Grow your responsible investment knowledge with our educational material

With client interest in responsible investment higher than ever - and potential new regulation on the horizon, there’s no better time to master the topic.

To help you do just that, our experts have created a suite of educational material and useful resources dedicated to supporting you confidently talk to your clients about investing responsibly.

So, if there’s something you could learn about responsible investment, you’re in the right place.

Make sense of the basics

Our expert’s blog

Read about getting started on your responsible investment journey.

Glossary of terms

Use our glossary to understand responsible investment terminology.

Regulation podcast

Find out how regulation has impacted the responsible investment landscape so far.

Deepen your knowledge

We’ve partnered with Square Mile, an award-winning investment consultancy, to create a series of educational videos taking a closer look at some of the different responsible investment approaches.

Watch as their experts cover ethical exclusions, responsible practices, impact investing and sustainable solutions. Each video gives an overview of the approach – and outlines the important questions you should ask providers when selecting these types of investment.

Ethical exclusions

Funds that avoid industries and company practices that cause harm to people or the planet.

Hello, 

I’m Anna Mercer, Responsible Investment Analyst at Square Mile Research. We at Square Mile are excited to be working with Royal London on this project, which consists of a series of educational videos designed to help advisers debunk the confusing jargon in this space and accelerate the adoption of a common set of terms.

In this video we focus on the area of ethical exclusions, and what we look for from funds and fund managements groups when applying this approach within their investment processes.

What ethical exclusions are applied to the fund?

One facet of Responsible Investment is the wish to avoid doing harm by not investing in companies or industries which are negatively contributing to society or to the environment.

This is typically the primary purpose of ethical or exclusions-based mandates. Therefore, there should hopefully be a clearly articulated and extensive range of exclusions applied to the fund’s universe.

This is usually done via a screening process, whereby companies are classified as uninvestable.

Usually, these exclusions will apply to areas traditionally referred to as the ‘sin stocks’, so alcohol, tobacco and gambling, as well as to emotive issues like nuclear power or animal testing.

Though, nowadays and in a reflection of changing societal focus, they will also likely exclude companies involved in the production or distribution of fossil fuels, for example, and those that breach recognised human rights standards. 

How are the exclusions applied and is this clearly stated?

As just mentioned, with an ethical or exclusions focused mandate, one would hope to see a clearly articulated and comprehensive range of exclusions applied.

However, it is the extent or power of these exclusions which actually matters and how clearly this is documented or discussed by the fund’s manager.

For example, we could see that a fund excludes companies which are involved in the production of fossil fuel, and so expect to see no fossil fuel related companies held in the portfolio.

Yet, if this exclusion is done on a revenues threshold basis, i.e. where companies which derive a certain percentage or less of their revenues from fossil fuels can still be invested in, then several may actually be able to slip through the net and be eligible for investment.

Thus, it is important to understand the true extent of the exclusions - are they all-encompassing based on the nature of a company’s products and/or services? Or are they applied by threshold, in which case are these limits clearly documented and what does this actually mean in terms of the companies in which the fund invests?

How and where are these exclusions referenced?

Fund managers should be as open and transparent as possible with regards to the exclusions that they may or may not be applying to their funds.

Typically, they will be detailed in the fund’s literature, such as the KID, RFP or a fund presentation but, with the ever-increasing demand for accessibility of information, and given the fund’s objective, we would expect that the details of the exclusions to be readily available on the firm/ fund’s website.

The information should include more than just a list of the exclusions.

Instead, they should give the reasons why the exclusions are being applied and if it is an overarching theme, such as alcohol, whether this includes both producers and distributors.

The information should also clearly state whether it is a total exclusion or done on a threshold basis.

How is adherence to these exclusions monitored?

In an ethical or exclusions-based mandate, ensuring the proper application of the exclusions is as important as ensuring that a fund is staying within its risk parameters.

