Register free for our breaking news email alerts with analysis and cutting edge commentary from our award winning team. Registration only takes a minute.

Adviser workshop: how to select sustainable funds

In the lead up to Earth Day on Sunday 22 April, we look at sustainable funds and ask how advisers should select them.

Quintin says...

The challenge facing ethical investors, and their advisers, is to select companies and monitor their performance in ethical and sustainability terms. But environmental issues, social responsibility and governance quality are not easy to measure.

Utilise the expertise of fund managers running ethical strategies, either as specialists or as part of their broader offering.

Some managers, who lack ethical investing experience, jump on the bandwagon by launching a fund to appeal to the ethical market. Some funds’ ethical credentials may be slender, potentially including holdings that would make ethically minded clients uncomfortable.

As well as the performance aspects of a fund, ethical requirements can be difficult to determine. Checking corporate standards can help, confirming specific activities have been conducted to defined levels.

Advisers must dig beneath managers’ claims. Many managers desire a green makeover, while remaining reluctant to absorb the associated costs. But the complexity of ethical investing means advisers can also benefit from their expertise.

Top quote: 'Inexperienced providers may launch ethical funds that fail to deliver expected performance. This can erode interest in the fund, which may lead to a merger with a conventional fund or dropping ethical objectives.'

Top tip: draw on the knowledge of fund managers, but always question ethical measures.

Quintin Rayer is head of research and ethical investing at P1 Investment Management

Quintin says...

The challenge facing ethical investors, and their advisers, is to select companies and monitor their performance in ethical and sustainability terms. But environmental issues, social responsibility and governance quality are not easy to measure.

Utilise the expertise of fund managers running ethical strategies, either as specialists or as part of their broader offering.

Some managers, who lack ethical investing experience, jump on the bandwagon by launching a fund to appeal to the ethical market. Some funds’ ethical credentials may be slender, potentially including holdings that would make ethically minded clients uncomfortable.

As well as the performance aspects of a fund, ethical requirements can be difficult to determine. Checking corporate standards can help, confirming specific activities have been conducted to defined levels.

Advisers must dig beneath managers’ claims. Many managers desire a green makeover, while remaining reluctant to absorb the associated costs. But the complexity of ethical investing means advisers can also benefit from their expertise.

Top quote: 'Inexperienced providers may launch ethical funds that fail to deliver expected performance. This can erode interest in the fund, which may lead to a merger with a conventional fund or dropping ethical objectives.'

Top tip: draw on the knowledge of fund managers, but always question ethical measures.

Quintin Rayer is head of research and ethical investing at P1 Investment Management

Tanya says...

There are between 200 to 300 retail funds in this space: Oeics unit trusts and investment trusts.

Some good examples are the Jupiter Ecology and Impax Environmental Leaders funds, which have been strong performers. There are some other good ones to consider, including EdenTree, as well as the WHEB, Liontrust Sustainable Futures and Royal London funds. WHEB is equities. EdenTree is fixed interest and equities, and it also has a multi-asset offering.

You want a fund house that has been doing it for a while. What has been really useful in making sure we have long-term, stable and strong returns is a research team that has been going for a long time. Not to mention, an approach to sustainability that is infused throughout the investment process.

Using sustainable rating scales is useful. More information is always good. Every adviser and client meeting is time-constrained, so ratings can help speed things up. However, as with any ratings system, they have their faults. It is important there is transparency in the process underlying the ratings.

Ratings tend to tilt towards big companies that produce a lot of data. They often tilt towards companies subject to environmental regulations and data requirements. They will be tilted towards the EU, a bit less to America and get a bit thin in Asia Pacific.  

Top quote: 'You want a fund house that has been doing it for a while.'

Top tip: use ratings systems to help with the search and client meetings. But be wary of their tilt towards bigger companies.

Tanya is investment specialist at In2 Planning

What Twitter says...

We asked ethical investment specialists on Twitter for their thoughts on ethical fund selection. 

Here is what they said:

Comment & analysis

Twitter