“By polluting the oceans, not mitigating CO2 emissions and destroying our biodiversity, we are killing our planet. Let us face it, there is no planet B.”

Emmanuel Macron, President of France

The LWM Story

We have over 5 years’ experience managing responsible investments, and some of our pension money is invested in the Balanced Positive Impact Portfolio.

This gives us great insight into the sector and what to look for. At the heart of the portfolios is a desire to achieve positive outcomes for the environment and society without sacrificing returns.

It all started with our Ethical Portfolio in 2014; we renamed this the Balanced Positive Impact Portfolio in 2020. Then in 2020 we added our Cautious and Adventurous Positive Impact Portfolios. These sit alongside our mainstream portfolios; however, we do expect there to be some crossover in holdings over time.

What is Responsible Investing?

This is an umbrella term covering different routes to investing; we see it as doing good and believe there are three main routes to achieving this:

Ethical

This is the traditional way of investing and is often called negative (or avoid) investing. At a basic level this involves avoiding or screening out of undesirable activities, this would be typically activities like tobacco, arms, pornography etc. This has evolved and although there tends to be a focus on the negative, some also focus on the positive and therefore sit between the old style ethical and sustainable / responsible strategies.

Sustainable / Responsible

This is the next step up from ethical investing. This is likely to adopt some negative screening but crucially it includes positive screening. This means looking to invest in companies which have a positive impact. It is important to understand that this tends to be less concerned on the outcome. An example might be Microsoft which is seen as doing good but not necessarily having a direct impact on the world around us.

Impact investing

This is the final step (in terms of the investment journey we travel), this goes beyond sustainable / responsible investing and looks directly at companies that have a positive impact on the world. An example would be a company like Befesa who take steel dust and recycle into zinc oxide, and then into zinc and finally used for strengthening steel. Another example is Alfen who manage the distribution of power used for the growing electronic vehicle (EV) market.

What approach does LWM take?

We start by looking at our objectives which are centred around doing good for the environment, and good for society without sacrificing returns.

This means that we build the investments first; whether they fall into the ethical, sustainable or impact bucket is almost irrelevant. This is because we take a blended approach to deliver the best outcomes. The chart below shows the current split between buckets in our Balanced Positive Impact Portfolio.

All research is carried out in-house, we do not outsource. This means we aim to meet as many fund managers as we can and we will share our notes on this page. We also have six key questions which include:

  1. How the fund manager classes the fund and why
  2. What is important to them and why
  3. What outcomes they are looking to achieve
  4. How they measure results and the impact on what is important to them
  5. Whether they invest in transitioning assets
  6. What makes them difference

To bring this to life below are four example holdings, and two holdings on our watchlist.

ASI Europe ex UK Ethical Equity Fund (Ethical) – included in the portfolios

Aim

The principal outcome for the strategy is deliver investor-led sustainability. The strategy excludes those sectors that investors are concerned about and prioritises those with the right processes and solutions. Investors have a voice in the criterion the managers employ to create the investable universe.

Transitioning

They do invest in companies that are transitioning to positive change, but they must be within the guidelines set by the investors in the Ethical Approach Document. This document lays out the negative exclusions as well as the positive inclusions.

Sample holdings

ASML Holding, Iberdrola SA, Enel SpA, Schneider Electric SE, Partners Group Holding AG

Carmignac Emerging Markets Fund (Sustainable) – included in the portfolios

Aim

The strategy aims to enable positive change in emerging market countries by contributing directly or indirectly to improve living standards in these countries with their investments. It involves delivering the best returns possible while having a positive impact on society and the environment. The strategy uses a combination of negative screening and exclusion policies as well as ESG integration and positive screening. They also favour companies with a low carbon approach.

Transitioning

Yes, they are looking at trajectory and efforts undertaken by companies rather than having a static approach that consists of looking at a company / its ESG scoring at a given time. Therefore, transitioning companies are key, as by making efforts and changing the way they operate, they have more potential impact in driving positive change.

Sample holdings

JD.com, Samsung Electronics, Itausa Investimentos, TSMC, Hyundai Motor Co

Regnan Global Equity Impact Solutions Fund (Impact) – included in the portfolios

Aim

The strategy is a solutions-first strategy, focused on investing in mission-driven businesses that address underserved environmental and social challenges and deliver real, systematic change for the better.

Transitioning

Yes, the strategy will invest in transformational companies undergoing a significant shift in their business model or operations towards one that is focused on the delivery of a solution as identified using their proprietary systems.

Sample holdings

Evoqua Water Technologies, Xylem, Befesa SA, Agilent Technologies, Horiba

Civitas Investment Trust (Thematic Impact) – included in the portfolios

Aim

The strategy is a leading Real Estate Investment Trust (REIT) dedicated to investing in the social housing and healthcare sectors in the UK. They have a dual objective of achieving both positive financial returns and large scale measurable social impact.