Indeed, there should be a clear oversight process in place, providing independent verification that the exclusions are being correctly applied and that investors are not gaining exposure to something that they are purposefully trying to avoid.

This can be done by either an internal or external party, such as an advisory committee. It can be said that external oversight provides a higher level of governance but it should be done by a party separate to whoever is responsible for applying the exclusions, with a clear monitoring and reporting framework in place.

Essentially, we want to know how the oversight is implement and what evidence of this is publicly available for review.

How often are these exclusions reviewed?

Typically, exclusions are formally reviewed on a regular basis, ideally with input from the fund’s manager or managers, its investors and the group’s Responsible Investment team and/ or advisory committee.

However, it would also be good to see that the fund’s manager conducts informal reviews on an ongoing basis to ensure that the exclusions remain both relevant and a reflection of the group’s and the investors’ aims or ideals.

What is the structure of the review process?

Here we would usually ask questions, such as who is responsible for implementing the review and how often does it occur?

What drives it – the fund group or client feedback?

How do they collect, analyse and prioritise information, insights and feedback from the fund managers and their team regarding industry insights and from investors regarding their views? And how does this feed in?

How do they differentiate between a long-term trend, to which you could meaningfully contribute via an exclusion, or a short-term fad?

How often have the exclusions changed and what is required to do so?

Who has final approval?

Who is responsible for applying the exclusions?

This can vary from fund to fund and group to group but, essentially, we want to establish who is actually responsible for applying the exclusions to the fund’s investable universe and why they were selected.  

Is it the fund management team or the fund group’s Responsible Investment team? Or are they applied by one and verified by the other?

Importantly, if the exclusions are being applied by the group’s Responsible Investment team, we would still ideally expect the fund’s managers to have a thorough understanding of the exclusions, why they are being applied and why they matter in relation to the fund’s implicit objective of avoiding doing harm. It should not be seen as distinct to their work.

Have there been any instances of breaches? If so, how were they resolved?

This is all about accountability and transparency, especially in relation to funds where strict exclusions are being applied and, as such, there should be distinct parameters in place, with little room for subjectivity.

Therefore, fund managers should be comfortable in demonstrating transparency as to whether any breaches have occurred and how they happened.

Were they inadvertent or deliberate? And if so, how quickly were they picked up and by who? Who was informed from an oversight perspective?

Importantly, how were they rectified and was it in a timely manner?

Were clients advised of the breach?

Finally, were any changes made to the application and review of the exclusions following the breach to ensure that the same or a similar mistake could not be made in future?

Is the asset manager a signatory to any Responsible Investment initiatives? If so, which?

This is aligned to the idea of responsible corporate citizenship and fund management groups acting in the interests of all of their stakeholders, as opposed to just their shareholders.

Traditionally, groups which were signatories to such initiatives could be delineated as clearly committed to Responsible Investment through their work by integrating ESG analysis across all of their products and by having a clearly identifiable range of dedicated RI offerings.

However, as ESG and Responsible Investment have grown in popularity, several of the more well-known initiatives, notably the UN Principles for Responsible Investment (UN PRI), have increasingly become more of a hygiene factor, with more fund groups signing up to evidence their commitment to this space.

Thus, we would expect most fund management groups, especially the larger ones, to be signatories and openly publishing details of these on their websites, etc.

However, if a group speaks of commitment to a particular issue, such as climate change, we would ideally like to see that they are signatories to, or participants in, initiatives like the Carbon Disclosure Project (CDP).

Did the asset manager and/or fund receive a rating? If so, are the rating and report available for public viewing?

This again comes back to the need for greater transparency and accountability.

Are they open about what rating they received, even if it is not the highest possible, and are they publishing it on the website and in their literature? Also, are they informing clients?

Ideally, we would see the rating, a link to the report, and a summary of strengths and weaknesses and what they will be doing to either maintain their current standards or to improve.

 

 

 

Thank you for watching this video on responsible practices, we hope you found this video informative.

