Given the make-up of the UK equity market, the IA UK All Companies sector does not really provide a rich source of ideas for investors seeking responsible investment solutions. However, that does not mean to say the fund managers operating in the sector overlook ESG factors when analysing/investing in companies.
With the benefit of being able to interact with company management teams far more easily than a UK-based Asian equities manager for example, engaging with firms has been a key component of a number of managers’ investment approaches for several years. Many would argue, and rightly so, that the governance aspect of ESG analysis has been front and centre to the way they run money long before ESG was a thing.
So why then is there so little choice? Aside from clearly being a sector that invests almost exclusively in one geographic region, the peer group’s make-up is not overly helpful either. Some of the longer-established strategies within the sector merely operate on an exclusionary basis, meaning the ‘sin’ areas of oil and gas, basic materials and alcohol and tobacco producers/distributors, as well as certain banks and healthcare stocks are often considered uninvestable. This is a sizeable chunk of the UK market and so the result is a far smaller universe of stocks, typically further down the market cap scale.
Read the full article in ESG Clarity’s March 2022 digital magazine.
