive effect of their investment decision making on society and/or the environment. (This may involve eg carbon saved or jobs supported.) Managers aim to quantify the benefits they deliver (relative to other strategies or other benchmarks) to ensure they are delivering positive benefiting. This is a new and evolving area. See fund literature for information
- Sustainability policy Find fund options that consider issues relating to the sustainability agenda (e.g. resource management, environmental impact, climate change and/or social issues such as equal opportunities, human rights and adherence to recognised codes). This will include funds from all of the different SRI Styles. See fund information for explanations of the different strategies.
- Ethical policies Find funds with 'traditional' ethical investment policies. These typically focus on avoiding companies that are involved in the armaments industry, tobacco, gambling and/or pornography. Options will include funds where their core strategy or style may be to focus other issues - like sustainability or the environment, not just 'ethical funds'. Strategies vary significantly. Check fund literature for details.
- Social policy Find fund options that consider social issues (e.g. human rights, labour standards, equal opportunities, child labour and adherence to internationally recognised codes such as the UN Global Compact). This will include funds in most of the different SRI Styles as this is considered a core issue. See fund information for detail.
- Governance policy Find fund options that have policies that relate to corporate governance issues such as board structure, executive remuneration, bribery and/or corporate corruption. These funds will typically avoid companies with poor practices.
- Animal welfare policy Find ethical fund options that have policies that require specific animal welfare standards to be adopted by investee companies in order for them to be considered for inclusion within the fund.
- Nuclear exclusion policy Find ethical funds (and other options) that have a published policy that sets out the fund's position on avoiding or limiting exposure to nuclear power. See fund literature for details of their policy.
- Animal testing exclusion policy Find ethical investment options that avoid companies that are involved in testing their products on animals. Ethical fund strategies vary - some exclude all companies that test on animals, others allow companies that test for medical purposes or where required by law. Read fund details for fund specific information.
- Tobacco production avoided Find fund options that exclude manufacturers of tobacco (or related) products. This typically relates to ethical funds however funds from other SRI Styles commonly avoid this area also. Strategies vary and funds may invest in retailers of such products (e.g. supermarkets or hotels.) See fund information for further information.
- Armaments manufacturers avoided Find ethical fund (and other SRI) options that avoid avoids companies that manufacture products intended specifically for military use. Fund strategies vary - particularly with regard to non strategic military products. Read fund literature for specific details.
- Coal, oil &/or gas majors excluded Find sustainable investment and ethical fund options that avoid significant involvement in coal, oil and/or gas producing companies. Funds vary. See individual fund literature to confirm details.
- Climate change / GHG policy Find sustainable investment and ethical fund options that pay significant attention to climate change related issues such as greenhouse gas/carbon emissions. Strategies vary, see fund literature for individual fund information.
- Invests in clean energy/renewables Find ethical, sustainable investment and other environmentally aware fund options that aim to invest in companies in the clean technology and renewable energy sectors. Fund strategies vary. Some funds may have limited exposure to this area, others may have significant exposure. Check fund literature for details.
- Fracking and tar sands excluded Find fund options that avoid companies involved in fracking and tar sands - which are widely regarded as more controversial methods of oil and gas extraction.
- Gambling avoidance policy Find ethical fund options (and other options) that avoid companies with significant involvement in the gambling industry. See fund policy for details.
- Pornography avoidance policy Find ethical fund option - and in some cases other options - that avoid companies that derive significant income from pornography. See fund details for further information.
- Human rights Find funds that consider human rights practices when approving companies for investment. Such funds will require decent standards of human rights to be demonstrated - which typically means adherence to international norms as a minimum standard.
- RSMR Rated Find funds that are rated by research agency 'Rayner Spencer Mills Research' (awarded 'RSMR SRI Rated' status). Read fund literature on contact RSMR for further information.
- Positive selection bias Find funds where their main 'ethical approach' is to invest in companies that are considered to be positive/good or useful to people and/or the environment. The fund may also have negative avoidance criteria - see fund details to read more about fund strategies.
