Against a backdrop of rapid growth in sustainability-orientated investing, we explain the clear approach underpinning our CT Sustainable Universal MAP Range.
There’s been a rapid growth in sustainability-orientated investing in recent years and the trend is expected to continue. Many factors lie behind the growth, with greater awareness of issues such as climate change and the impetus from regulatory changes being just two. The asset management industry has responded, and today’s investor enjoys a world of choice when it comes to environmental, social and governance (ESG) focused options.
But greater choice isn’t without potential pitfalls. Are products really all they claim? Do asset managers have the right approach, capabilities, processes, and commitments in place? The regulatory regime is shifting rapidly to keep pace, providing a robust framework to counter threats such as ‘greenwashing’. The Financial Conduct Authority (FCA) for example, recently announced its proposal for three categories of sustainable investment products under the Sustainable Disclosure Requirements (SDR). These are currently in a period of consultation.
ESG Ratings – assessing risks not positive impact
Another area of growth has been in ESG Ratings from information and index that can be used by investment firms to account for ESG factors in their processes. There are challenges and issues to be aware of, however. There is a lack of consistency in approaches employed, little transparency around methodologies and, in some areas, ESG Ratings lack appropriate regulation. Perhaps the most important consideration is that most ESG Ratings are designed to consider a company’s exposure to ESG related risks rather than highlight or quantify those companies that are making a positive impact on social or environmental issues. They can be useful tools, but their limitations should be recognised and form just one input into a broader and more balanced approach.
Our approach – Avoid, Invest, Improve
We’re keen to ensure we are clear on the approach employed across our CT Sustainable Universal MAP Range. The funds are managed within a robust Avoid, Invest, Improve philosophy. Each holding is subject to the investment policy of the range, and the portfolios are built through close collaboration between our Responsible Investment specialists and fund managers.
Potential holdings are screened against strict ‘avoid’ criteria, which are product and conduct based. The funds, for example, won’t invest in companies involved with tobacco or weapons, or with fossil fuel reserves. Beyond the exclusions policy, the managers proactively ‘invest’ in opportunities, orientating towards companies providing sustainability solutions within themes such as resource efficiency, health and wellbeing, energy transition and responsible finance. We use the UN Sustainable Development Goals (SDGs) as a widely used and recognised framework here – both as a guide to orientating the portfolios, but also as a structure within which we can measure their positive and negative alignment.
‘Improve’ is the third element. We recognise our responsibility and are keen to use our position as a shareholder to engage with company management teams on a range of ESG-related matters. Dialogue takes place around both issues that may present a risk, as well as encouraging companies to better manage their operations around sustainability factors. Our programme of engagement is structured around key themes including environmental stewardship, climate change, human rights, and labour standards.
Demonstrating results
As well as being clear about the approach applied within the CT Sustainable Universal MAP range, our ambition is to offer investors real insight into the portfolios’ real-world impact, the progress we are making, as well as highlighting areas in which we need to do better. Each year we produce an annual Impact Report which shows how the funds align with the SDGs, rank (versus a composite benchmark) on key impact metrics covering environmental stewardship, fairness and equality and economic development, and showcase progress we’ve made through engagement.
