FundCalibre has launched a “simple” set of ESG rankings for its universe of rated funds to help investors keep up to speed as the sustainable investment industry continues to rapidly expand, reports our sister publication, Portfolio Adviser.
It will now include an ESG assessment for its 228 Elite Rated and Radar funds, which categorises their approach as ‘explicit,’ ‘integrated’ or ‘limited’. Information on the ranking will be included in each fund’s research notes, which are free and publicly available.
The decision to add the rankings was done to help keep investors informed as the number of funds claiming to have ESG credentials climbs.
“More and more funds are either being launched or are being given an ESG make-over,” said Ryan Lightfoot-Aminoff, senior research analyst at FundCalibre.
“With each fund manager doing something different, it has become very difficult for investors to know exactly how responsible a fund really is. What’s more, a lack of trust in asset managers’ ESG claims remains a barrier to investment.”
See also: Fund buyers wary as number of funds repurposed as ESG continues to rise
Rankings breakdown
Funds given an ‘explicit’ ranking, such as the BMO Global Responsible Equity fund, are those that “have an ESG/sustainable approach at the forefront of their investment philosophy,”Lightfoot-Aminoff explained.
They will use an ESG filter as a primary feature on the investable universe and are likely to have an independent panel to determine ESG criteria. Typically funds will actively avoid or negatively screen certain companies or industries and/or actively target certain ESG characteristics.
Integrated funds by contrast will “embed ESG analysis within the investment process, as a complementary input to decision making” but will not have a restricted investment universe, said Lightfoot-Aminoff, citing Brooks Macdonald Defensive Capital as an example.
“Managers that hold stocks that have questionable ESG credentials will need to evidence strong rationale for including the stock in the portfolio and show that extra analysis has been undertaken to accommodate the ESG risk,” he added.
The wider firms that explicit and integrated funds belong to must also be a signatory to an ESG appropriate body.
Finally, limited funds are those “where the overall portfolio will not be materially influenced by ESG”.
“These funds may still have some element of ESG in their process or be managed by a company that enforces certain negative screens, but the overall portfolio will not be influenced by ESG,” Lightfoot-Aminoff said.
