Sustainable investing

Best in class: Investing that seeks out those companies that are leaders in their sectors, and reach a pre-defined hurdle based on sustainability criteria. For example, the top 25% lowest carbon emitters in a sector.

Environmental, social and governance (ESG): This is an acronym that you'll frequently come across when researching sustainable investments and covers the three key core components of; environmental concerns, issues around people, and the ways in which businesses are run and managed.

Environmental/green investments: Funds that seek out companies that aim to generate positive environmental impacts and reduce negative impacts. These funds may focus on climate change, biodiversity, water, pollution control and resource scarcity, to name a few.

ESG integration: The ongoing consideration of ESG factors in investment analysis and decisions to better manage risks and improve returns.  

Faith-based: Faith-based investments are designed to meet the specific needs of certain religious groups. The earliest sustainable investment funds were designed for Quakers and Methodists by screening out issues including gambling, alcohol and tobacco. Islamic investors can also invest in funds that comply with Shariah law.

Impact investing:  Investing with the intention of having a positive and measurable environmental or social impact, in addition to simply generating a profit. Investments will seek to tackle challenges in areas, such as biodiversity, sustainable agriculture or clean energy. Alternatively, they might seek to improve access to basic services including finance, education and healthcare.

Negative screening: (See positive screening below). Also known as exclusion funds, is a strategy that rules out or excludes companies or sectors that don’t meet set sustainable criteria.

Positive screening: This is a strategy employed by funds that actively seek out companies that meet set sustainable criteria. Some funds may employ both positive and negative screening (see above).

Stewardship and engagement: Stewardship is the responsible ownership of capital to influence and maximise long-term value and positive change. Engagement is how investment teams work with companies to support best practice and drive positive change. This may be through dialogue with management teams or exercising their vote at annual or general extraordinary meetings (AGMs and EGMs). Investment teams will seek to engage with companies on many issues, including reducing damage to the environment, preventing climate change, encouraging equal opportunities, improving health and safety and protecting against bribery and corruption.

Socially responsible investing (SRI):  A strategy that prioritises social issues and seeks out companies that engage with local communities, look after their workforces and consider human rights.

Sustainability: Sustainability is the ability to maintain a process over a period of time, and can refer to economic, environmental or social sustainability. From an investment point of view, it means identifying companies whose business is not risking our social and environmental wellbeing either now or in the future.

Thematic investing: Some funds will have a thematic approach, investing in companies with a particular social or environmental trend, such as water or renewable energy

What is the purpose of the Sustainable Investment Screener?

The sustainable investment screener is a tool we have developed to give sustainability-conscious investors a way to navigate the broad universe. Investors can use the different selection criteria to search for the sustainable investments that most reflect their views.

What is the selection process for the sustainable investment universe?

The sustainable investment universe is not a selection, however, it is the universe of funds, trusts and ETFs that Morningstar, our data provider, have deemed a ‘Sustainable Investment’. In order to be deemed sustainable the investment must identify itself as sustainable by incorporating a sustainable mandate or approach in the investment’s strategy. This is the intention of the investment which must be outlined in the prospective material for it to be picked up by Morningstar.

The sustainable investment screener shows  the list of all tradable funds, trusts and ETFs on the ii platform which is automatically updated regularly as investments may fall in and out of the universe.

Does ii impose its own view on what is in the sustainable investment universe?

No, the sustainable investment fund selector contains any investment that is both tradable on the ii platform and is deemed a ‘Sustainable Investment’ by Morningstar. The universe is collated automatically from investments that fulfil both criteria.

What is the selection process for the ACE 40 list?

We work with Morningstar’s Manager Selection Services group to enhance our fund selection process, please find more details on the selection methodology here.

Are all the investments listed sustainable?

All the investments in the sustainable investment universe have been deemed a ‘Sustainable Investment’ by Morningstar. However, sustainable values are very personal a strategy that is ideally suited for one person will be inappropriate for another. The information we provide should go some way to help you find investments that suit your personal aims and opinions, however choosing an investment based on its style or approach is no guarantee it will match your personal investment criteria.