Responsible practices

Funds that consider the operational practices of the companies they invest in and encourage them to improve their environmental and social performance.

Hello,

I’m Jake Moeller, Senior Investment Consultant at Square Mile Research. We at Square Mile are excited to be working with Royal London on this project, which consists of a series of educational videos designed to help advisers debunk the confusing jargon in this space and accelerate the adoption of a common set of terms.

In this video we focus on the area of responsible practices, and what we look for from funds and fund managements groups when applying this approach within their investment processes.

What are the objectives of the fund? Does it have an explicit reference to investing in securities that demonstrate Responsible business practices?

A clear stated objective for any fund is important. Within the area of responsible investing, it is possibly even more so as there are so many nuances within this investment area.

Very often, the clue isn’t in the name. Unless you are dealing with a very specific type of thematic fund (say for example the X Asset Management Water Treatment Fund) and you will have to look for some key references later in the marketing material to really understand what it is the fund is trying to achieve.

Is it about avoiding harm? Is it about doing good? Because that’s where in the spectrum we are. Avoiding harm is about ethical exclusions such as avoiding tobacco or pornography. Responsible Practices heads towards doing good - making sure that companies are well-run, well governed and being more considerate corporate citizens.

What is the definition of Responsible investment applied?

The Square Mile 3D definition of responsible investment is framed within Avoiding Harm, Doing Good and Leading Change. An ethical exclusions fund is in the avoiding harm space - not investing in tobacco or pornography for example. Responsible Practices still might also be about avoiding harm space but moves more towards also Doing Good. It considers the operational practices of the companies in which they invest and supports ‘best practice’ in their respective industries, as well as encouraging them to improve their environmental and social performance.

An example of this could be investment in a retailer which requires suppliers to treat their employees well or investing in a car manufacturing company which is seeking to improve the environmental impact of its operations.

Is there a clear research and materiality framework in place? How is adherence to this framework monitored?

Companies have many different touchpoints. Suppliers/ customers/ staff/ shareholders/ creditors and debtors etc. A fund manager needs to decide what areas of responsible practices are material to them and how they are going to go about making sure these priorities are met. For example, a fund manager may be passionate about ensuring that its investee companies have better board diversity or more generous pension benefits for its staff. It may want to ensure that customers have never been harmed by poorly made or designed products.

Fund managers need to ensure that whatever their priorities are, they have a framework to consistently apply its analytical methodology to all the companies it considers for its portfolio. How will the fund manager assess for example the gender pay gap? How will it monitor supply chains? How will it consider the carbon footprint of a company? A framework must have some measurable metrics assigned to its components so that outcomes can be monitored, and progress assessed.

Are any ethical exclusions applied to the fund? If so, what are they?

This is an important consideration. An ethical exclusions fund is a very different type of fund in the “avoiding harm” camp. A responsible practices fund should be considering the operational practices of the companies in which they invest. This means being supportive of best practices in an industry. That indeed could be any sector such as mining. A responsible practices fund could still invest in  a mining company. For example,  if it felt that the company was managing its environmental and socio economic impacts  relatively well.

However, most responsible practices funds might also have some ethical exclusions, but they wouldn’t be obliged to. These might be high-level exclusions that are set by the United Nations Global Compact such as cluster munitions. There could also be a blanket ban on companies which deal with addictive products or thermal coal. However, the objective of a responsible practice fund is to change and improve behaviours rather than simply avoid them.

Does the fund manager evidence their engagement and stewardship activities and the outcomes of these? 

Engagement and Stewardship is perhaps the key component of a responsible practices fund. Fund managers need to understand their investee companies business models and this includes its environmental and social touch points. It needs to be aware of any controversial activities its investee companies are or have been exposed to and then it needs to be prepared to engage with company management to improve corporate behaviour.

This can be done by using voting power at general meetings, collaboration with other investors and direct action with senior management. Evidence is important – can a fund manager show its voting record. When and why did it abstain against a management resolution? What interaction has it had with management? Over what period? Was it prepared to divest? What were the results of this activities?

