Fund managers scramble to launch ESG funds

Investor interest in ESG funds has never been higher and new funds are being launched to tap into the trend.

With responsible investing a huge and growing area of focus for investors, fund houses are rushing to roll out new products with an ESG (environmental, social, and governance) slant. 

As we reported last month, flows into ESG funds hit a record level in July, which is further evidence that investor appetite for sustainable investing is increasing. 

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To tap into this trend, in recent weeks and months there have been various fund launches since we last reported on the notable increase of ESG fund launches in early June. 

Aberdeen Standard Investments has launched an impact fund focused on Asia-Pacific companies. The Aberdeen Standard Sicav I – Asian Sustainable Development Equity fund will invest in a portfolio of 30 to 60 high-conviction stocks, focusing on those companies that address issues highlighted by the United Nations’ Sustainable Development Goals. These include issues such as poverty, climate change and social inequality. The fund is benchmarked to the MSCI AC Asia-Pacific ex Japan index rather than an ESG-specific index. It will be managed by the group’s Asia-Pacific responsible investment team, led by David Smith and supported by Flavia Cheong’s Asia-Pacific equities team.

BMO Asset Management, meanwhile, has added a China A-shares fund to its stable of sustainable investing funds. BMO LGM Responsible China A-Shares Equity, which will be managed by the firm's emerging market equity specialist team LGM Investments, will be headed up by Hong-Kong based June Lui, who already manages the firm’s Greater China Strategies fund. The manager will tap into secular trends such as technological innovation and urbanisation, and wider themes such as health and well-being, and energy transition. 

The climate emergency

Elsewhere, Fulcrum Asset Management has launched the Fulcrum Climate Change fund. The firm claims the fund is the first actively managed, climate-aligned fund. This thematic global equity fund is aligned with the Paris Agreement’s target of keeping global temperature rises below two degrees. The fund is expected to hold between 150 to 200 stocks invested across 25 themes, with no company in the portfolio having a higher temperature than 2.5 degrees.  

It is not just active fund management groups that are launching new ESG funds, passive sustainable funds have also been increasing in number. According to Morningstar, the data firm, on a global scale there have been 84 sustainable passive funds launched in the first half of 2020. Last year, new fund launches hit a record high of 98, so this is likely to be surpassed in 2020. 

Recent fund launches in the passive space include Amundi expanding its responsible investment offering with three new exchange-traded funds aiming to help investors respond to the climate emergency. As with Fulcrum’s new fund, Amundi’s latest ETFs are also designed to support the Paris Agreement objectives of limiting global warming. The Amundi Euro iSTOXX Climate Paris Aligned PAB UCITS ETF, the Amundi MSCI Europe Climate Paris Aligned PAB UCITS ETF, and the Amundi MSCI World Climate Paris Aligned PAB UCITS ETF incorporate a 50% carbon intensity reduction along with other exclusions. They are each priced at 0.18% a year. 

SRI bonds

DWS has launched the LSE-listed Xtrackers II ESG EUR Corporate Bond Short Duration UCITS ETF, offering exposure to the intersection of short-dated investment grade bonds and socially responsible investing. This euro-denominated ETF tracks the performance of the Bloomberg Barclays MSCI Euro Corporate Sustainable & SRI 0-5 Year index, which contains investment grade corporate bonds with a minimum MSCI ESG rating of BBB.  

The index also negatively screens business activities including controversial weapons, alcohol, tobacco, gambling, adult entertainment, genetically modified organisms, nuclear power and civilian firearms, as well as companies involved in severe controversies. The ETF is a direct, physical replication fund, which has an annual charge of 0.16%. 

Investment trusts bring ESG closer

Elsewhere in the funds world, investment trusts such as Witan (LSE:WTAN) have been formally embracing ESG principles. In February the £1.5 billion trust became a signatory to the UN-supported Principles for Responsible Investment. This involves the trust integrating ESG factors into investment decision-making, engaging with company management on ESG issues, and monitoring ESG risks in the portfolio. 

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Meanwhile, in August former Bank of England governor Mark Carney joined Toronto-based Brookfield Asset Management to help lead its expansion into ESG investing. In the role of vice-chairman, Carney will work on developing its ESG strategy as the firm prepares to launch a suite of funds combining positive social and environment outcomes with strong financial returns.  

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