Sustainability is an increasingly important theme for today’s investors, but with popularity comes proliferation and investment greenwash is now – sadly – rife.
At Liontrust, we can point to a near two-decade track record of sustainable investing. During this time, we have developed the themes that help us to identify and invest in the companies truly making the world a cleaner, safer and healthier place to live.
However, the rising popularity of sustainable investing means it is now increasingly important to identify investment greenwash in practice. This is where fund management companies talk-up sustainable credentials without the expertise or track record to back it up.
To help, we have come up with five rules for investors to evaluate whether funds, and the teams behind them, are capable of meeting investors’ sustainable expectations.
1. Demand transparency
A genuinely sustainable fund manager should provide clear information explaining how they invest in what type of companies and how this meets sustainability goals. Be wary of meaningless ‘brochure’ comments like “sustainability is in our DNA”. If they won’t provide a full list of the fund’s investments, that is a big red flag.
2. Expect experience and resource
We believe the experience and depth of a team is important when it comes to sustainable investing. There is nothing to say a new fund will not be a good investment, and there are interesting products coming to market. But to use a simple analogy, if you need a plumber, you’re likely to choose one with experience.
3. Look for knowledge and ongoing training
Sustainable investing is a specialist area and issues like climate change are fast-moving, so investors need to be confident their chosen managers have the required knowledge to run money in this way and are staying on top of trends and developments. Again, if managers cannot display this, that represents a red flag.
4. Ask for activism
Engagement is a key part of what we call sustainable investing. We feel managers should be able to highlight a track record of holding companies to account and encouraging them to improve their practices. Managers should be able to talk in detail about their engagement priorities and voting records at company meetings. Otherwise, you might be looking at some investing greenwash.
5. Where is the evidence?
This knowledge and experience in sustainability should be applied to investment decisions, and result in meaningfully different portfolios to conventional funds. Are managers able to show how their sustainability views are reflected in their decisions and are these factors truly making a difference? Look for concrete examples.
By following these five simple rules, investors who want their investments to make a difference will be better prepared to hold their fund managers to account and avoid investment greenwash for good.