- Negative selection bias Find funds where their main 'ethical approach' is to avoid companies by using negative screening criteria. Read fund literature for further information.
- Balances company 'pros and cons'/best in sector Find ethical funds and other options that consider both the 'positive' things companies do and the 'negative' things they do in order to make balanced, often complex decisions about where they might invest. Such funds often invest in the best/most ethical companies across most industries ('best in sector'), rather than excluding entire sectors. The fund manager may combine this with 'responsible engagement' activity to encourage better business practices. See fund literature for specific policy explanations.
- Eurosif transparency Find funds that meet the standards of the EUROSIF transparency Code. This means that they are a leading fund in terms of openness and transparency, publishing - for example - extensive information about where they invest and how they deal with companies.
- Sustainability themed Find funds where there is a significant emphasis on sustainability issues either as its primary strategy or as a core strategy that compliments other criteria. (This may apply to a number of different SRI Styles). Such funds will consider environmental and social issues when making stock selection decisions. Read fund literature for further information.
- Favours cleaner, greener companies Find funds that aim to nvest in companies with strong environmental policies and practices. This may mean it invests in smaller companies offering market leading environmental services or products and/or larger companies that are working towards the improved management of their negative impacts. Read fund literature for further information.
- Favours companies with strong social policies Find funds that invest in line with positive strategies that relate to 'people' issues - such as having strong human rights, labour standards and equal opportunities practices. Such funds are likely to invest in companies that have market leading standards with regard to employee and supplier practices. Read fund literature for further information.
- Faith friendly Find funds that have attributes that commonly suit the aims of investors of faith - although they may not be specifically marketed as being only for religious investors. Strategies vary (as do investor aims). Read fund literature for further information.
- Strictly screened ethical fund Find funds that have a high level of negative ethical avoidance. These funds are likely to exclude more companies than other ethical (and SRI) fund options. Read fund literature for further information.
- Aims to generate positive impacts Find funds that aim to help deliver positive social or environmental impacts or outcomes through their investment decisions - which typically involves holding companies that are viewed as being necessary or beneficial. Strategies and approaches vary. A small number of funds have recently started to measure outcomes (see 'Measures Impacts' in the Policy filter). This is a new area - so most funds do not do this yet. See fund literature for further information.
- Available via an ISA Find funds that are available via a tax efficient ISA product wrapper
- Over 50% small/mid cap Find funds where more than half of the funds' assets are invested in smaller or medium sized companies (ie below around £5 -10 billion).
- ESG/SRI engagement Find funds and fund management companies that actively encourages higher 'environmental, social and governance' and/or 'sustainable and responsible investment' practices amongst investee companies - when positive change is aligned with the best interest of investors. This may apply to a single fund or a group of funds. Read fund literature for further information.
- PRI signatory Find fund management companies that have signed up to the UN backed 'Principles of Responsible Investment' initiative.
- Boutique/specialist fund manager Find options offered by smaller, more specialist fund management companies with a significant (or entire) emphasis on sustainable, responsible, ethical, ESG or responsible ownership related investment strategies. Note - strategies vary significantly. Check fund manager supplied links for further information.
SRI / Ethical Policy
The investment philosophy of the fund is built around sustainability, growth, quality and valuation. The fund is focused on nine sustainable investment themes; five environmental (cleaner energy, environmental services, resource efficiency, sustainable transport and water management) and four social themes (education, health, safety and well-being); Individual stocks are selected through a ‘bottom-up’ stock-by-stock fundamental and rigorous research process.
- The fund is focused exclusively on companies providing solutions to sustainability challenges;
- We add value through expert understanding of the sustainability themes, new technologies and business models as well as through individual stock selection based on superior insights into companies in our portfolio.
- Focusing on companies that provide solutions to critical environmental and social pressures confronting society creates an investment universe with superior growth prospects.
