Fund Size: £337.00m

Total screened & themed / SRI assets: £1800.00

Total Responsible Ownership assets: £1800.00

Total assets under management: £1800.00

As at: 06/07/24

Overview

Filters

Fund information

Policy

EQ Future Leaders are a range of passive, multi-asset portfolios for retail and institutional investors who want to invest sustainably at a low cost. EQ Future Leaders combines investors’ growing preference for socially responsible portfolios with the increasing popularity of low-cost passive funds. The portfolios are diversified, global, liquid and passive and target “ESG leaders” across sectors, with sustainable thematic overweights.

The key objectives of the EQ Future Leaders Portfolios are as follows:

• Maximise risk adjusted financial returns, outperforming our benchmarks.
• Maximise the sustainability credentials of the portfolios.

EQ Future Leaders portfolios select the most sustainable investments based on three criteria:

• Demonstrate leading Environmental, Social and Governance (‘ESG’) ratings([1]), and exclude controversial sectors.
• Provide an overweight to sustainable themes, aligned with the UN Sustainable Development Goals.
• Achieve a lower portfolio carbon footprint than market benchmarks.

• Remain low cost. This is predominantly achieved by using rules-based index tracking funds and ETFs, which have lower fund charges than actively managed funds.

[1] SRI indices selected for EQ Future Leaders are built using MSCI ESG ratings. See methodology here

Process

There are many approaches to integrate sustainability credentials into index constructions. We apply the Impact Management Project’s ABC framework in order to screen the universe for funds that meet the EQ Future Leaders’ sustainability credential objectives.

• Avoid harm
  • We select indices that strictly screen out companies operating in the most controversial sectors and activities. This means the EQ Future Leaders Portfolios avoid exposure to tobacco, armaments, alcohol, pornography, gambling…
  • Additionally, we avoid companies involved in social and environmental controversies, by focusing on indices that positively select the most responsibly managed companies[1] in each sector.
• Benefit stakeholders
  • Stakeholders of companies include their employees, the environment in which they operate, their customers, or the communities in which they place their operations.
  • We select indices that have a rules-based approach at positively selecting the most responsibly managed companies (top 25%) in each sector, using ESG scores[2] as proxy for this.
• Contribute to solutions
  • Companies can contribute to solutions attempting to resolve the greatest environmental or social challenges through their core business model (or products/services).
  • We select indices that have a thematic rules-based focus on selecting companies aligned to sustainable themes that contribute positively to the UN SDGs. Examples are healthcare or clean energy.

Core indices

The EQ Future Leaders portfolios will mainly invest in those tracking funds or ETFs where the underlying indices apply the MSCI SRI methodology. We deem these to provide the best sustainability outcomes for our clients, as they combine the strictest screens on businesses that cause harm and a positive screen of the most sustainably managed businesses in each remaining sector. We also came to this conclusion following our analysis of the underlying investments via our SDG mapping and carbon analysis (see section below).

The methodology applied by the MSCI SRI index range can be summarised as follows, andplease refer to the linked document for more details:

• Negative screens: businesses that are involved in the following criteria are excluded from the MSCI SRI index
  • Controversial Weapons, Civilian Firearms, Nuclear Weapons, Tobacco, Alcohol, Adult Entertainment, Conventional Weapons, Gambling, Genetically Modified Organisms, Nuclear Power, Thermal Coal, Fossil fuel exploration and production
• ESG integration: Companies within the parent index that achieve an MSCI ESG score below ‘BB’ are excluded, which means that the resultant index focuses on the top 25% best ESG performers in each sector. This can be synonymous with the most sustainably managed companies in each sector.Selecting satellite funds from the universe
• Paris aligned benchmark rule aligned. Please see details here, it is a EU framework: https://www.msci.com/our-solutions/climate-investing/climate-indexes/eu-paris-aligned-benchmark
  • Reduce the index-level carbon intensity by half (50%) relative to the parent index.
  • Reduce the index-level carbon intensity each year by 7% (relative to the previous year climate index intensity).

Satellite sustainable themes:

The EQ Future Leaders portfolios include sustainably themed tracker funds or ETFs in order to maximise their sustainability credentials and return potential. These thematic trackers are aligned with our Asset Allocation views where we look to overweight themes with structural long-term tailwinds.