All of this activity should be summarised and documented.

Does the fund produce a report or case studies on its holdings?

They talked the talk, but did they walk the walk? Evidence is key! Most fund managers in the responsible practices space will produce an engagement report which sets out its priorities, its voting record, its interactions with management, other investors etc. Typically, it will furnish illustrated examples of which companies were engaged with and what the outcomes of the engagement were.

Is there any third-party validation of the fund’s process or philosophy?

Third party validation could include a rating from a credible ratings agency (3D for example). Where any claims are made of a responsible investing objective, the ratings agency will audit the process, check the portfolio and ensure that the fund is genuinely invested in alignment to its stated objective. This minimises potential for greenwashing -that is for fund managers to potentially mislead investors by not backing up their claims.

What resources and support are available to the fund managers and analysts? For example, external data systems, internal research or a Responsible Investment team.

Fund managers that have more resources dedicated to the analysis of responsible investing are more likely to achieve their stated objectives. Subscribing to external data systems such as MSCI or Sustainalytics is a good step to ensure that a fund manager has some ability to monitor the responsibility profile of its investee companies. Most fund managers will also have some proprietary system to augment this. The better rated fund managers will likely have a dedicated staff resource to coordinate and implement policies across the firm.

Is the asset manager a signatory to any Responsible investment initiatives? If so, which initiatives? For example, the UN PRI, UN Global Compact, etc.

This is aligned to the idea of responsible corporate citizenship and fund management groups acting in the interests of all their stakeholders, as opposed to just their shareholders.

Traditionally, groups which were signatories to such initiatives could be delineated as clearly committed to Responsible Investment through their work by integrating ESG analysis across all their products and by having a clearly identifiable range of dedicated RI offerings.

However, as ESG and Responsible Investment have grown in popularity, several of the more well-known initiatives, notably the UN Principles for Responsible Investment (UN PRI), have increasingly become more of a hygiene factor, with more fund groups signing up to evidence their commitment to this space.

Thus, we would expect most fund management groups, especially the larger ones, to be signatories and openly publishing details of these on their websites, etc.

However, if a group speaks of commitment to a particular issue, such as climate change, we would ideally like to see that they are signatories to, or participants in, initiatives like the Carbon Disclosure Project (CDP).

Did the asset manager and/or fund receive a rating? If so, are the rating and the report available for public viewing? For example, hosted on the website, issued  to clients, etc.

This again comes back to the need for greater transparency and accountability.

Are they open about what rating they received, even if it is not the highest possible, and are they publishing it on the website and in their literature? Also, are they informing clients?

Ideally, we would see the rating, a link to the report, and a summary of strengths and weaknesses and what they will be doing to either maintain their current standards or to improve.

Thank you for watching this video on responsible practices, we hope you found this video informative.

Impact investing

Funds that aim to make a wider measurable positive social and environmental impact, as well as meeting financial objectives.

Hello,

I’m Jake Moeller, Senior Investment Consultant at Square Mile Research. We at Square Mile are excited to be working with Royal London on this project, which consists of a series of educational videos designed to help advisers debunk the confusing jargon in this space and accelerate the adoption of a common set of terms.

In this video we focus on the area of impact investing, and what we look for from funds and fund managements groups when applying this approach within their investment processes.

What are the objectives of the fund? Does it have an explicit reference to investing in securities that seek to provide a positive and measurable social and/or environmental impact?

A clear stated objective for any fund is important. Within the area of responsible investing, it is possibly even more so as there are so many nuances within this investment area.

Very often, for an impact fund, the clue will start with the name. An impact fund very well refer to ‘impact’ in the fund name. However, this might not always be the case and an investor really need to dig into the marketing material to understand what a fund is trying to achieve.

What is the definition of impact applied?

