Interactive Investor

ii research suggests investment trusts may need to catch up with ESG

11th February 2020 16:34

Myron Jobson from interactive investor


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Just 12% of ethical investment universe are investment trusts.

Ethical investing has become too big to ignore. A case in point is the recently delayed launch of the proposed Japan investment trust specialist ‘Nippon Active Value’, owing to investor calls for a formal environmental, social and governance (ESG) statement ahead of IPO. 

At the larger, FTSE 100 end of the scale, BP (LSE:BP.) is coming under increasing pressure from ethical investors (not least the Church of England), to commit to cutting its carbon footprint to ‘net zero’. On Wednesday, incoming CEO Bernard Looney is expected to outline his ambition for the group – and this may well include the carbon footprint.

But whilst the funds industry has been steadily rolling out ethical options for investors over the years, and ESG accountability is growing, research from interactive investor suggests the investment trust sector has some catching up to do.

Whilst the investment trust industry houses some compelling investment propositions which often focus on environmental solutions, the sector offer few broader ethical solutions. 

In the interactive investor 140 strong long list of the ethical investment universe (which includes trusts, funds and ETFs), only 17 (12%) are investment trusts – with four more belonging to the world of Venture Capital Trusts, which are best suited to those who have maxed out their pension and ISA contributions.

With the exception of Pacific Assets (LSE:PAC), which is managed by sustainability-oriented Stewart Investors, all investment trusts on the long list are in specialist sectors.

Moira O’Neill, Head of Personal Finance, interactive investor, says: “If more than 12% of collective investments with an ethical tilt are investment trusts, we’ve been hard pressed to find them, and we haven’t worked in isolation – we teamed up with experts at SRI Services, and have also been informed, but not influenced, by Morningstar.

“Our customers are big fans of investment trusts and ethically minded customers may well like to have a balanced portfolio made up entirely of ethical investment trusts if more variety were available. 

“The investment trust sector has come up with some strong environmental focussed offerings, as well as trusts with a social housing or health tilt. Broader-based ESG-focused equity options might be out there too, but they are not easy for investors to identify. So for now at least, even the staunchest investment trust supporters who want to have a well-diversified ethical portfolio will have to look to the funds sector to fill the gaps. It’s a question that often crops up from readers of Money Observer magazine, which we publish.”

In compiling the interactive investor ethical investments long list, ii worked with SRI Services, a specialist independent company devoted entirely to advancing retail Sustainable and Responsible Investment (SRI). The list is based on a combination of whether the managers say they focus on ethical, social and/or environmental issues, the language they use and their responses to SRI Services. 

interactive investor was also informed, but not influenced, by data provider Morningstar, which has identified investments that, by prospectus, either state that they use ESG criteria as a key part of their security-selection process or indicate that they pursue a sustainability-related theme or seek measurable positive impact alongside financial return. 

The interactive investor ethical investing long list is broken down into three ii ACE investment styles (that’s Avoids, Considers and Embraces). We also launched our ethical ACE 30 rated list, the UK’s first, last year, and an interactive investor ethical growth portfolio in January 2020. All of these include both funds, investment trusts and ETFs.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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