There are many challenges facing ethical investors – both professionals managing funds and private investors trying to do some good with their savings, or at least do no bad.
Some funds managed with an ESG (Environmental, Social and Governance) brief to cater for socially and environmentally conscious investors are better than others, both in terms of how truly ESG credible they are, and in terms of their management and performance.
At Bestinvest, a team of investment analysts regularly updates a Best Funds List so that it contains the strongest options for different sectors and geographies. All the fund ideas here – and they are only ideas, for interested savers to go away and research – are taken from that list.
Brown Advisory US Sustainable Growth
This fund’s strategy has run successfully in the US since 2009, giving it one of the longest track records among its US ESG/Sustainable peers. Managers Karina Funk and David Powell invest in US firms with outstanding business models and sustainability drivers.
Their research process incorporates ESG analysis and screening which leads to them excluding companies that get most of their revenues from sectors such as alcohol, tobacco or fossil fuels. The investment style is growth orientated, so the portfolio tends to have a bias to technology stocks including Microsoft and Amazon. As this fund uses both positive and negative ESG screening (it strives both to exclude “bad” firms and include “good” ones), it is a type sometimes referred to as “mid-green”.
Liontrust UK Ethical
Another mid-green option. Lead manager Peter Michaelis uses Liontrust’s Sustainable Future Investment process on this fund to help deliver long-term capital growth for investors. The team seeks to identify key structural growth trends that help to make the world cleaner, safer and healthier, and the companies which can best benefit from them. The team focuses on UK stocks that aim to improve quality of life either through technology or healthcare advances, better efficiency in the use of scarce resources, and safety and resilience.
The process also includes negative screening, with current areas of exclusion including alcohol, animal testing and fossil fuels. The fund has outperformed its benchmark – the MSCI UK Index –over the longer term.
Impax Environmental Markets Trust
A “darker green” option, this London Stock Exchange-listed investment company aims to generate long-term capital growth. Highly experienced managers Bruce Jenkyn-Jones and Jon Forster look to invest in mainly small and medium-sized global firm that are active in the fast-growing resource efficiency and environmental markets, such as cleaner energy, water treatment, pollution control, waste management and sustainable food, agriculture and forestry.
The portfolio has a predominantly positive screening focus, however, it also shuns “sin” sectors such as alcohol and gambling. Its share prices are likely to show more volatility than its benchmark, the MSCI World Index, but it has historically produced solid returns relative to peers over three-year and five-year periods.
Clean energy, energy efficiency and storage investment companies
This sector of listed investment companies is focused on investing in specific renewable energy infrastructure projects (and sometimes just one) such as wind farms and solar power. The rapidly growing sub-sector of energy efficiency and storage is also well represented.
These investment companies are more focused on providing a high and reliable income stream rather than capital growth, although some have delivered both. That has made them attractive in recent years, meaning many trade on a “premium”, so their share prices are higher than the underlying value of the investments owned. These premiums have narrowed a bit recently but savers might want to check before they take the plunge.
Bestinvest’s preferred options in this fields are Octopus Renewables Infrastructure, the Renewables Infrastructure Group and SDCL Energy Efficiency, all of which are London Stock Exchange-listed.
Adrian Lowery is an analyst at Bestinvest