The Square Mile and 3D Investing definition of responsible investment is framed within Avoiding Harm, Doing Good and Leading Change. Impact investing requires the latter two elements, and whether informally or formally, will also satisfy the former. It is arguably the most comprehensive type of responsible investing. Here a fund manager (and an investor) wants to use their capital to make a wider positive social or environmental impact. This objective is just as important as gaining a financial return. The investors and fund manager will want to see detailed and targeted evidence of the social and environmental impact the fund is having.

For example, an impact fund will typically invest in companies addressing healthcare needs, generating renewable energy, and directly improving energy efficiency etc. It would report on its impacts in terms of the number of patients cared for, the kilowatts of clean energy generated, and resources saved.

We would also expect an impact fund to have low exposure to controversial activities such as mining by virtue of this objective.

Does the fund manager provide examples of their holdings and how they meet the impact criteria and/or themes?

Typically, we like an impact fund manager to articulate a “theory of change” for a specific security. That is how the fund seeks to make a social or environmental impact and how it sets out to deliver this.

Good fund managers will actually be able to articulate their impact investment thesis for every holding in its portfolio. It is likely (but not always the case) that the fund has a high-level theme which drives stock selection (for example low-carbon generation or social housing) and we would expect to see a logic construct around a theme and stock selection.

How is the fund’s impact being measured? For example, is it mapped to the UN Sustainable Development Goals or other sustainability/impact targets.

A high impact fund should be able to map most – ideally all – of its holding to a United Nations Sustainable Development Goal. Some funds have very specific impact criteria – for example one fund we have looked at considers its holdings in relation to the Nine Planetary Boundaries (articulated by the Stockholm Resilience Centre) others might follow closely the UN Global Compact.

Does the fund provide an annual impact assessment report or other regular reporting?

This is really important. Evidence is key. Fund managers need to articulate how their portfolio is driving change. A good annual impact report should do this. It should summarise the portfolio in terms of meaningful and measurable output – there should be tangible benefits. Kilowatts of renewable energy produced. Tonnes of carbon avoids, hectares of forest planted. It should justify the “theory of change” that I referred to earlier.

What resources and support are available to the fund managers and analysts? For example, external systems, internal research and materiality framework, availability of Responsible investment expertise, independent advisory committee etc.

Fund managers that have more resources dedicated to the analysis of responsible investing are more likely to achieve their stated impact objectives. Impact investing is more resource intensive than other types of responsible investing and requires committed and often very targeted resources. Subscribing to external data systems such as MSCI or Sustainalytics is a good step to ensure that a fund manager has some ability to monitor the responsibility profile of its investee companies. Most impact fund managers will need extensive proprietary research to ensure the purity of its investment thesis. The better rated fund managers will likely have a dedicated staff resource to coordinate and implement policies across the firm. The fund managers themselves will likely have a specialist background in the particular area of impact investing

An external advisory committee will often be a good sign that a fund manager is willing and able to keep abreast of the latest best practice in its field.

Are any engagement, advocacy and stewardship activities undertaken? If so, how often are the outcomes measured and published?

Engagement and Stewardship remain a key component of an impact fund. Fund managers need to understand their investee companies business models and this includes its environmental and social touch points. Typically, we would expect that investee companies in an impact fund are less likely to be engaged in any controversial activities by virtue of the proactive impact-based stock selection process. Nonetheless using voting power at general meetings, collaboration with other investors and direct action with senior management remains a key tool for fund managers to ensure that its holdings remain consistent with the articulated impact theme

All this activity should be summarised and documented.

Is there any third-party validation of the fund’s philosophy and process?

Third party validation could include a rating from a credible ratings agency (3D for example). Where any claims are made of a responsible investing objective, the ratings agency will audit the process, check the portfolio and ensure that the fund is genuinely invested in alignment to its stated objective. This minimises potential for greenwashing. That is for fund managers to potentially mislead investors by not backing up their claims.

