One way to invest sustainably

All investors, large and small, have a choice over where they put their money, and in doing so they can help shape the future.

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  1. Rob Morgan

Issues such as climate change, environmental degradation, resource scarcity and extreme poverty are increasingly changing the way people see the world. Whether it's reducing single-use plastic, recycling more waste or switching to a renewable electricity tariff, there are simple steps to reduce our own impact on the planet.

Another is sustainable investing. Indeed, if we are to have any chance of meeting targeted reductions in carbon dioxide emissions and reducing the likelihood of devastating global warming, the financial industry is going to play a vital role. All investors, large and small, have a choice over where they put their money and in doing so they can help shape the future.

I recently wrote about how ‘ethical’ investing has evolved from a ‘values’-based exclusion of companies and industries to a more nuanced framework of positive and negative impacts companies have on society and the environment. Many funds are now available that support and encourage the transition to sustainable business practices, and we believe investors have access to more high-quality options in this area than ever.

However, investors must beware of so-called ‘greenwashing’, presenting a product as more environmentally-friendly than it really is. That a fund is marketed as being ‘sustainable’ or ‘green’ is not enough. When we assess this type of investment we need to be sure that the ESG – environmental, social and governance – methodology the fund manager is using is clear and truly embedded in the fund management process. It is vital to assess the culture and views of the team and take account of the efforts in engagement with investee companies in order to effect positive change. Quite simply, if an investor wants to invest sustainably they should expect an authentic product.

One fund group we admire in this regard is WHEB, a pioneer in ‘impact’ investing. They aim to identify companies with long-term solutions to sustainability challenges such as the transition to a low carbon economy and, in doing so, harness markets with strong growth potential. WHEB Sustainability, the group’s only fund, invests globally and is based on a strategy dating back 13 years.

One key theme the managers are investing in, perhaps inevitably, is the rise of the electric vehicle. Yet there are no auto manufacturers such as Tesla in the portfolio – largely because the managers see them as either being too expensive or too reliant on legacy combustion engine models. Instead, exposure is via companies entrenched in the ecosystem of electric cars, providing vital components or technology. Horiba, for instance, provides waste water treatment and analysis and makes instruments that measure and analyse exhaust gases. Another portfolio holding, Aptiv provides connectivity technology enabling vehicles to transmit and receive data, while Hella is involved in high-efficiency lights and battery management.

Another theme is low-carbon manufacturing with the fund backing companies that help reduce the huge amounts of carbon dioxide produced in industrial processes. Examples include businesses involved in creating more efficient, automated warehouse and logistics systems such as Kion Group and Daifuku are included as well as the UK’s Renishaw whose products ensure precision measurement.

From a social perspective, healthcare is an important facet of the fund. Centene is a US medical insurer with a focus on providing access for poor and vulnerable communities, while CVS provides a range of pharmacies throughout the US and helps reduce the prices of pharmaceutical products on behalf of clients.

WHEB score well on transparency, publishing a complete list of portfolio holdings three times a year, and particularly commendable is their efforts in measuring the impact of their investments on society and the environment. They present this in an annual ‘Impact Report’, demonstrate records of engagement and even have a calculator that shows an investor the individual impact of their own holding in terms of renewable electricity generated, CO2 emissions avoided, waste materials recycled and a variety of other metrics.

Importantly, this attention to impact and accountability hasn’t come at the expense of longer-term performance. Over five years the fund is ahead of its peer group average, the Investment Association Global sector, growing by 72.4% versus 64.3% for the sector. Data from FE Analytics to 30/09/2019 on a total return basis, past performance is not an indication of future returns.


Past performance is not a reliable indicator of future returns.
Figures are shown on a % total return basis, bid to bid price with net income reinvested; Source: FE Analytics.

We believe this fund continues to represent a strong, thematic option for investors looking for exposure to global equities in key growth industries, as well as a true leader in sustainable investing. It remains part of our Foundation Fundlist of preferred investments across the major sectors.

 

Past performance is not a reliable guide to future returns. This website is not personal advice based on your circumstances. No news or research item is a personal recommendation to deal. Investment decisions in fund and other collective investments should only be made after reading the Key Investor Information Document or Key Information Document, Supplementary Information Document and Prospectus. If you are unsure of the suitability of your investment please seek professional advice.

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