Today is World Environment Day, an annual event led by the United Nations Environment Programme since 1973 to raise awareness about environmental protection. To mark the occasion, industry commentators have selected their top funds for tackling the most pressing issues facing the environment.
M&G Climate Solutions demonstrates impact
Jake Moeller, senior investment consultant at Square Mile Investment Consulting:
Managed by Michael Rae, M&G Climate Solutions has a dual objective in that financial returns are sought alongside positive impact, which the manager intends to achieve through thematically led investment in companies delivering solutions to the most pressing issues facing the environment. The manager and investment team utilise a number of methodologies, including their proprietary ‘III’ screen, to ensure that their holdings are delivering a high degree of impact in respect of three key areas; clean energy, green technology, and the propagation of the circular economy.
Each stock is also mapped to at least one Sustainable Development Goal (SDG), as well as one of the three thematic impact areas previously mentioned. For example, the company Ansys Inc., an American engineering software company, has a 100% revenue exposure to activities M&G believes to be related to SDG 9: industry, innovation and infrastructure. In this way, the manager is able to quantify and demonstrate the impact the portfolio is able to generate.
Impax’s topnotch team goes big on small caps
Ronald Van Genderen, senior manager research analyst, Morningstar:
With management in the hands of Bruce Jenkyn-Jones and Jon Forster, Impax Environmental Mkts benefits from a topnotch team in the ecology equity sector. Fotis Chatzimichalak became the third named manager in October 2021 but portfolio decisions are made by a seven-member portfolio construction group.
The team targets growth companies where at least 50% of business is derived from activities in environmental markets, such as energy efficiency, water infrastructure and pollution control. However, unlike the rest of its category, it has a large allocation towards mid and small caps – almost double the sector’s 40% average in small caps, for example. More than 70% of the portfolio is composed of stocks with a market cap below €10bn, including discoverIE Group, Norma Group and Porvair.
Quilter Cheviot covers climate bases
Sam Benstead, collectives specialist, interactive investor:
Claudia Quiroz of Quilter Cheviot is the long-standing manager and has been at the helm since 2010, with Caroline Langley added in 2018 – the Climate Assets Fund aims to provide capital growth and a degree of income via five investment themes: clean energy, food, health, resource efficiency and water. All are encompassed within the UN’s SDGs. Companies are only selected if they meaningfully offer solutions to these five themes.
Furthermore, the strategy also looks to avoid companies that generate revenues from controversial sectors of the economy, such as tobacco and alcohol. It has 18% invested in bonds and 11% in alternatives, such as The Renewables Infrastructure Group. This gives investors a more diversified portfolio than a 100% equity fund and may make it more resilient during stock market falls.