Is the asset manager a signatory to Responsible investment initiatives? If so, which initiatives? For example, the UN PRI, UN Global Compact, etc.

This is aligned to the idea of responsible corporate citizenship and fund management groups acting in the interests of all their stakeholders, as opposed to just their shareholders.

Traditionally, groups which were signatories to such initiatives could be delineated as clearly committed to Responsible Investment through their work by integrating ESG analysis across all their products and by having a clearly identifiable range of dedicated RI offerings.

However, as ESG and Responsible Investment have grown in popularity, several of the more well-known initiatives, notably the UN Principles for Responsible Investment (UN PRI), have increasingly become more of a hygiene factor, with more fund groups signing up to evidence their commitment to this space.

Thus, we would expect most fund management groups, especially the larger ones, to be signatories and openly publishing details of these on their websites, etc.

However, if a group speaks of commitment to a particular issue, such as climate change, we would ideally like to see that they are signatories to, or participants in, initiatives like the Carbon Disclosure Project (CDP).

Did the asset manager and/or fund receive a rating? If so, are the rating and the report available for public viewing? For example, hosted on the website, issued to clients, etc.

This again comes back to the need for greater transparency and accountability.

Are they open about what rating they received, even if it is not the highest possible, and are they publishing it on the website and in their literature? Also, are they informing clients?

 

Ideally, we would see the rating, a link to the report, and a summary of strengths and weaknesses and what they will be doing to either maintain their current standards or to improve.

 

 

Thank you for watching this video on impact investing, we hope you found this video informative.

Sustainable solutions

Funds that actively seek to invest in companies that are providing solutions to social and environmental challenges.

Hello,

I’m Anna Mercer, Responsible Investment Analyst at Square Mile Research. We at Square Mile are excited to be working with Royal London on this project, which consists of a series of educational videos designed to help advisers debunk the confusing jargon in this space and accelerate the adoption of a common set of terms.

In this video we focus on the area of sustainable solutions, and what we look for from funds and fund managements groups when applying this approach within their investment processes.

What are the objectives of the fund? Do they have an explicit reference to investing in securities that are providing solutions to social and/or environmental challenges?

At Square Mile, we define a sustainable solutions fund as one which is seeking to invest in companies that are providing solutions to social and environmental challenges through their core products and services in the belief that this will realise long-term financial benefits.

However, along with the rapid growth of Responsible investment, there has come a multitude of sustainably labelled product launches and much inconsistency in terminology and interpretation as to what the rather subjective topic of Sustainability means when it comes to investment.

Therefore, a Sustainable investment fund’s objective becomes that bit more important.

Indeed, a fund’s objective should ideally provide its investors with an idea of what they can reasonably expect to achieve from their investment.

In this case, that means that there should be both a clearly defined financial target, and a well-articulated statement of intent as to what sustainable challenges the fund is seeking to meet through the solutions provided by its investments or, if this is not the case, how it will otherwise be aiding the transition to a more sustainable world.

The objectives should also resonate and be consistent with the fund manager or group’s definition of sustainability.

If so, what are the specific social and/or environmental objectives? Are these clearly documented?

Although the overarching desire is to deliver a financial return whilst affecting positive change for the planet and its inhabitants, Sustainability and sustainable investments, in particular, have many forms and themes associated with them.

Therefore, if a fund is marketed or portrayed as being either a sustainable fund or helping to aid the transition to a more sustainable world, it also needs to clearly define what specifically it is targeting, in terms of social and/or environmental challenges.

Ideally, this should form part of the fund’s objectives, to ensure transparency and accountability, so that investors can see whether or not their money is actually helping to achieve these goals.

For example, with an energy transition fund one would hope to see an objective include reference to achieving financial returns through majority or total investment in companies which are either helping or enabling the transition to a lower carbon world, whilst avoiding exposure to companies which are heavy emitters or related to the production and distribution of fossil fuel.

In terms of documentation, fund managers should be as open and transparent as possible.

