How to choose a sustainable investment fund?

Sustainable investment is growing in popularity. Not all sustainable investment funds are the same, though, say Martin Stolker and Vincent Triesschijn of ABN AMRO. Their intensive fund analyses make the bank’s offering of sustainable products transparent for clients.

A lot of people want to invest in sustainable enterprise – businesses that take their role in society seriously and do not operate in a bubble. But it’s often tricky for investors to figure out how sustainable a company is. ABN AMRO helps investors in various ways to make sustainable choices, explains Vincent Triesschijn, Sustainability Manager Investments. “The bank measures companies’ sustainability performance. This information serves as input for the sustainability indicator, which we make available to clients, investment advisors and portfolio managers. All of this is carried out in accordance with a method developed by ABN AMRO and based on data provided by Sustainalytics, a specialist sustainability research institute.” The indicator has been available for individual shares and bonds for some time, and is now available for investment funds as well. “It gives clients and investment advisors a quick impression of how sustainable a given fund is. We include the indicator in our client reports.”

Reliable data

The indicator makes information on sustainability widely available. “It sometimes offers surprising insights,” says Triesschijn. “For instance, a renowned investment fund was recently rated as excellent without promoting itself as a sustainable fund. This is because the fund manager carries out a carefully considered investment process. He selects high-quality companies that are highly predictable. These are often sustainable businesses.” The indicator is based on the sustainability scores of the companies and the weighting in the fund portfolio. “But there are other factors at play when assessing the sustainability of an investment fund,” stresses Martin Stolker, Executive Director of ABN AMRO Advisors. This division of ABN AMRO has analysed sustainable funds offered globally for the past fifteen years. The team assesses the organisation, investment process, portfolio managers, results and, ultimately, composition of the portfolios. “Pioneers are a driving force in the area of sustainability. However, some of these businesses have not yet embedded sustainability throughout the organisation, resulting in a low sustainability score. Pioneers that have a lower sustainability can still be determined to “change the world” and that could fit the intentions of a sustainable fund manager. On the other hand, some fund managers hold shares of companies with a low sustainability rating for too long in their portfolios.” These dilemmas are all reasons for ABN AMRO to engage with the managers or, ultimately, to remove the fund from the bank’s investment universe. This could also happen if the team leaves, or if the fund switches over to a different data provider. Stolker: Most managers don’t collect sustainable data on companies themselves. Reliable data is expensive. The data supplier a fund manager chooses to work with says something about how important the manager believes it is to conduct an effective, sustainable selection process.”

Not sustainable enough

There’s a lot of discussion about what exactly “sustainable” is. ABN AMRO sets the bar high, Triesschijn emphasises, and works with strict exclusions and recommendations. Not all sustainable funds adhere to the same high standards. An example is an index fund with “SRI” in its name (socially responsible investment – ed.) which only excludes companies that violate the UN Global Compact. “These are companies that seriously breach human rights or environmental standards. They are not sustainable enough for us,” says Stolker. “We choose sustainable funds that exclude not only controversial activities, but also the production of tobacco, for example,” says Triesschijn. “We are trying to continuously raise the bar without cutting into returns.”

Transparent offering

In making the sustainability of companies and funds transparent, the bank aims to stimulate sustainable investment. This is in line with the growing demand for investment that takes people, society and the environment into account and with the bank’s sustainability ambitions. This applies both to clients who invest themselves or with the help of an advisor, and to clients who outsource sustainable management of their assets. All of these clients can use the sustainability indicator to help them take investment decisions. For the latter group, those who opt for an investment mandate, Stolker and his team also manage various sustainable portfolios. “The volume of assets invested with a sustainable investment mandate has grown steeply in recent years,” says Triesschijn. “From EUR 5.4 billion in 2014 to EUR 8.2 billion in 2016. Sustainability is clearly an important issue to us and our clients.”