UK funds bottom analysis as industry eyes impact investing crown

The UK has underperformed its European peers when it comes to the environmental performance of its funds, according to analysis released the same week the Government receives a report on how it can become a world leader in impact investing.

Sweden topped the analysis of 2,800 equity mutual funds and ETFs through Climetrics, which launched in July.

Sixty per cent of the Scandinavian country’s funds achieved the highest scores – four or five leaves under the Climetrics rating system – for their low climate impact and almost half (48 per cent) had an ESG mandate.

Conducted by proxy voting service ISS and green business and investing non-profit CDP, the research looked at the six largest European markets where at least 75 funds were available for analysis.

Germany, Switzerland, France and the Netherlands all had at least a third of their funds achieve top scores for their low climate impact, but only 22 per cent of UK funds achieved the four or five leaf ratings.

The climate impact of all fund holdings account for 85 per cent of the score. Asset managers’ environmental policies account for 10 per cent of the score, while specific ESG mandates for relevant funds account for 5 per cent of the score.

This week the UK government was presented with a report on how to build a culture of impact investing. The UK used to lead the world in social impact investing, but is slipping behind, says AllianzGI deputy chair Elizabeth Corley, who led the advisory group that produced the report.

However, when it comes to navigating climate change Sweden is leading the pack, says head of ISS-Ethix Climate Solutions Maximilian Horster.

Country

% out of the total Climetrics fund universe, of top-rated funds within the market

Sweden

60%

Germany

39%

Switzerland

38%

France

37%

Netherlands

33%

United Kingdom

22%

 

“Swedish institutions have long been at the forefront of those in Europe’s financial community as being conscious of both the materials risks and opportunities presented by climate change,” says Horster.

“As the analysis suggests, this is now deeply embedded in investment portfolio construction with the proportion of Swedish institutions receiving top scores far outpacing those in the other European markets reviewed.”

Horster says the UK also bottomed the table for the lowest share of funds with an explicit ESG policy.

Impact investing seeks to deliver measurable positive social and environmental returns while also delivering a financial return, while ESG investing seeks to avoid companies that do not reach adequate environmental, social and governance standards.

“While an ESG policy does not necessarily give an indication on climate impact, it does imply that ESG and thus including topics around the environment and climate change are overall less prominent in the context of investment fund management in the UK compared to the other analysed markets,” Horster says.

There were also no UK asset managers in the analysis of companies with the highest proportion of top-ranked funds in the Climetrics analysis.

Asset managers with highest proportion of top-rated funds

SEB

Union Investment

Danske Invest

Amundi

Deutsche Bank

Commerzbank

Pictet

Nordea

BNP Paribas

Swedbank