Fund Name | SRI Style | Product | Region | Asset Type | Launch Date | |
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7IM Sustainable Balance Fund | Sustainability Select | OEIC/Unit Trust | Global | Mixed Asset | 02/02/2007 | |
Fund Size: £166.10m Total screened & themed / SRI assets: £166.10 Total Responsible Ownership assets: £226.80 Total assets under management: £18800.00 As at: 30/06/23 Contact: Getintouch@7im.co.uk |
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OverviewThe 7IM Sustainable Balance Fund is an actively managed fund with a balanced risk profile, invested in a range of global equities, bonds and funds managed within a sustainable investment framework. The fund assesses environmental, social and governance factors in determining what assets to invest in. As part of this, the fund employs a two-stage screening process comprising of investment restrictions and positive screening o select investments with high or improving environmental, social and governance standards. The first stage of the screening process ensures companies from certain industries (such as alcohol and gambling) are precluded from investment at the outset. The second stage screens the remaining investment universe to identify companies which, although in acceptable industries, nonetheless, exhibit unacceptable conduct. Positive screening is then applied to identify companies which exhibit positive ethical conduct (such as sustainable environmental practices and conscientiousness with regard to human rights). |
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FiltersFund informationSustainabilitySustainability policy Sustainable transport policy or theme Sustainability theme or focus Sustainability focus Encourage more sustainable practices through stewardship Transition focus Nature & BiodiversityAvoids genetically modified seeds/crop production Climate Change & EnergyInvests in clean energy / renewables Encourage transition to low carbon through stewardship activity Targeted Positive InvestmentsInvest > 5% in transition bonds Invests > 5% in sustainable bonds Meeting Peoples' Basic NeedsDemographic / ageing population theme Healthcare / medical theme Ethical Values Led ExclusionsEthical policies Tobacco and related product manufacturers excluded Armaments manufacturers avoided Alcohol production excluded Gambling avoidance policy Pornography avoidance policy Civilian firearms production exclusion Governance & ManagementEncourage higher ESG standards through stewardship activity Fund GovernanceESG integration strategy Asset Size & MetricsInvests in small, mid and large cap companies How The Fund WorksStrictly screened ethical fund Positive selection bias Negative selection bias Combines norms based exclusions with other SRI criteria Combines ESG strategy with other SRI criteria Impact MethodologiesPositive environmental impact theme Positive social impact theme Aim to deliver positive impacts through engagement Intended Clients & Product OptionsIntended for investors interested in sustainability Portfolio SRI / ESG options available (DFMs) Intended for clients who want to have a positive impact Fund management company informationAbout The BusinessESG / SRI engagement (AFM company wide) Responsible ownership / stewardship policy or strategy (AFM company wide) Collaborations & AffiliationsPRI signatory AccreditationsUK Stewardship Code signatory (AFM company wide) Engagement ApproachEngaging on climate change issues Company Wide ExclusionsControversial weapons avoidance policy (AFM company wide) Climate & Net Zero TransitionEncourage carbon / greenhouse gas reduction (AFM company wide) Carbon offsetting - offset carbon as part of our net zero plan (AFM company wide) In-house carbon / GHG reduction policy (AFM company wide) TransparencyPublish full voting record (AFM company wide) Publish responsible ownership / stewardship report (AFM company wide) Full SRI policy information on company website |
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PolicyThe 7IM Sustainable Balance Fund is an actively managed fund with a balanced risk profile, invested in a range of global equities, bonds and funds managed within a sustainable investment framework.
Direct equity selection The direct equity portfolio within the Sustainable Balance fund is managed by Sarasin & Partners LLP to a mandate which is agreed with 7IM. Sarasin manage the direct equity selection to a blended benchmark, which is similar in composition to 7IM’s Strategic Asset Allocation (SAA). This benchmark was chosen to align with the 7IM SAA and ensures that the use of passive vehicles in the global equity selection was kept to a minimum, thus maintaining a high active share. There are two negative screens applied at the outset.
