Explore the issues that sustainable, responsible, ESG and ethical funds consider

The difference between sustainable and responsible investments (which we refer to as ‘SRI’) and other investments is that these funds pay close attention to issues that are commonly overlooked by investors.

These issues are often catagorised as falling within the following (often interconnected) areas:

Environment

Environmental challenges, such; as climate change, pollution, biodiversity loss, environmental management, waste management, the use of natural resources – including water, forestry, mining

Social

Issues that relate to people, such as; human rights, labour standards, child labour, equal opportunities, diversity, inclusion, food supply, health and safety

Governance

Issues relating to company management, such as; board structure, diversity, executive remuneration, bonuses, avoidance of bribery and corruption

Ethical

Values based and ethical concerns, such as; tobacco, armaments, pornography, alcohol, irresponsible marketing or advertising, animal welfare, animal testing (for cosmetics, medical or pharmaceutical purposes)

Fund EcoMarket includes a  wide range of filter options that have been designed to help describe the many different issues individual funds focus on in terms that will make sense to individual investors with an interest in this area.

And beyond…

In practices these areas can be subdivided into many dozens, if not hundreds of issues and sub issues. New issues emerge all the time and existing issues evolve as public and business concern shifts and new information arises. This makes SRI both diverse and dynamic – with new ideas regularly appearing on the horizon.

Different SRI funds focus on different issues.  Some cover a wide range of issues, others focus on a small number.  Some research issues in great detail, others are more high level.  Many cluster issues together into themes such as ‘sustainability’ or ‘the environment’ – as these are areas of increasing importance and interest to both individuals and investors.

Whilst there is often a degree of consensus across the SRI community about some issues – for instance where there are international standards, legislative structures or clearly agreed upon ‘best practice models’, there are also many areas where fund managers take different views.  As a result funds consider different issues and offer different strategies – which makes them (potentially) suitable for different people.

To make matters more complex, there are also usually positive and negative side aspects to most issues. So whereas one fund manager may say ‘this fund only invests in companies with strong environmental policies’ another may say ‘we avoid companies with poor environmental policies’. In reality these are two sides of the same coin. So, although this is potentially confusing the investment outcome for both funds may be similar – assuming both look for similar attributes and have similar research processes.

Issues related research

Sustainability related research may be carried out by specialist researchers or analysts – or this research may be ‘integrated’ within a single function.

In some cases researchers may set an ‘approved’ list of stocks that the fund manager can invest in or help decide which companies fit a given fund’s investment themes or strategy.  Some funds also employ external (occasionally ‘independent’) committees to guide this process.  Alternatively selection may be driven by an index or benchmark.