Equities

We are pleased to report that 82% of the equity portfolio is invested in funds that are acting to avoid harm to the environment and society. Additionally, 19% of the equity portfolio is invested in funds that actively benefit stakeholders or contribute to solutions for environmental and social challenges (the remaining 2% not assessed is allocated to an ETF, which is out of scope). See Figure 10.

One fund that actively contributes to combatting climate change is a global, concentrated equity fund focusing on decarbonisation by targeting companies with strong growth potential, sustainable returns, and competitive advantages. Examples include Novozymes, which manufactures enzymes for various applications to reduce emissions, increase energy efficiency, and improve yields; and Schneider Electric, which specialises in providing solutions for a low-carbon, electrified, digitised, and decentralised power grid. In 2022, the estimated carbon reduction for the portfolio companies totalled 1.5 billion tonnes (based on financial year 2021 data), equivalent to removing approximately 15 million fully-loaded cargo ships’ worth of carbon emissions from the atmosphere in a single year.

Another fund in which we invest benefits stakeholders by applying stringent ESG criteria, resulting in a significantly lower carbon emissions intensity for the portfolio compared to the reference universe. For instance, the fund has a robust carbon-related exclusions policy and filtering process, aligning with our own exclusions policy. Portfolio companies include Big Tech US firms considered leaders in their climate action plans like Microsoft and Visa Inc, and European companies such as SAP SE, which also focuses on reducing carbon emissions. In 2023, we wanted to investigate whether our original assessment of this fund’s sustainability profile was too conservative. We worked closely with our RI team and the manager to assess the underlying assets’ alignment to the SDGs using a specialist data platform. We also assessed the underlying assets’ potential negative impact by looking at third-party data, such as “known controversies” and the Principal Adverse Impact (PAI) statements, which are a part of SFDR reporting. We concluded that this fund was outperforming its peer benchmark significantly, as a result of their stricter selection criteria.

We are committed to supporting managers whose performance aligns with our ambition to achieve strong financial and impact results. However, we recognise the need to balance risk and protect our clients’ interests. Therefore, we rigorously assess each fund’s financial and sustainability performance during selection and continuously monitor it post-onboarding. While we aim to support impact funds, we may adjust our focus to navigate various market conditions. In the long run, we believe these funds will do well in line with the transition to a more sustainable economy.