For example, investors who are looking to screen out the ‘sin stocks’ from their portfolios may be happy to look at Morningstar’s Employs Exclusions category. However, while some funds avoid oil stocks, others may include them if the company is believed to be transitioning towards focusing on renewable energy. Another example is where environmentally friendly companies need to use certain minerals such as cobalt for electric car batteries or silver for solar panels. These minerals are mined, but mining is a sector that is traditionally perceived as controversial.

These conflicts are inherent in the sustainable investment world as some investment strategies are more pragmatic than others. Some will balance the pros and cons of different business strategies and focus on themes that can help support growth and encourage progress, whereas others have more binary in/out policies.

What are the FCA sustainable investment labels?

In 2023, the FCA published the Sustainability Disclosure Requirements and investment labels regulation. The objective is to support retail investors to navigate the sustainable investment universe with trust and confidence, and for financial products marketed as sustainable to do as they claim under the anti-greenwashing rules.

The FCA introduced four investment labels:

• Sustainability Focus – holdings that are environmentally and/or socially sustainable determined by a robust evidence-based standard of sustainability
• Sustainability Improvers – holdings that have the potential to improve their environmental and/or social sustainability over time, determined by their potential to meet a robust, evidence-based standard of sustainability over time
• Sustainability Impact – holdings that achieve a predefined, positive, measurable impact in relation to an environmental and/or social impact
• Sustainability Mixed Goals - invests in two or more of the above sustainability objectives?

Why do some sustainable funds not have a FCA sustainable investment label?

Currently, the FCA’s Sustainability Disclosure Requirements and investments labels only apply to investment products targeted at retail investors that are domiciled in the UK. Therefore, any funds that are domiciled overseas are not in scope of the regulation.

In addition, the FCA does not recognise exclusionary and ESG-integrated products as sufficient to fulfil labelling criteria as stand-alone strategies. Therefore, these types of investments would not be able to apply for a label.

How do you know if an investment is ‘greenwashing’?

The FCA also introduced the anti-greenwashing rules. These rules apply to all UK authorised financial services firms and their communications about financial products or services which refer to the environmental and/or social (sustainability) characteristics of products or services.

Sustainability references should be:

• Correct and capable of being substantiated.
• Clear and presented in a way that can be understood.
• Complete – they should not omit or hide important information and should consider the full life cycle of the product or service.
• Comparisons to other products or services are fair and meaningful.

How many changes do you expect to the ACE 40 list?

We continuously monitor the funds on the ACE 40 to ensure they maintain their sustainable criteria and remain the highest quality options. The Annual Review takes place in November every year when changes are made, however, ad hoc changes can happen between reviews if necessary.

How is your sustainable rated list different from everybody else’s?

Our screening process begins with the entire sustainable collective investment universe rather than just the funds universe. Including investment trusts and ETFs is essential to making sure we include the widest breadth of options. Choosing to only concentrate on funds would overlook a significant portion of the collective market.

Cost to the investor is one of our principal considerations, but it is a factor in relation to the underlying success of the investment rather than the only thing that matters or even a mandatory requirement for getting on a list at all.

Our selection process is rigorous and independent and cannot be influenced by potential conflicts of interest.

Are these recommendations?

No, as an execution-only provider we do not provide personal recommendations. Our objective is to develop a broad universe of sustainable investments from which our customers can choose their own investments.

Factsheets for each of the investments listed are updated regularly. They contain current performance and valuation metrics, as well as key statistics to help investors make their own judgements.

The ACE 40 does not form a personal recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in the ACE 40 rated list may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

How can I invest in the investment in the sustainable investment universe or ACE 40 rated list?

Customers who already have an account with us can simply click on the investment name to get through to the relevant factsheet and then select the buy buttons and login to their account. Customers who do not have an account with us yet can apply for an account. Applications take just a few minutes.