- From this universe we invest in sectors and themes with high growth that are typically under- appreciated by the broader market.
- High quality companies are more likely to capture growth opportunities, and we believe that a company’s environmental, social and governance (ESG) profile is an important and under-appreciated indicator of quality.
- Our research combines ESG with traditional financial analysis at every stage of a methodical process revealing important information about a company’s growth potential and risk profile.
- We also believe that engaging with companies to challenge them on a range of ESG issues, and analysing their responses, further adds to our knowledge and understanding of a company.
- The culmination of our investment process is to determine whether a company is attractively valued, or what would represent an attractive entry point for a stock.
- The fund style is best described as quality, sustainable “growth at the right price” (GARP).
- We use a range of valuation techniques, both on an absolute basis and relative to a bespoke global peer group of comparable companies.
- We also use an historical perspective to assess the range of valuations over a longer time period
Top-down Theme Selection
We live in a rapidly and profoundly changing world. Successful thematic investing is about understanding these changes and investing in those parts of the market that benefit from them, while avoiding those that suffer. We have identified four ‘mega-trends’ that are exerting a powerful influence over the development of the global economy. The four trends we have selected are not intended to be comprehensive, but focus above all on the key social and environmental challenges that are playing an increasingly central role in shaping the global economy. The trends we have identified are:
1. Resource scarcity
2. Ageing population
3. Rising population/rising living standards
It is our conviction that these trends will persist for decades and are creating real market opportunities for companies providing solutions to mitigate or ease the challenges that these forces create.
We have selected nine investment themes which we use to focus our attention on companies that provide solutions to the challenges posed by the mega-trends and therefore have the potential to significantly grow their earnings. They include four social and five environmental themes:
Negative Ethical Screens
The fund does not employ negative screens, but it is worth stressing that the positive screening approach means that the fund has zero/immaterial exposure to controversial industries such as fossil fuel extraction, cigarette manufacturing, gambling, pornography and weapons manufacture as these industries do not form a part of the fund’s investment themes and so cannot be held in the fund. Furthermore, the fund will not have any exposure to the manufacturing of controversial weapons such as cluster munitions and land mines, in line with international regulations banning investment in these industries (see for example http://www.stopexplosiveinvestments.org/legislation).
Active Company Engagement
Engagement is both an output of, and an input into, the investment process. As an output, engagement allows investors to feel more connected to the companies they hold via our fund, and to know that we are working on their behalf to make companies more responsible in the way they do business. As an input, engaging with companies is a further means by which we can gain insight into a company and its management. The way in which a company’s management responds to specific challenges raised through the engagement process can reveal a great deal about that company’s attitude to its stakeholders, risk and other issues.
The Themes: well diversified growth opportunities
Resource Efficiency: Driven by raw material scarcity and cost, demand for resource efficiency technologies is anticipated to grow from US$317bn in 2009 to US$1.2trn by 2020. Key sub sectors we focus on include energy storage, low energy lighting, process management, energy services, insulation and building efficiency.
Environmental Services: Regulators around the world continue to push higher environmental standards to address environmental contamination. US waste management alone was worth US$75bn with environmental consulting worth a further US$25bn in 2011. Key areas of focus include environmental consulting, waste treatment and recycling, and pollution control and monitoring.
Water Management: The natural resource with no substitute, water is also increasingly under pressure as population growth and urbanization and industrialisation in water-stressed regions adds to demand. The US$450bn theme includes 13 sub sectors covering defensive utilities as well as new growth technologies in purification, desalination, irrigation and water treatment.
Health: Growing demand for healthcare affects both developed and emerging economies such as China and Brazil, where spending is anticipated to grow from US$45bn to US$72bn from 2010-2020. However, this demand is matched by growing pressure on healthcare budgets. Therefore, an area we prioritise is companies delivering healthcare at reduced cost including healthcare IT, diagnostics and homecare, thus delivering both cost controls and technological advance.
