Europe’s dominance of the sustainable fund space has increased as its ESG-focused universe expanded after the introduction of Sustainable Finance Disclosure Regulation (SFDR) on 10 March 2021. New ESG language meeting Morningstar criteria to classify a strategy as sustainable has led to an increase in the number of funds included in the sustainable universe, which at the end of September was composed of 6,147 sustainable products.
These funds represented a whopping $3,431bn as of September 2021, which was a staggering 88% surge compared with the $1,830bn asset size previously reported at the end of June. As of September 2021, sustainable fund assets accounted for roughly 25% of total European fund assets.
Here, we look at three global equity funds (available to European investors) awarded the ESG Commitment Level of ‘Advanced’ or ‘Leader’. For these funds, sustainability considerations are a key part of the strategy and have investment teams that exhibit strong ESG credentials.
AXA World Funds – Global Factors – Sustainable Equity
This fund is managed by AXA’s subsidiary Rosenberg Equities and benefits from a large dedicated and centralised research team that scores each security in the investment universe using its proprietary six-factor methodology. These earn the fund a Morningstar ESG Commitment Level of Advanced.
Rosenberg has been delivering systematic equity portfolios since the mid-1980s and was one of the first quantitative groups to fully integrate nonfinancial data, such as ESG, into its portfolios. As you would expect given its pedigree, the firmwide ESG score is drawn from myriad external data sources to give analysts over 100 data points to incorporate into the corporate scoring framework. The 14-strong analytical team focuses on areas of materiality. Pleasingly, this output makes a material impact on portfolio weightings as it seeks to deliver an improved ESG score and less than 60% of the carbon and water footprint of the index.
AXA IM has numerous sectorial policies in place, including exclusions on controversial weapons, palm oil, and soft commodities, detailed rules over entities exhibiting climate risk impact and a set of further standards around tobacco producers, weapons manufacturers, companies that breach the UN Global Compact, and overall ESG quality. Breaches to any of these result in termination from the models and portfolios.
Impax Global Equity Opportunities
This fund is a global sustainable equity strategy benefiting from strong ESG integration and best-in-class resources, earning it a Morningstar ESG Commitment Level of Leader.
This strategy is managed by Impax’s Listed equity team, a comprehensive and experienced 16-member team, who are all involved in ESG company research, proxy-voting and engagements efforts. This team is a sound mix of very seasoned and long-tenured sustainable investors and more junior members. The group is well-resourced and has proven ESG research capabilities.
This strategy has a strong sustainability focus as it invests in companies that are perceived by the investment team to benefit from the transition to a more sustainable economy. To identify such companies, the team applies the proprietary Impax Sustainability Lens that ranks economic subindustries by ESG-related opportunities and risks. Given this positive inclusion approach, negative screenings or exclusion criteria are not a central tenet to the strategy.
Additionally, ESG is integrated throughout the entire investment process. In stock research, a wide range of ESG and non-financial information is incorporated into Impax’s ’10-step’ company research process. Following completion of the analysis, each company is scored based on the firm’s proprietary ESG score. The worst performing companies are excluded for this strategy, while maximum exposure is capped for laggards.
Stewart Investors Worldwide Leaders Sustainability
This fund excels at sustainable investing and ranks among the industry’s finest global equity ESG options, earning it a Morningstar ESG Commitment Level of Leader.
Lead-manager Sashi Reddy is part of Stewart Investors’ 12-member Sustainable Funds Group, an experienced and stable group, and, alongside Reddy, includes seasoned team leaders such as David Gait and Nick Edgerton. The team focuses on hiring individuals with a passion for ESG matters, and all members fully incorporate ESG research into their daily work.
ESG is ingrained into all aspects of the investment approach. The team focuses on finding management teams with a shared vision of driving sustainable development in the markets in which they operate. A by-product of this philosophy is that the strategy will not invest in companies with material exposure to harmful products, including weapons, tobacco, alcohol, fossil fuels, and gambling.
