Once the preserve of investors willing to sacrifice returns to put their money in ‘do good’ projects, sustainable investing has garnered considerable media attention and increased interest among investors in recent years. According to Bloomberg data, ethical investing has grown by about 80% during the past five years, to $223bn.
In 2016, the total environmental, social and governance (ESG) assets of investment and other listed pooled products rose to $2.6trn, which is more than double the $1.01trn tracked in 2012, and more than 10 times above the $202bn of ESG assets that were held in 2007.
As co-head of listed equities at the environmentally focused Impax Asset Management, Bruce Jenkyn-Jones has been at the forefront of the boom in sustainable investing.
Bruce Jenkyn-Jones, portfolio manager, Impax AM
ESG is the latest buzzword in socially responsible investing, according to Jenkyn-Jones, who runs Impax’s flagship Environmental Markets Fund, an Ireland-domiciled Ucits fund.
It is positioned on a spectrum between exclusionary screening and impact investing. Despite the increasing number of asset managers incorporating ESG considerations into their investment processes, the sector has attracted criticism for the confusing definition it applies to the varying degrees of sustainable investing.
Looking at the criteria gives you an idea of how ‘loose’ definitions lead to controversy. The less-stringent funds follow exclusionary screening, formerly known as socially responsible investing (SRI), which is intended to exclude investments in industries such as fossil fuels, tobacco and weapons.
The next step up is ESG investing, which aims to provide positive returns while considering the long-term effect that business practices have on society, the environment and the performance of the business itself.
The strictest criteria refers to impact investing, which seeks to generate a measurable and social or environmental benefit while also generating a financial return.
A number of funds purporting to follow ethical principles have come under fire recently for holding stocks in everything from tobacco companies, such as British American Tobacco and Imperial Brands, to Lloyds Banking Group and even oil companies Shell and ExxonMobil.
Last September, BlackRock and Vanguard were accused of hypocrisy when they voted against a resolution to force ExxonMobil to assess climate change risk to its business, despite the ETF giants being signatories to the UN’s Principles of Responsible Investment.
Good breeding
Jenkyn-Jones is clear that Impax’s Environment Markets strategy, together with its recently launched sister fund Environmental Leaders, is purely based on impact investing, with the former focusing on small- to mid-cap companies and the latter specialising in larger-cap firms.
