Multi-manager verdict: What’s next for ethical investments?

Matthew Webber, fund and research manager, Standard Life Investments fund solutions team

As multi-manager investors, our mantra is to maximise total returns for a given level of risk. In the past, we may have been guilty of approaching this task with limited consideration to ESG issues but now these principles are firmly embedded in our investment process.

No longer the preserve of the idealist, young consumers with real purchasing power are demanding change from corporations and, by implication, our role as an investment manager is to ensure we meet this expectation by holding them to account.

While a multi-manager investment approach may not be at the front line of this battle, we have an important role to play. We allocate significant capital to our underlying managers and so have a unique opportunity to encourage best practice among these companies by requiring deeper ESG analysis and more active engagement where warranted.

Our approach has been to embrace the move towards a greater emphasis on ESG head on. We seek to understand what ESG factors our managers consider as part of their investment process and we commit to understanding how this influences the underlying portfolio structure – beyond traditional exclusion criteria. We also look at how managers use their voting power to emphasise best practice and hold boards to account. Our belief that well governed companies translate into higher long-term returns is steadfast. Our clients will be the ultimate beneficiaries.

Sheridan Admans, Co-fund of funds manager, The Share Centre

Socially responsible investing is a highly subjective strategy. We would prefer to have investments in companies doing all they can to improve their governance and transparency on socially responsible issues, however, it is rare for them to show up in our screening process.

We do invest in the Rathbones Ethical Bond fund, which did show up some years ago in our screening and has been a consistent outperformer. The issue that arises in seeking out socially responsible investment opportunities is choosing a theme over our expectations around an asset class or region.

Companies are incorporating more socially responsible governance and practices, albeit we would like to encourage more broad-based adoption of good environmental and social practices. We believe companies should be able to improve social responsibility by embedding principles in their core values, rather than for them to be an afterthought.

The administration in the US has raised the volume on the scepticism around climate change. As to whether this will have any significant impact on this type of investing we are unsure. From our perspective this is a balance of ethics and performance. We would invest in a greater amount of socially responsible investments if they met our expectations, but not at the expense of performance as our funds are not promoting or mandated to follow SRI principles.

Simon Wood, head of multi-manager, Aberdeen Asset Management

Aberdeen Asset Management is one of the few multi-managers to offer a fund that solely invests in ethical or sustainable funds. The Aberdeen Multi-Manager Ethical Portfolio will invest from dark green (negative screening) funds through to light green (sustainable investing) funds, including thematic offerings.

The underlying investment managers apply additional screens within their investment process. These positive screening criteria are linked to factors like sustainability, environmental impact, resource efficiency and human rights record and behaviour.

Given the portfolio’s investment focus, the overall portfolio structure will tend to favour mid- and small-capitalised companies over large ones. At the sector level, the portfolio’s tilt is towards industrials and away from areas like financials and oil and gas.

Funds in the portfolio range from some of the more well-known UK domiciled funds such as Impax, Jupiter, Kames, and Stewart Investors, to names not so well known in the UK marketplace such as Allianz, Candriam, Sparinvest, Pictet and Robeco.

As environmental considerations and responsible corporate behaviour become ever more important to investors, the opportunity set outside equities will expand.

Aberdeen Asset Management believes that the global shift towards sustainable investing is rewarding companies that have a commitment to sustainable practices.