Negative screening Identifies companies from certain industries or with significant exposure to certain activities (taken to be more than 10% of revenues), which are precluded from investment at the outset. These are:
A second screen identifies those companies which, although in acceptable industries, nonetheless exhibit unacceptable conduct. This includes:
The negative screens remove around 5% of the investment universe. Were the negative screens reduced to 0% business activity (i.e. no exposure to alcohol), this would remove about 20% of the investment universe. Our view is that setting the limit at 10% helps to keep the tracking error of the fund to an appropriate level without compromising the sustainability of the direct equity portfolio. In addition to the negative screening, Sarasin screens for positive environmental, social and governance factors.
Positive screening Screen 1 consists of identifying companies which have:
Screen 2 is where companies are scored on a range of environmental, social and governance (ESG) factors, with the scores ranging from A-E, with E being the lowest. Companies that score between A and C are investible for the Sustainable Balance fund, while those that score D and E being deemed as un-investible. This scoring is based on a questionnaire that Sarasin sends to each company, with more than one hundred questions to the companies using a red/amber/green traffic lights scoring system. If companies exhibit too many red traffic lights, they are not investible.
Thematic framework Finally, Sarasin select companies which have sustainable long-term businesses within five main mega-themes. The screening process results in a list of about 70 global equity holdings focused on the 5 mega-themes and further divided between the sub-themes listed below them. Sarasin see these mega themes as the drivers of sustainable investing and look for investment opportunities which means drilling down into investible sub-themes. For example, one of the sub-themes within climate change is low carbon transport. As a percentage of global emissions, it is not as big as agriculture and power, but a significant 14%, so a way to lower carbon emissions in the transport sector would make a significant difference. This might include shifting from cars to rail, from hydrocarbon internal combustion engines to ones powered by electric or hydrogen energy or making transport more efficient by improving engine or fuel technology or using lighter components. The investible universe might include companies that produce lightweight materials for aircraft manufacture, for example. The fund exclusions are reviewed from time to time, with 7IM adding new exclusions when they think it is appropriate. Gambling was added a couple of years ago as it became clear how addictive and destructive internet gambling was for some customers
Indirect Investments via Collective Investment Schemes The 7IM Sustainable Balance fund is invested across a wide range of asset classes, some of which can only be accessed through open ended or closed ended collective investment schemes. These are funds in which a number of different investors invest. Because the ethical investment policies of the Sustainable Balance fund cannot be applied fully, or at all, in investments in collective investment schemes it is essential that parameters for the selection of funds by third party managers are set.
1) Scope The selection process applied to the choice of funds for the 7IM Sustainable Balance Fund is as follows. The funds are selected on the basis that they track recognised ethical or socially responsible indices or are managed in accordance with 7IM’s judgemental screening. To that end we adopt a rigorous, multi-step process when it comes to selecting funds managed by third parties to ensure that only appropriate investments make it into the 7IM Sustainable Balance Fund.
2) Active Funds When selecting collective investment schemes managed by third parties we try and identify managers that have the following characteristics:
The purpose of the fund selection process at 7IM from an ESG perspective is to identify an investment that has the people, process and expertise in place to invest sustainably. We explain this below and use Morningstar, Bloomberg and ESG Manager to validate this due diligence.
ESG factors into investment decisions.
As part of our ESG due diligence process we send out a questionnaire to prospective managers that includes a range of questions covering corporate structure, investment strategy and voting & engagement. This questionnaire attempts to go further than what is provided in the standard marketing material and find out the how the investment manager approaches ESG and what resources they have available. When a new fund is proposed we follow a rigorous review process whereby the investment manager and the sector specialist with responsibility for the asset class at 7IM meet the fund managers of the fund. At that point we explore the fund investment process and philosophy, strength of the team managing the fund, years of experience etc., research resources, risk analysis and performance attribution. All this is captured in an extensive due diligence document which highlights potential issues to pay particular attention to. Post investment, the performance is monitored using style adjusted benchmarks on a fortnightly basis at our Selection Committee. We also meet with the managers at least once a year, or on an ad hoc basis if there is an issue which needs to be explored. We also review a fund manager’s and the strategy’s progress in ESG terms.
3) Passive funds Passive funds, which include exchange traded funds and open-ended funds, are selected on the basis that they track recognised ethical or socially responsible indices. These passive funds typically use both negative and positive screening to filter the best companies in the broader index. For example, our passive equity funds select the top 25% of companies in each sector based on their MSCI ESG rating. This allows us to get a balanced exposure across the market via the highest rated companies. In some cases we need to use a passive fund to access a particular sustainable theme in the portfolio. In the cases where the fund doesn’t track an ethical or socially responsible index we must judge whether the index meets certain ESG characteristics. To do this we ensure it has at least an ‘A’ ESG rating on MSCI’s fund rating tool and has a very low potential for exposure to controversial weapons, tobacco or other controversial activities.