Well-being: A counterpart to demand for healthcare is a growing industry in health, fitness and palliative care. In part driven by rising levels of obesity and ageing around the world, consumers are increasingly focused on healthy products, fitness and palliative care. Sub-sectors in this area include elderly care and support (a US$140bn industry in the US alone), fitness (a US$19bn industry in the US) and healthy and ‘ethical’ food.
Cleaner Energy: With a strong long-term growth profile, clean energy technology provides a solution to climate change but also to energy security and resource scarcity and is still poised to make a major contribution to global electricity supply. China alone expects 15% of energy to come from renewables by 2020. Key sub-sectors include solar and wind energy, marine energy, geothermal, biomass and waste-to-energy.
Sustainable Transport: Supported by demands for increased resource efficiency, rising regulatory standards around automotive emissions, and growing levels of urbanisation and congestion, the sustainable transport theme is well-positioned for long-term growth. Key areas in the theme include emission reduction, fuel efficiency, hybrid and electric vehicle, bus and rail, and video-conferencing.
Safety: Driven in part by rising living standards, demographics, increased trade across regions and urbanisation, greater security is increasingly an integral part of industrial, transportation, health, commercial and on-line activity. Key areas of focus include fire safety, product testing, automotive safety and on-line security.
Education: Education is often highlighted as one of the two most important areas of discretionary expenditure for emerging middle classes (the other is health). Demographic change is also supporting increased demand for ‘life-long learning’. Straddling many sectors we focus on the whole value chain from information technologies to corporate and professional training and educational support services.
Resources, Affiliations & Corporate Strategies
The Investment Team of 4 combines a range of complementary skills and experience, including fund management, accountancy, corporate finance and environmental expertise. Tim Dieppe is the lead fund manager and makes the final investment decision, but the approach is collaborative and all members of the team are involved in the discussion on each investment decision. The objective is that each member of the investment team will feel responsible for the performance of the total portfolio. The team actively encourages challenging of each other’s ideas, being conscious of the risks of groupthink. The fact that team members have a variety of backgrounds also mitigates groupthink and other behavioural biases.
Tim Dieppe, ASIP (Partner, Fund Manager)
Tim has been manager of the FP WHEB Sustainability Fund since April 2012. He repositioned the fund to closely resemble the Industries of the Future fund which he managed for seven years at Henderson Global Investors.
Seb Beloe, DIC, CEnv (Partner, Head of Sustainability Research)
Seb is Head of Sustainability Research and previously had the same role at Henderson Global Investors. Prior to Henderson, Seb was the Vice President of Research and Advocacy at SustainAbility.
Ted Franks, Chartered Accountant, CFA (Partner, Associate Fund Manager)
Ted helped to launch the Sustainability Fund in June 2009. Before joining WHEB, Ted held corporate finance and accountancy roles at Dresdner Kleinwort and KPMG, advising on investments in the renewable energy, water, waste and healthcare sectors with a total value of over €15bn over seven years.
Ty Lee, CFA (Senior Analyst)
Ty works with the rest of the investment team carrying out in-depth analysis of companies in the portfolio and potential stock ideas. Prior to joining WHEB, Ty held consulting roles at UOB Asia in Hong Kong, and at Morgan Stanley and Accenture.
The team uses a wide range of external sources of information as inputs into the investment process.
We have a research relationship with Sustainalytics which provides data on ESG factors for portfolio holdings and potential investments. We use media monitoring services Factiva and Meltwater to monitor for ESG news items which are not always picked up on the usual financial newswires. We follow NGO activity and research in areas relevant to the fund. ESG factors are periodically also assessed across the fund. The team assesses the relative risks of companies held in the fund to corrupt practices, using a red flag system the team developed together with PWC. This has led to engagement with some of our holdings on how companies go about managing those risks. In another exercise, the tax rates of fund holdings were assessed and which led to engagement with certain companies about how aggressive their tax management is.