How can investors ensure their portfolios make a positive impact?


Floods in Pakistan, a devastating hurricane in Florida and heatwaves across Europe this summer has – for some investors – put into sharper focus where their money is heading.

There has been a concerted effort among fund managers to drive investment into companies focused on ESG – environmental, social and governance issues.

However, three in five have not heard of ESG investing, with a third of investors unfamiliar with it, according to a report by investment giant Fidelity.

That is not to say that there isn’t appetite – nearly half of investors say they want their money to make a positive impact on the world.

Nearly half of investors surveyed by Fidelity want their money to make a positive impact with climate change topping the list of concerns 

Fidelity’s research shows climate change is top of the list – 56 per cent – of issues people want to tackle which rises to 67 per cent for over 55s. 

Other prominent issues include poverty and homelessness – 37 per cent – and combatting unsustainable consumption – 32 per cent.

Despite the interest, just one in five choose to invest in sustainable companies or funds.

Some 30 per cent of those Fidelity surveyed said events of the last year had made them want to invest or save their money more sustainably. 

This rises to 42 per cent among investors aged 18 to 24.

Emma-Lou Montgomery, of Fidelity International, said: ‘Our recent research highlights the importance of joining the dots between people’s enthusiasm for sustainable causes with the practical steps they can take to align their finances with their values.

‘With relatively low awareness of the options available, this leaves a significant proportion of people who want their money to have a positive impact but are not currently aware of how to do so.’

How to start saving sustainably

ESG investing can be a daunting prospect. Many funds have pivoted and started to invest in companies involved in renewable energy or healthcare and call themselves sustainable. But a look under the bonnet and it becomes more complex.

If you’re a beginner, where should you start?

Emma-Lou Montgomery of Fidelity outlines her three steps for investors who want to start saving sustainably.

1. Review your current investments’ fund sheets 

If you are looking to review how ‘green’ your portfolio is, the first thing you should do is examine the fact sheets of the funds you are currently invested in. 

These will provide an in-depth look into the fund, including information on the top holdings, regions and sustainability ratings and characteristics.

2. Ask yourself what your goals are

When reviewing your current holdings, some questions to keep in mind are whether you personally agree with the companies the fund invests in – for example, whether there are certain companies or industries you want to exclude completely – and/or if it can evidence cases where they’ve held companies to account through engagement and voting activities. 

The answers to these questions should inform both your head and your heart, enabling you to decide whether the fund is right for you.

3. Consider your risk appetite – and review regularly: As you would with any investing decision, it’s worth reviewing your holdings within the context of your overall investing objectives, keeping in mind how any decisions you make could impact your risk appetite and the time you plan to remain invested. 

Finally, as the world around us is constantly changing, it’s worth reviewing your sustainable investments on a regular basis to make sure they continue to align with your preferences and are suitability weighted towards your goals. 

Invest back better: Fund ideas 

For investors who would like their money to go into funds and trusts that are seeking to make an impact on climate change and improving how we interact with the environment, there are a number of options available.

Among them are a trio of investments with a long track record in this area.

Impax Environmental Markets is the UK’s largest environmental investment trust. It backs companies that focus on products or services to improve our impact on the environment. The challenges it looks at are:  clean energy and energy efficiency, water treatment and pollution control, waste technology and natural resource management, and sustainable food. 

Jupiter Green is another long-running investment trust that backs companies solving environmental problems. Some of the examples of those it backs, including Renewcell, which breaks down and recycles used textiles, and Hoffman Green Cement, which produces low carbon cement. Watch our interview with Jupiter Green manager Jon Wallace.

Regnan Global Equity Impact Solutions is a fund, which invests in companies that have a positive impact on people and the planet. It holds companies from around the world that contribute a solution to one of the UN’s Sustainable Development Goals. An example of one of its biggest holdings is Lenzing, which makes wood based and bio degradable fibres that are an alternative to textiles such as cotton, the production of much of which is highly damaging to the environment. 

> Essential reading: The top green investment trusts

What kind of companies do sustainable funds invest in?

If you’re a more experienced ESG investor and want to build your portfolio further, there are plenty of funds that offer investments into largely untapped sectors.

Wealth manager EQ Investors offers a range of solutions for investors looking to invest sustainably. Its EQ Positive Impact Portfolios invest in companies and funds making a positive impact on society, not just the environment.

The team delved into what types of companies sustainable funds invest in, including in health, recycling and railways.

For investors who are unfamiliar with the ins and outs of ESG an artificial heart might not be the first thing that springs to mind.

Abiomed develops and manufactures medical technologies and its heart pump, which is used during surgery or after a heart attack, has been used to support more than 210,000 patients worlwide.

The company has received investments from Baillie Gifford Positive Change fund, which invests in companies which fit into four themes: Social Inclusion and Education, Environment and Resource Needs, Healthcare and Quality of Life.

Clinical studies show Abiomed’s heart pumps lead to fewer days in hospital, fewer repeat visits and a quicker return to normal life.

Wellington Global Impact Bond fund takes a more traditional approach with its investment in recycling company PureCycle.

The project, supported by a green bond issued from the Ohio Port Authority, has been operational since late last year. It aims to divert waste from US landfills and convert around 54,000 tonnes of plastic waste into plastic pellets.

While electric cars and bikes have soared in popularity, innovation of other types of transport have remained largely under the radar.

Rail is one of the most energy-efficient types of transport and is responsible for eight per cent of passenger transport and nine per cent of freight transport globally.

Janus Henderson Sustainable Global Equity fund is looking to capitalise on the opportunities the rail sector brings through its investment in Wabtec.

The company focuses on freight and passenger rail with a focus on energy efficiency, fuel usage and minimising waste. Last year, Wabtec piloted the world’s first 100 per cent battery-electric heavy-haul locomotive.

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