The objectives will be detailed in the fund’s literature, such as the factsheet and the prospectus, but, with the ever-increasing demand for accessibility of information and Responsible investment products, we would also expect the fund information to be readily available on the firm/ fund’s website.

What is the definition of sustainability applied?

This comes back to the idea of transparency and fund groups being as open and honest as possible about what they are aiming to achieve and why.

As already touched on, there are several different interpretations of Sustainability being used in the market at the moment and, although there are increasingly widespread calls for a common terminology, it is likely that groups will still apply their own iterations moving forwards.

Thus, to eliminate as much confusion as possible and to enable investors to fully understand a fund and what they can expect from it, we would hope to see consistent, and well-articulated messaging about what sustainability means to the fund group and the fund’s manager and the reasons why they arrived at this definition. Much like the research and information pieces one would receive from a fund detailing value or growth investment styles.

We would also hope to see comprehensive information detailing how this idea of Sustainability is embodied by or aligns with the fund’s investment approach and aims.

Does the fund manager provide examples of holdings and how they meet the fund’s sustainability criteria?

When it comes to sustainable products, being able to evidence what the fund is actually achieving in relation to its social and environmental objectives is critical.

Unfortunately, though, it is also currently quite difficult due to an element of subjectivity, a lack of comprehensive data and inconsistent metrics against which to measure performance in relation to these objectives, both amongst varying fund groups and in terms of external data providers.

Therefore, the manager being willing and able to provide detailed examples of companies that they are invested in and the reasons for this from a Sustainable perspective, enables investors to understand and appreciate the positive change hopefully being achieved with their money and how or if the fund is meeting its sustainability criteria.

It can also demonstrate the commitment and passion that the manager has for sustainable investment.

Typically, the examples come in the form of case studies or stock examples from the manager and include details of what the company is, what it does and why it aligns to the fund’s sustainable criteria. They also may detail any recent engagements that the manager has had with the company, the reasons for this and the outcome.

Does the fund produce a sustainability report on its holdings?

Sustainability reports are becoming more common, but they are still by no means the norm.

There is also not yet a consistently adhered to format or template in terms of the metrics against which to report, which one would find with financial performance.

There are some areas which have become easier to evidence, such as a reduction in CO2 emissions, and so often groups will publish these, along with how the fund scores from an ESG perspective relative to its benchmark, which is what we refer to as footprinting.  In essence, this is a report that shows the environmental or social footprint of a portfolio. This is distinct from an impact report that details the actual social or environmental outcomes of an investment portfolio, for example, lives saved or renewable energy generated.

However, overall, it can be quite difficult for fund groups to know what data to provide and how to document it, a situation which could also lead to groups saying that the fund does more than it actually does, otherwise known as greenwashing.

That being said, if a fund does have a sustainability report, one would expect the group to provide clear information as to what they are measuring and how, using and naming as reliable data sources as possible. As this information should really be evidencing that the fund is meeting its sustainable criteria, one would expect it to align with the fund’s objectives.

Are any engagement, advocacy or stewardship activities undertaken? If so, how so and are the outcomes measured and published?

A fundamental part of Responsible investment is centred upon engagement and stewardship activities.

There are really two facets to pull out here, the first being that establishing and maintaining an ongoing dialogue with company management is a useful way of ensuring that companies are operating in a sustainable manner - i.e., maintaining high standards in terms of their internal policies and operational practices.

The second element is the idea of being able to encourage best practice and to lead change when it comes to either company specific or industry level issues, especially if the fund managers and/or the fund management groups participate in collaborative initiatives.

Ideally, one would like to see clear targets and systematic reporting on the success of engagements, and these should focus on issues beyond the standard governance matters like board structure or remuneration and instead look to social or environmental issues like the impact of supply chains on the local environment and biodiversity. There should also be information published on voting and the rationale for voting for or against company management, as well as clear involvement in Responsible Investment focused initiatives.

