KSAM’s Model Portfolios marry together funds across the spectrum of capital, from responsible and sustainable investing right through to Impact. Socially Responsible Investing (SRI), ESG and Impact focused investing are all included in MPS. KSAM therefore aims to meet the vast majority of investors’ concerns by selecting a broad range of funds that are specific in their goal. Bishop commented on this process, saying, ‘ethics are personal, so it is important to educate our non-specialist clients on what KSAM has to offer.’
By selecting a wide variety of funds, KSAM further diversifies the risk of each portfolio, ensuring that exposure to individual companies, specific sectors or fund houses are complimentary but not repeated.
“ESG risk adjusted return versus various conventional benchmarks is highly commendable” Wayne Bishop, CEO, King and Shaxson”
As part of their in-house due diligence process, KSAM conducts an ‘Under the Bonnet’ screen every month. This helps to counteract ‘greenwashing,’ where funds that proclaim to be sustainable are avoided if they still hold stocks that are ethically questionable.
Bishop said, ‘a thorough screening approach, adding qualitative analysis to external data is paramount to the integrity and longevity of our service.’
ESG investing has brought an alphabet soup of terms with it, and attempts are being made to develop a common taxonomy. Whilst this is positive move, there is a temptation to provide tick box solutions that might lead to greenwashing. It is worth remembering that there are a number of investments with good ESG scores that are still neither positive for the world nor without issues and controversies. For KSAM, their experience is that investors want more; they want companies that actually behave well and are affecting truly positive changes. ESG data can provide a quantitative basis for ESG investing, but this only works if there is an equal qualitative analysis to ensure that investments meet investors’ expectations.
A recent case in point is that of the company Boohoo and he comments that ‘whilst it had the same ESG score as ASOS, as we dug deeper and looked to other sources outside of typical ESG screening we concluded there was an ethical difference and we favoured ASOS as an investment.’
The COVID crisis has accelerated the growth of ESG and investments in this sector have been increasingly sought after, as investors seek areas of genuine trend-based economic growth rather than just the beneficiaries of stimulus. Additionally, in Europe KSAM noted a push to funnel stimulus towards greener projects, adding to the wave of interest although they share some of the concerns that there might be some short-term overheating, especially around the environmental sector.
By way of summary Bishop noted that ‘as we move on with the crisis we expect to see the social and governance areas of ESG receive more interest. How companies have behaved during the crisis has become an area of focus, and issues such as executive pay and the treatment of hard-pressed customers are now all under the microscope. At times like this, greenwashing may fool some, but experienced eyes and minds will know that clients who sign up for ESG investments now more than ever, expect more.’
Conventional investing is just that; the client aims to invest for returns only, and all stocks are investible. Socially Responsible and Sustainable Investing differs. A screen is added before investors allocate their capital. A company’s business practices must not to be considered detrimental to society, or the environment, and exhibit good governance. The research undertaken is known as Ethical, Social, and Governance (ESG) analysis, and the universe of stocks available for selection are reduced.
Thematic Investing looks at companies whose products or services are of direct social or environmental benefit concerning a particular theme. Themes emerge over time as pressing issues gain greater weight. Most recently we have seen this with climate change.
Impact Investing focuses on investing in companies that finance solutions to the social and environmental issues we face, where the outcome is identifiable and measurable. An obvious investment is renewable energy companies, where the impact can be measured in terms of CO2 emissions saved.
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