The UN Sustainable Development Goals (The Global Goals) provide a framework to outline the most pressing social and environmental challenges we face. These were agreed in 2015 by over 190 countries around the world. We want to help clients invest in companies that are providing solutions to tackle these challenges

As of June 2023 the EQ Future Leaders portfolios have an overweight to the following sustainable themes:

• Green bonds: these are fixed income securities, where proceeds are only used to finance defined green projects, aligning to the ICMA green bond principles.
• Healthcare innovation: we support companies that are help prevent, treat and cure disease.
• Decarbonisation: we support companies offering products and services that enable CO2e avoidance and help the world transition to net zero.
• Clean water: We invest in companies that are actively engaged in the international clean water industry through the provision of technological, digital, engineering, utility and/or other services.
• Digital security: We support companies that are involved in the transmission, safeguarding and/or handling of sensitive data, and/or access control of secure locations (e.g. data centers).
• Sustainable development bank bonds: these are fixed income securities, where proceeds help finance development needs of emerging markets, fully aligned to the UN Sustainable Development Goals.

These overweights allow us to increase the overall proportion of the underlying portfolio companies that contribute to solutions, which we report on through our SDG mapping.

[1] Based on E, S and G ratings per sector (MSCI)

[2] Based on MSCI ESG methodology

Resources, Affiliations & Corporate Strategies

EQ Investors and its employees have been involved in impact investing since 2008, and this experience led us to the creation of the Positive Impact Portfolios in 2012, with the objective of making impact investing available to mainstream investors.

Since then, EQ Investors has built out its sustainable investing capabilities. We launched the EQ Future Leaders MPS range in early 2020, a passive sustainable proposition. We also offer bespoke sustainable investment services tailored to specific client sustainability and financial objectives.

We are a team of 13, comprising:

• 3 full time investment analysts with different sector coverage
• 2 full time staff covering sustainability due diligence, monitoring, engagement, impact measurement
• 2 portfolio managers, heading impact and macro research too
• 3 investment managers
• 1 assistant portfolio manager
• 1 director involved in strategic investment decisions
• 1 client support and product specialists

Additionally, we are supported by operations and platform administration team (4 people), marketing (3), and an internal IT team (4 people).

All the fund and asset allocation research is carried out internally, but we have access to external data providers to provide research data input.

Given that EQ is a sustainable investment manager, our sustainable investment approach is fully integrated across our research process to avoid over-reliance on key individuals. Therefore, all members carry out relevant aspects of sustainability research, integration or engagement. In addition, all EQ fund analysts are actively contributing to the ESG assessment, fund monitoring and implementing the sustainability objectives of our portfolios.

A dedicated Board Report is produced that summarises key innovations, proposes changes and keeps the bridge between implementation and oversight. There is a Sustainability Oversight Committee (SOC) which acts as a quarterly forum to monitor, at a higher level, that all of EQ’s sustainability claims are met, that EQ aligns to the changing regulatory demands and remains at the forefront of sustainable investment innovation. While our dedicated sustainability team stays ahead of incoming regulation, industry frameworks and client expectations to manage this over the long term, the SOC provides the appropriate governance structure. Beyond its monitoring responsibility, the SOC aims to for members to be able to openly discuss “conflict of interest”, “mandate drift”, and any proposed innovations.

Affiliations:

UN PRI, CA100+, ShareAction, Access to nutrition, World Benchmarking Alliance, Access to Medicine, UN PRI Spring, B Corp

Dialshifter

This portfolio is helping to ‘shift the dial from brown to green’ by…

The EQ Future Leaders Portfolios have been designed with a view to invest in companies that are industry leaders in terms of their environmental practices or are developing innovative solutions to tackle the largest issues the world is facing including climate change. By supporting the issuance of green bonds, financing of low carbon solutions as well as engaging with companies to push them to reduce their carbon emissions, the EQ Future Leaders Portfolios are sharing the ethos of the Dialshifter to make the fight against climate change a high priority for all stakeholders.

Our organisation is helping to support the Paris Climate Agreement and the Race to Net Zero by…

Being a signatory of the B Corp Climate Collective NetZero 2030 initiative, EQ Investors has committed to net zero emissions by 2030. EQ wants to accelerate the reduction of greenhouse gas emissions to reach a 1.5-degree trajectory leading to net zero by the year 2030—20 years ahead of the 2050 targets set in the Paris Agreement.

EQ Investors has also joined the influential Climate Action 100+ group of investors. The initiative is aimed at pushing the world’s largest corporate greenhouse gas emitters to take action on climate change.

Literature

• Portfolio factsheet example (Balanced)
• EQ Future Leaders Policy and Objectives
• EQ Future Leaders Report 2024
• EQ Future Leaders Client Brochure
• Resources hub

Last amended: 31/01/24 06:58