Does the fund map to the UN Sustainable Development Goals, or any other sustainability initiatives or targets?

The United Nations’ Seventeen Sustainable Development Goals were created and adopted by the UN member states in 2015 as a cornerstone of the UN’s 2030 Agenda for Sustainable Development.

Since then, they have been widely embraced and adopted by fund management groups as a way of demonstrating their funds’ sustainable credentials by showing how their funds are either aligned to or positively contributing to the goals.

However, as they were intended to act as a blueprint for governments globally to meet and solve some of the world’s most pressing challenges, the UN SDGs are deliberately broad in their scope and, although they have much more concise underlying targets, it is sometimes difficult for fund managers to effectively map companies and their products and/or services to them.

This can lead to some tenuous links and the possibility for funds to be marketed as doing more than they perhaps actually do, especially if they claim to meet all 17 SDGs.

Therefore, this is an area to be alert to – has the fund manager clearly identified how they have mapped their investment themes and underlying holdings to a goal or goals? And is this based on actual evidence and data, such as the majority of a company’s revenues stemming from producing renewable energy, for example, or is it much more about the story? Also, do they continuously measure and report on this?

Is there any third-party validation of the fund’s philosophy or process?

This is non-essential but is about receiving external or third party validation that the fund’s philosophy or process is effective and reliable and will enable the manager to meet their financial and responsible investment objectives. It is also about ensuring the soundness of the Responsible investment approach applied and that there is clear intent to effect positive change by using investment in companies to do good, avoid doing harm and to hopefully lead change.

What resources and support are available to the fund managers and analysts?

Again, this is about ensuring the manager or managers have all of the available support and resources necessary to be able to achieve their objectives.

For example, we would be asking about whether the managers and their team have access to external data and research systems, and how they use or integrate the output of these within their own research.

And when it comes to that internal or proprietary research, we would want to know what they focus on when analysing companies, and whether or not they have established their own ESG scoring and/or materiality frameworks, for example.

Do they undertake the responsible investment research and analysis themselves and, if so, have they received any training or any qualifications in this area? Or do they make use of the group’s Responsible investment team or specialists and what level of involvement do these specialists have in the management of the fund?

On this note, is there a clear oversight process in place, providing independent verification that the fund is adhering to its sustainable investment mandate?

This can be done by either an internal or external party, such as an advisory committee. It can be said that external oversight provides a higher level of governance but it should be done by a party separate to the manager, with a clear monitoring and reporting framework in place.

Is the asset manager a signatory to Responsible investment initiatives? If so, which initiatives? For example, the UN PRI, UN Global Compact, etc.

This is aligned to the idea of responsible corporate citizenship and fund management groups acting in the interests of all of their stakeholders, as opposed to just their shareholders.

Traditionally, groups which were signatories to such initiatives could be delineated as clearly committed to Responsible Investment through their work by integrating ESG analysis across all of their products and by having a clearly identifiable range of dedicated RI offerings.

However, as ESG and Responsible Investment have grown in popularity, several of the more well-known initiatives, notably the UN Principles for Responsible Investment (UN PRI), have increasingly become more of a hygiene factor, with more fund groups signing up to evidence their commitment to this space.

Thus, we would expect most fund management groups, especially the larger ones, to be signatories and openly publishing details of these on their websites, etc.

However, if a group speaks of commitment to a particular issue, such as climate change, we would ideally like to see that they are signatories to, or participants in, initiatives like the Carbon Disclosure Project (CDP).

Did the asset manager and/or fund receive a rating? If so, are the rating and the report available for public viewing? For example, hosted on the website, issued to clients, etc.

This again comes back to the need for greater transparency and accountability.

Are they open about what rating they received, even if it is not the highest possible, and are they publishing it on the website and in their literature? Also, are they informing clients?

Ideally, we would see the rating, a link to the report, and a summary of strengths and weaknesses and what they will be doing to either maintain their current standards or to improve.

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