What to Expect from ESG Week

Our special report this week will focus on ESG, a segment of investing that has become more controversial than ever before.

Sustainable funds had a breakthrough year in 2020 when the pandemic refocused investor attention. But performance has faltered since and the massive inflows seen four years ago have reversed. Tech outperformance, from AI-charged stocks like Nvidia, has dominated the investing landscape instead. 

While investors may be fretting about ESG funds’ performance, the debate about sustainability in the wider world has become more intenes and divisive. Companies that invest in fossil fuels such as asset manager Baillie Gifford and Barclays Bank, have effectively been shunted off sponsoring UK events by activist pressure. In Baillie Gifford’s case, the company was forced to end its association with literary festivals in the UK and Barclays is withdrawing from its sponsorship of music festivals.

Governments are under pressure to meet climate transition targets, and it’s clear this is a campaign issue as the UK heads towards a General Election. If elected, as the polls suggest, the Labour party will move forward a ban on sales of petrol and diesel vehicles to 2030, rather than 2035. 

In this period when reputational risk seems so high, and every listed company can be linked to some global controversy, it’s hard for investors to make confident decisions about ESG products. “Greenwashing”, where funds are dubiously badged as sustainable but still carry ESG risk, also makes life harder for investors.

This week we’ll cover the key issues surrounding ESG investment and help tune out from the noise.

Here’s a selection of some of the key articles coming up this week:

Monday

To start the week, we’ve profiled the best-performing funds with a high Morningstar Sustainability Rating. 

We’re also looking at the issue of fund flows, and where investors are putting their money in sustainable strategies. Is there a sign of a turnaround after a long period of outflows?

We also profile some wind energy stocks and whether they are now screening as undervalued after a tricky few years.

Tuesday

The UK market is often described as an anti-ESG index because of the dominance of natural resources stocks. How true is this in reality?

Green bond funds have become popular in recent years, but higher interest rates have made some of their projects less viable. Is this about to change as rates come down?

Wednesday

In the middle of the week,

Canada’s long road ahead to a cleaner energy mix

This article is an onsite version of our Moral Money newsletter. Premium subscribers can sign up here to get the newsletter delivered three times a week. Standard subscribers can upgrade to Premium here, or explore all FT newsletters.

Visit our Moral Money hub for all the latest ESG news, opinion and analysis from around the FT

Welcome back. Canada can seem to have an oddly low profile in the energy transition debate considering it’s one of the world’s 10 biggest economies, and the fourth-biggest crude oil producer behind only the US, Saudi Arabia and Russia. During a trip to Toronto last week, I got a window into a national conversation that will have important implications for the global energy picture. And as you’ll read below, I picked an interesting time to visit.

Energy transitionCanadian politicians fan the fire over fossil fuels

The heads of Canada’s big five banks faced an unusually uncomfortable day last Thursday as lawmakers grilled them over their fulsome financial support for the country’s booming oil and gas industry.

The unprecedented parliamentary summons for the bank chief executives reflects the growing political heat around fossil fuels and clean energy in the world’s fourth-biggest crude oil producer.

In last month’s Banking on Climate Chaos report, which assessed fossil fuel financing by major global banks, Royal Bank of Canada, Scotiabank and Toronto-Dominion Bank all ranked among the top 12 by financing commitments in 2023. In terms of fossil fuel financing as a proportion of total assets, four Canadian banks were in the global top 10.

At Thursday’s hearing, the bank heads defended their record. “It’s a complex transition. We are not getting off fossil-based fuels immediately. To just stop is not an option for us,” said David McKay of RBC, the country’s biggest lender.

All of Canada’s biggest five banks signed up to the Net Zero Banking Alliance and have pledged to reduce their financed emissions to net zero by 2050. But a study by the non-profit FinanceMap found that their fossil fuel financing exposure rose between 2020 and 2022, reflecting a wave of new investment by Canada’s oil and gas industry on rising hydrocarbon prices.

Jennifer Livingstone, RBC’s vice-president for climate, told me in Toronto that the bank believed it could do most good by staying engaged with its clients. “If we stepped out of this financing, someone else would step in. That would necessarily happen in this environment,” she said. “These are profitable companies

North American Income eyes tender offer if it survives continuation vote

In a shareholder notice issued on Friday (14 June), the NAIT board said it plans to take further action to prevent the trust’s shares from trading at a significant discount to their prevailing net asset value. According to data from the Association of Investment Companies, the trust is running on an 11.5% discount. abrdn manager departs for Janus Henderson as North American Income swaps investment manager Under the conditional tender mechanism, NAIT’s board will buy back up to 15% of its shares provided that, by 30 September 2027, either the NAV total return has not exceeded the to…

Asian Energy Impact trust confirms immediate liquidation

According to a stock exchange notice on Friday (14 June), 99.95% of votes were cast in favour of the winding up the company, and as of 8am today (17 June), AEIT will no longer trade on the Main Market of the London Stock Exchange. Asian Energy Impact proposes immediate wind-up as relaunch proposals ruled out Shortly before the wind-up resolution was passed, AEIT said the initial distribution of cash to shareholders was estimated to be in the region of $20m, which is equivalent to 11.4 cents per share. An initial distribution of cash to shareholders is expected to be made available by …