If the product is following a sustainable benchmark we meet with the manager to find out how the benchmark is constructed, focusing on the negative and positive screens that are in place. We also speak with the manager to see how the index rules have changed over time and how they may develop in the future. As part of our ESG due diligence process we send out a questionnaire to prospective managers that includes a range of questions, covering corporate structure, investment strategy and voting & engagement. This questionnaire attempts to go further than what is provided by the standard marketing material and find out the how the investment manager approaches ESG and what resources they have available. Post investment, the performance is monitored using style adjusted benchmarks on a fortnightly basis at our Selection Committee. We also review a passive fund manager’s and the strategy’s progress in ESG terms.
4) Exclusions The intention when looking for collective investment schemes managed by third parties our aim is to keep exposure to controversial activities to a minimum. During the due diligence process we ask what exclusions the manager has and at what thresholds these are enforced. We also try to understand how these have changed over time and what activities they are planning to exclude in the future. The underlying exclusion policy for each third party fund is unlikely to be the same, meaning there may be residual exposure that breaches the thresholds above. We ensure that these residual exposures do not add up to more than 1% of the fund. If we find that through our monitoring activities that a fund has a holding that leads us to breach that 1% limit we will firstly engage with the fund manager to understand whether our information is correct and whether there is justification for the holding. If we do not deem the reason to be satisfactory we will set the manager a 3 month deadline to remove the controversial holding and if the deadline is not met we make plans to exit the fund. Please see the full list of our exclusions and thresholds here: https://www.7im.co.uk/media/d4phbtxp/sustainable-balance_fund-screening-process.pdf
5) Review Process The above process is reviewed on an annual basis by the 7IM ESG Investment Committee. Any ad hoc changes must be approved by the 7IM ESG Investment Committee.
Stewardship The Manager engages with investee companies on thematic issues, with the aim of positively influencing behaviour. The 7IM stewardship philosophy is fully described at https://www.7im.co.uk/inside-7im/cleaner-investments/how-we-view-stewardship-and-responsible-investing
The 7IM Sustainable Balance Fund’s screening process is fully described at https://www.7im.co.uk/media/d4phbtxp/sustainable-balance_fund-screening-process.pdf |
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Process |
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Resources, Affiliations & Corporate StrategiesAt the corporate level: The Culture and Sustainability Committee’s responsibilities include:
The Culture and Sustainability Committee is increasingly focusing on the outcomes of our stewardship and ESG activities, as required by the UK Stewardship Code. Representatives for each of our four Sustainability Commitments (as outlined below) take turns to report on progress at the monthly Committee meetings. An operating rhythm has been set to ensure each of our lead representatives are providing an update, including both successes and any blockers to achieving our objectives, on a quarterly basis. Investment stewardship and ESG at 7IM are managed by the ESG Investment Committee, also set up in 2020. It reports to the Culture and Sustainability Committee and to the Investment Committee, which is the senior decision-making body for all 7IM’s investments and is ultimately responsible for investment performance.
ESG Investment Committee The ESG Investment Committee is based in the Investment Management team and has six members. It includes representatives from every stage of the investment process at 7IM: Strategic Asset Allocation, Tactical Asset Allocation, Portfolio Management and Investment Risk. Two members of the Investment Committee also sit on the ESG Investment Committee
Further initiatives underway We have been awarded the Stewardship Code for 2020 and 2021 which was a substantial and ambitious revision to the UK stewardship code. We have applied for the 2022 Stewardship Code. We are signatories to the UN PRI and this year are submitting a detailed report to obtain a grading from them. We aim to reduce emissions by 30% at the strategic asset allocation level over the next five years, by mid-2026, and are working on a programme to lower them further after that. We are exploring ways to further integrate ESG and responsible investing across our investing practices. For further details on our resources, roles and responsibilities, please see our 2022 Stewardship report here: https://www.7im.co.uk/media/2o5l4qk1/stewardship-report-2022.pdf
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LiteratureLast amended: 04/01/24 03:04 |
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05/07/2024