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Name: Sustainability ‘Tilted’ funds

Investment funds which integrate sustainability issues into investment decision making

[NEW /UNDER DEVELOPMENT]

Brief description of Style

‘Sustainability Tilted’ funds consider sustainability related issues when defining (or deciding) where to invest. They may also have areas of exclusions and may work to encourage more sustainable business practices and standards through Stewardship / Responsible Ownership activity.

Funds with a ‘Sustainability Tilt’ do not necessarily use sustainability considerations as a key driver of investment strategy and may have a different theme (e.g. focused on a named resource or industry) – although they will help inform and shape where the fund invests.

SRI approach applied

Fund managers select companies that fit their published investment universe which meet certain  sustainability requirements.

Funds may invest in all (or most) sectors and may invest significantly in larger, blue chip and mega cap – sometimes controversial – companies, providing they fit their criteria.

May follow a named theme and use sustainability factors to help inform stock selection decisions.

Likely to focus on how organisations operate rather than necessarily what they make or do.

For funds with a named ‘tilt’ the manager can be expected to be ‘overweight’ in companies they consider to be more ‘sustainable’ and ‘underweight’ in those that are less ‘sustainable’.  This may mean they invest less money in ‘less sustainable’ companies, rather than excluding them.

A ‘sustainability tilt’ may allow a fund manager to invest across all or most sectors.  Investments of this kind may exclude certain sectors or use an index to dictate exclusions in line with a named international convention (e.g. the UN Global Compact).  Alternatively they may tilt towards a positive convention such as the UN Sustainable Development Goals.

These funds will not generally have a major focus on ‘solutions companies’ or ‘delivering positive impacts’ (see ‘Sustainability Themed’ funds for this).  Their work may, however, be supportive of the need to transition to higher sustainability standards as they reduce their level of investment in ‘sustainability laggards’.

They may have a significant focus on ‘responsible ownership’ (stewardship) and use their position as shareholder (part owners) to encourage higher sustainability standards.

For some funds this may be a core part of a well-resourced strategy where companies are only excluded if they fail to respond to requests to improve.

The ‘Policy’ and ‘Approaches’ filters, as well as text and links, on Fund EcoMarket help to explain these areas further.

SRI Issues

The core ‘issue’ for these funds is (environmental and social) ‘Sustainability’ – with higher standards being viewed as likely to support longer term business success.

Relevant issues include the management of climate risk, use of natural resources, employee practices, diversity and governance.

Likely to either exclude or have below market average exposure to armaments companies, tobacco companies and coal companies.

Likely to be underweight in major polluters and companies that contravene internationally agreed ‘norms/standards’.

Major oil companies may or may not be excluded.

Variation across Style segment

To be in this SRI Style the manager must consider (forward looking) sustainability issues, however approach and resources vary.

Funds in this group may look ‘conventional’ – and for some (but not all) it is the ‘behind the scenes’ voting and engagement activity that differentiates them from other (non-sustainable) funds.

Some funds will exclude only a tiny fraction of their ‘universe’ based on ESG or sustainability scores, ratings or indices – others go further.

Exclusions and responsible ownership strategies vary (where applicable).

Funds may be marketed/promoted as being ‘sustainability themed’ which may cause controversy.

Funds not marketed as ‘sustainability themed’ are notable because they consider sustainability factors when their peers generally do not.

Use ‘Corporate Activity’ filter, text and links on Fund EcoMarket to see fund information that goes beyond stock selection (e.g. voting, engagement).

Impact on investment strategy

Fund managers invest in companies that are expected to be more successful than their peers because they manage sustainability and ESG issues better than their (‘mainstream’) peers. These funds are not necessarily aligned to ‘sustainability themes’ – but consider sustainability issues.

Who is this Style most likely to appeal to?

Ideal for those who want to invest across all or almost all areas with sustainability issues taken into account (as set out in fund literature).

Associated Styles

Some of these funds have much in common with ‘ESG Plus’ (where there is often more of a backward looking focus on ‘ESG risk mitigation’) and ‘Sustainability Themed’ funds which typically project forward to look at where we need to be heading. May also be similar to some ‘Balanced Ethical’ and ‘Environmental Themed’ funds.

Associated labels

Sustainability, responsible ownership (using share ownership to encourage higher standards), transition

Providers

Fund providers include major investment organisations with extensive holdings across most sectors.

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