Our key focus in terms of new product development in terms of pooled funds has been on developing investment solutions that target themes and outcomes addressing the challenges and changes facing society.
As reported last year, in October 2015, we launched the Threadneedle Ethical UK Equity Fund. The novel feature of the Fund is its three-pronged approach, combining ESG performance, an outcomes focus and negative screening.
First, we exclude companies that are unable to satisfy our ethical restrictions. To facilitate the negative screening, we use the MSCI UK IMI Extended SRI index to determine the exclusions in sectors including alcohol, weapons and gambling.
We also consider ESG performance, as we believe that those companies with excellent corporate governance can enhance their potential into the future. To measure companies’ ESG performance, we use our own internal reports and third-party ratings (MSCI). Thereafter, we look to engage with the companies to ensure continual improvement.
We also seek out companies that deliver innovative solutions to achieving sustainable outcomes. To achieve this, we look at the UN sustainable development goals and key themes, including climate change, healthcare, safety, security and verification. The Fund is focused on finding companies which embrace the efficient use of resources and invest in both people and technology in order to generate sustainable returns over time.
The Fund uses our core investment process that already has ESG considerations fully integrated within it, but elevates these criteria to the forefront, offering a concentrated Fund of our highest-conviction investments that fulfil our ESG criteria and sustainable outcomes themes. Our approach is collaborative – the Fund is part of a differentiated UK equity range and leverages the stock ideas generated by the UK Equity team, as well as the sector/thematic and macro thinking of the wider Investments team.
This Fund launch is in addition to two other RI approaches we believe are especially innovative: The Threadneedle UK Social Bond Fund and the Low Carbon Workplace Fund.
The Threadneedle UK Social Bond Fund aims to deliver both a financial and social return by investing in fixed income securities that are deemed to have a clear focus of achieving and supporting positive outcomes for individuals, communities or society as a whole, operating in areas such as housing, employment, education, transport and health.
The Low Carbon Workplace Fund is a partnership with the Carbon Trust and property developer Stanhope – acquires and refurbishes office buildings into modern, energy-efficient workplaces. The occupiers benefit from ongoing support from the Carbon Trust, helping them to minimise energy costs and carbon emissions.
In terms of our ability to service client-specific requirements, during the year we have won a number of segregated mandates incorporating ESG, one of which relates to High Yield. Our approach here has been developed to reflect the client's own broad responsible investment criteria, incorporates analysis of data from multiple sources, and requires categorisation of issuers based on the existence (or absence) of associated sustainable outcomes.
Beyond this, we are actively working with clients on other potential strategies, and are working to enhance the integration of ESG analysis in the investment process via a range of mechanisms including backtesting of a number of quantitative models.
Our current range of RI product management capabilities includes:
ESG Materiality - ESG is incorporated into investment analysis and debate e.g. in equity and corporate debt funds.
Stewardship - Active voting and targeted engagement in investee companies e.g. in equity and corporate debt funds, and segregated RI mandates.
Values based - Avoidance of investment in targeted companies, industries or countries e.g. Middle Eastern Sovereign Wealth Fund, U.S. State Pension Plan, Insurance Company.
Systematic solutions - Integration of ESG into specialist financial strategies e.g. Smart Beta Sustainable ETFs.
Positive - Focus on investing in companies with a commitment to responsible business practices e.g. UK Sustainability Fund.
Thematic - Focus on investing in companies exposed to particular social or sustainable themes e.g. Segregated RI mandates, Sustainability Funds.
Sustainable - Focus on investing in companies to optimise both returns on investment and gain positive social or sustainable outcomes e.g. Segregated RI mandates, Social Bond Funds, Low Carbon Work Place Fund.
Islamic Finance - Integration of Shariah requirements within the investment process e.g. Segregated RI mandates
Hybrids of these are also provided such as:
- High Yield mandate operated for an Austrian institutional client with ESG integration and sustainability focus
- Various mandates (including equity and investment grade) operated for French institutional clients operating under Article 173 of the French Energy Transition Law and requiring enhanced reporting
- Threadneedle Ethical UK Equity fund discussed in the LEI section
- UK Social Bond Fund discussed in the FI section
- European Equity mandate operated for a Swiss institutional client that features enhanced ESG analysis and ongoing monitoring, supported by stewardship.