Transitioning

No

Sample holdings

High Acuity Facility Wales, Healthcare Facility Wales, St Thomas House Chester, Bedwardine Court Worcester, Lancaster Avenue London

Home REIT – watchlist

The main aim of the trust is to alleviate homelessness in the UK by providing well-located properties that provide a sustainable level of rent for tenants.

Montanaro Better World Fund – watchlist

This invests globally in small and mid-cap companies that make a positive impact on the world. The six themes they focus on are environmental protection, green economy, healthcare, innovative technology, nutrition and well-being

Making a difference

We test our portfolios using yoursri.com and transitionmonitor.com. This provides valuable sources of information as sampled below:

yourSRI.com

Using data from yourSRI.com and MSCI, the chart below demonstrates how the Balanced Positive Impact Portfolio stands against the MSCI ACWI Low Carbon Leaders, MSCI Carbon Target and MSCI ACWI Index.

yourSRI.com shows the Portfolio is compliant with the ten principles of the UN Global Compact.

This means operating in ways that, at a minimum, meet fundamental responsibilities in the areas of human rights, labour, environment, and anti-corruption. The chart below shows the portfolio ESG Rating Distribution with an overall rating of A. 34.3% of the portfolio has exposure to ESG Leaders. Please note this is an evolving market and not all investments are currently rated.

Transition Monitor

This tests the Portfolio against the Paris agreement. Using the Balanced Positive Impact Portfolio the key points are:

  1. Circa 30% of the portfolio is aligned to the Paris Agreement
  2. Of this 30%, around 36% of equities is in power. This equates to 37 tonnes of CO2 emissions which is equivalent to 6.7 homes’ electricity for one year
  3. The potential financial risk to the portfolio is around -0.48% on equities based on the current holdings and if nothing changed

We can overlay this information with what we know. So, for example, we know that some of the holdings have exposure to coal which is being transitioned to renewables (NextEra Energy) so we would expect the coal exposure to reduce.

The other side is that 70% of the portfolio covers other areas (for example Civitas which in turn invests in social housing), and therefore the portfolio is more rounded not just covering the carbon environment but also other enviromental and social issues meaning there are different drivers which are good for the planet and society.

Why Invest?

There are really two reasons, the first is personal, and the second is about what is happening around us.

Personal

We know that responsible investing will not appeal to everyone, but we also know that to make change happen more investment needs to be directed to those companies that are delivering change.

This is aimed at those clients who want to either invest some or all their investments towards this, or even set aside some money for children or grandchildren.

We have managed these investments since 2014 and we can demonstrate that investors do not need to sacrifice returns to achieve a positive outcome for the environment and society.

Multi-decade changes are coming

Even if we do not believe this is for us it is important to recognise that there is growing pressure from governments to individuals to do something to slow global warming and improve society.

The UN has set out ten principles for businesses to incorporate which fall under four areas – human rights, labour, environment, and anti-corruption. The Paris Agreement looks to limit global warming to below 2 degrees. Governments including the UK, China and the US have outlined environmental policies. And activists like David Attenborough and Greta Thunberg are leading individuals to demand change.

Change will happen, and we need to be on the right side of this.

What is the benchmark

We use the Royal London UK FTSE4Good Tracker Trust. The FTSE4Good Index is a series of ethical investment stock market indices launched in 2001 by the FTSE Group. The index excludes companies due to their involvement in tobacco production, nuclear weapons, conventional weapon systems, or coal power industry and rates companies for inclusion based environmental sustainability, relationships with stakeholders, attitudes to human rights, supply chain labour standards and the countering of bribery. Example holdings include Unilever, AstraZeneca, HSBC Holdings, Diageo and GlaxoSmithKline. This is an evolving area and we believe this to be the closest match.

Blogs

We will add our most recent blogs below.

DateName
28 February 2020Positive Impact Investments
28 February 2020Building a more sustainable society
11 March 202150 Shades of Green

Fund Manager Meetings (2021)

DateFund ManagerFund Name
February 2021Benji Dawes and Jon HudsonPremier Miton Ethical Fund
February 2021Tom Crockford and Mohsin AhmadRegnan Global Equity Impact Solutions Fund
February 2021Sarah Norris and Iain HewittASI Europe ex UK Ethical Fund
February 2021Craig Bonthron, Neil Goddin, Jonathan Parsons and Ryan SmithArtemis Positive Future Fund
February 2021Amit Mehta and John CitronJPM Emerging Markets Sustainable Equity Fund
March 2021Giles Money, Jeremy Thomas and Alex BibaniSarasin Responsible Global Equity Fund
March 2021Zehrid OsmaniMartin Currie Global Portfolio Investment Trust
March 2021Marnie Aragon-Uy and Cynthia CanoAlquity Global Impact Fund
April 2021Connie Luecke and Steven WittwerVontobel Duff and Phelps Global Listed Infrastructure Fund
April 2021Mike FoxRoyal London Global Sustainable Equity Fund