Brief description of Style
‘Sustainability Tilted’ funds invest widely, consider sustainability issues, and ’tilt’ their investment decisions accordingly. They are typically ‘overweight’ more sustainable companies and ‘underweight’ less sustainable companies. This means they may invest in companies in any sector, including polluting and controversial areas.
These funds do not generally have any or many exclusion criteria – although some do have exclusions. Many work to encourage higher sustainability standards through their linked Stewardship / Responsible Ownership activity.
Funds of this kind often aim to reflect a named benchmark.
SRI approach applied
Fund managers in this SRI Style will typically be ‘overweight’ (more significantly invested in) companies that are considered to have high standards relative to their peers – and be ‘underweight’ (less significantly invested in) companies that are regarded as laggards, meaning that they may invest in all (or almost all) sectors.
Importantly – these funds do not normally avoid many areas or types of companies, so you can expect the funds to hold controversial assets – unless they also have exclusions based screens.
Funds may focus on a specific issue or area – or be more broadly invested.
Investments of this kind may use an index to dictate where they can invest (e.g. an MSCI index or the UN Global Compact).
These funds will not generally have a major focus on ‘solutions companies’ or ‘delivering positive impacts’ (see Sustainability Select funds for this). Their work may, however, be supportive of the need to transition to higher sustainability standards as they reduce their level of investment in ‘sustainability laggards’.
They may also have a significant focus on ‘responsible ownership’ (stewardship) and use their position as asset owners to encourage higher sustainability standards.
For some funds this may be a core part of a strategy where companies are only excluded if they fail to respond to investors requests for them to improve (eg meeting carbon reduction targets).
Additional Fund EcoMarket filters will help explain further.
SRI Issues
Focus on sustainability issues – often explaining to clients how having higher sustainability standards can help deliver business success.
Relevant issues include the management of climate risk, use of natural resources, employee practices, diversity and governance.
Funds in this group may exclude clearly harmful areas such as armaments companies, tobacco companies and coal companies – but may invest in oil companies (often with the aim of encouraging them to transition).
Variation across Style segment
To be in this SRI Style the manager must consider (forward looking) sustainability issues, however approach and resources vary.
Funds in this group may look ‘conventional’ – and for some (but not all) it is the ‘behind the scenes’ voting and engagement activity that differentiates them from other (non-sustainable) funds.
Some funds will exclude only a tiny fraction of their ‘universe’ based on ESG or sustainability scores, ratings or indices – others go further.
Responsible ownership activity varies between funds and fund managers.
Funds in this group that are marketed/promoted as being ‘sustainable’ can cause controversy when they invest in sectors that are inherently unsustainable.
Please use the filters on Fund EcoMarket to understand individual fund strategies.
Impact on investment strategy
Often limited.
Who is this Style most likely to appeal to?
Useful for investors who want exposure to all or almost all sectors but with a bias towards companies that take sustainability issues seriously. Likely to be useful for clients who want to see investors putting pressure on companies (encouraging them to improve), although engagement activity varies.
Associated Styles
Some of these funds have much in common with ESG Plus which also do not tend to have extensive negative or positive stock selection strategies.
Associated labels
Combining sustainability and responsible ownership (using share ownership to encourage higher standards), balancing financial and sustainability