Understanding Ethical Investing
At GM Trend we embrace sustainability as a corporate objective and it is central to our strategy and culture. This ensures that we aspire to meet the same standards for our own business as we demand of the companies in which we invest.
As active investors we believe it is our responsibility to encourage companies to maximise investment returns through good governance, including respect for society and the environment. As a significant shareholder in many companies, we are well-placed to actively promote best-practice in environmental, social and governance (ESG) matters.
Our investment managers and ESG Research team work together to monitor and engage with the companies in which we invest. This activity covers all asset classes, including equities, fixed income and property.
Ethical investing is a considerably broader sector than many imagine. Traditional ethical funds – referred to as “dark green”, do take a very restrictive approach to investing, screening out stocks that are involved in “unethical” industries such as alcohol, animal testing, tobacco, oil and armament firms.
What is Ethical Investing
Funds that follow the socially responsible investment (SRI) route invest in companies that adopt good environ-mental and social practices regardless of sector. This gives managers a wider choice of stocks, which can help boost returns and reduce volatility. And as well as doing good these funds can deliver good-looking returns too. According to AXA Wealth the FTSE4Good UK ethical benchmark beat the FTSE All Share Index, returning 48% versus 43% over the past five years.“Much of this has been driven by the performance of oil and mining sectors which have suffered over the last few years,” said Adrian Lowcock Head of Investing, AXA Wealth. “Many ethical funds have no exposure to these areas and therefore have protected investors from the falls.”
We fully integrate ESG factors within our investment analysis and decision-making. Our fundamental bottom-up process is well-suited to identifying and considering ESG factors within fixed income portfolios. Environmental considerations have been a strong contributor to bond valuations in certain sectors, while governance is a key input to our fixed income process.
Our investment process formally captures ESG factors within our analysis. This recognises mandate requirements and the structural differences and issues for fixed income.
To ensure effective input on ESG matters, each area within our fixed income team has designated ESG champions; we split responsibilities by government markets, investment grade non-financials, financials and high yield bonds. Those inputting to our process are responsible for ensuring effective integration of ESG inputs to analysis and valuation discussions.
We strive to identify and understand the key environmental, social and governance (ESG) risks for each of the companies, industries and sectors in which we invest. We recognise that stakeholder expectations about the role of corporations in society are changing and we believe we have wider responsibilities to encourage high standards in the companies we invest in.
We believe that a company’s ESG performance is most appropriately considered within the context of its industry’s competitive landscape, in relation to its peers and the geographic regions in which it operates. An understanding of the ESG issues that a company faces therefore requires an in-depth knowledge of the sector in which it operates.
We are a responsible property manager. We consider all environmental, social and governance factors when assessing new properties and managing existing assets. For new acquisitions our due diligence process assesses the validity and attractiveness of a property in offering a secure investment return for shareholders. Our Sustainability Risk Assessment considers:
We assess our current property portfolio through a structured gap analysis. For those properties which are not subject to full repair-and-insure lease arrangements, we assess these against a set of regulatory and best practice requirements. We then rate and rank these opportunities based on their effective contribution to our sustainability objectives and vision.
Our multi-asset funds blend a range of asset classes to meet the investment objectives and risk profiles of clients. These portfolios capitalise upon our proven capabilities in different asset classes, including fixed income, equities and property. Alternative investments such as renewable energy and solar power have become valuable components of our multi-asset funds. They not only provide attractive income and growth opportunities, but help to reduce portfolio risk owing to their relatively low correlation with traditional asset classes.