Hipgnosis sets out timeline for $1.58bn Blackstone deal

In a stock exchange notice on Friday (14 June), SONG explained how shareholders will be required to vote for the deal via a court and general meeting on 8 July 2024. The court meeting will happen first, where at least 75% of voting rights held by shareholders will need to be cast in favour of the deal for it to go ahead. If this is passed, a resolution to sell the trust to Blackstone will then be put to shareholders shortly after the court meeting on the same day. Blackstone ups Hipgnosis bid to $1.58bn Subsequently, the sale will also require a court sanction at the court heari…

Daniela Barone Soares awarded OBE as she calls for systemic change in financial services

Barone Soares’s OBE has been awarded for her pioneering role in the UK’s impact investing sector following her two decades of work dedicated to funding socially and environmentally conscious businesses. Partner Insight: How effective are impact investments? Prior to joining Snowball as CEO in 2019, Barone Soares worked in private equity and venture capital investing before a nine-year tenure at the helm of Impetus, a global venture philanthropy company. Doug Miller, founder of the European Venture Philanthropy Association, said: “I am very pleased to see that Daniela has been award…

JP Morgan Private Capital closes first biotech VC fund above $500m

JP Morgan Private Capital, JP Morgan’s venture capital and growth equity investment team has held the final close of 270 Life Sciences Private Capital Fund I, above its $500m target. 

LSPCF received commitments from institutional allocators, strategic corporate partners, family offices and HNWIs across North America, Europe, the Middle East and Asia, as well as JPMorgan Chase & Co. The fund close was led by CIO Stephen Squinto and Managing Partner Gaurav Gupta. 

LSPCF invests in private biotechnology companies spanning cardiometabolic disease, oncology, immunology and genetic medicines. 

 

Advent International acquires up to $3bn minority stake in Fisher Investments

US private equity firm Advent International and a subsidiary of the Abu Dhabi Investment Authority will acquire a $2.5bn to $3bn minority stake in money management firm Fisher Investments, valuing FI at $12.75bn. 

Following completion of the deal, which marks the first external investment in FI, David Mussafer, Managing Partner at Advent, will join FI’s board of directors. FI’s founder, executive chairman and co-CIO Ken Fisher, CEO Damian Ornani and the remaining management will continue in their current roles.

As part of the deal, Mr Fisher will sell personal holdings in FI to Advent-managed funds — whose investors include Lunate Capital managed funds, Mousse Partners and FI’s largest institutional client, South Korea’s National Pension Service — and ADIA. Mr Fisher will retain a majority of beneficial ownership and of voting shares exceeding 70%. 

As an investment adviser, wealth and asset management firm, FI manages over $275bn for over 150,000 clients globally, according to a press statement. 

Mr Fisher said in a press statement that the transaction was “aimed dually at estate tax and planning purposes while assuring that FI will maintain its traditional culture, growth evolution and devotion to exceptional client service”, emphasising its “atypically long holding period for a private equity transaction”. 

JP Morgan Securities, RBC Capital Markets and Paul Hastings advised FI. Ropes & Gray advised Advent and Gibson Dunn advised ADIA. 

Best Performing Sustainable Funds in 2024

This shows that higher returns can be achieved without compromising on environmental, social and governance concerns.

The Best Performing Sustainable Funds over Five Years:

• L&G Global Technology Index
• SVS Sanlam North American Equity Fund
• Axiom Concentrated Global Growth Equity Fund

The ESG Screen 

We screened the funds with a Morningstar Sustainability Rating and narrowed those down to those with 4 and 5 Globes, which means they are rated as Above Average or High on ESG issues. These funds must also have a Morningstar Medalist Rating of Bronze and above, so that will capture our highest-rated funds of Bronze, Silver and Gold. Looking at funds for sale in the UK brings up 248 funds (one less than last year). That drops dramatically when we look at Silver and Gold-rated funds and (116), even more if we only screen for funds with 5 Globes. There are only 11 funds with the highest Sustainability and Medalist Ratings. Last year there were 14.

 On the return side, we have included figures for year-to-date return and five-year return (annualised). Ideally we’d look at 10-year return but in many cases that’s not feasible – many of the funds with high sustainability rating are relatively new – so five years is the next best thing.

There are 10 funds in the list, but a total of 21 funds have double-digit five-year returns. Last year, only six funds fitting the search criteria had a 5-year average return of over 10%. Four of these have Gold ratings: L&G Global Technology Index and Stewart Investors Indian Subcontinent Sustainability, which are enjoying their third year topping this list, as well as FSSA Indian Subcontinent All-Cap and Aviva Investors Global Equity Income (the latter upgraded from Silver to Gold in the past year), featured for the second time in a row.

Moreover, nine out of the 10 featured funds have double-digit returns for the year too and that’s function of tech and Indian stocks continuing to outperform global benchmarks. However, while some of that uplift can be considered in the context of recent market rallies, other factors will be at work; so we suggest checking the fund factsheets for performance, what these funds invest in, where they invest.

Looking at the first table, investors may not consider either tech or emerging markets funds in the sustainability universe but many different products can meet the criteria.

We’ve created two tables, one showing the funds that have the highest five-year total annualised return,

Friday Briefing: No white rabbits but where was the British ISA?

Quoting Lucinda Light, and it appears that from the Tories and Labour, not really anything new apparently. This week, the UK was given the rundown of what the next four to five years could look like as almost all the major political parties unveiled their manifestos. Friday Briefing: How Rishi Sunak dealt a blow to investment trusts The Lib Dems, Conservatives, Greens and Labour all outlined their plans for the UK if they gain the keys to Number 10 on 4 July, with Reform UK’s pledges due next week. Tackling the two primary parties’ declarations and there were, surprisingly, no …