Ethical funds that owned Russian shares did so to reflect their index and ‘give back’.
The vast majority of fund managers’ ethical strategies avoided Russian shares in the 12 months prior to the invasion of Ukraine.
SRI Services, a responsible investment researcher, calculated that 31 out of 36 investment firms did not invest in Russian assets in funds that incorporated environmental, social and governance (ESG) considerations.
The reasons for doing so included objections to fossil fuel and weapons companies, as well as Russia’s oppressive regime and human rights issues.
The managers with no ESG funds invested in Russia were Artemis, BlueBay, Carmignac, EdenTree, Federated Hermes, Fulcrum, Fundsmith, Gravis, Guinness, Impax, Invesco, Janus Henderson, Liontrust, Mirabaud, P1 IM, Quilter, Rathbone, Rize, Ruffer, Stewart Investors, Sarasin & Partners, SVM, Tellsons, Time, Triodos, WHEB, and Schroders.
The funds with sustainable funds that have one or more holdings in Russian companies were BNY Mellon, Candriam, JP Morgan, Alquity, Vanguard, and 7IM.
- Top 20 most-bought sustainable funds, trusts and ETFs in ISAs
- How fund managers use their power to drive ESG change
- ii Top 10…ways to avoid greenwashing with funds
SRI Services noted that the funds that held direct investments in Russian stocks generally had very limited holdings and none were in particularly controversial companies. Investments included the Russian Stock Exchange, a Russian recruitment company, and a Belarusian IT company.
Their justifications for doing so included being “index driven”, meaning they have to closely reflect a benchmark index that includes Russian shares, and aiming to deliver positive impacts.
Alquity explained that they had two holdings, totalling 0.86% of a fund, because they wanted to “give back” and “help those at the bottom of the economic ladder”, according to SRI Services.
Julia Dreblow, founder of SRI Services, said the research highlighted the need for investors to do their own analysis on how each ESG fund is managed.
She said: “It is important to note that opinions and strategies vary and different funds suit different people. Only an investor can truly say what suits their personal opinions
“Most factsheets make it possible for clients to see the countries a fund invests in – if read. But such materials should go much further. They should include text – or link to – client-friendly, detailed information about where a fund will and will not invest from an environmental, social, governance and sustainability perspective also – as this stuff matters.”
What is ESG investing?
ESG stands for “environmental, social and governance”. Funds with this label have been growing in popularity as investors push for their money to do good and avoid harmful companies.
There are three main types of EGS funds.
- Avoids: funds that exclude specific companies, sectors or business practices, such as tobacco
- Considers: strict ESG criteria, such as pollution levels, are taken into account
- Embraces: these focus on companies that deliver positive social and/or environmental outcomes, such as renewable energy.
To help investors navigate confusing technical jargon, interactive investor launched the ii ethical long list in 2019, which contains more than 140 socially responsible and environmental funds, investment trusts and ETFs available on our platform. The ethical investment list is a collaboration with SRI Services.
We also launched the ACE 40, a rated list of best-in-class ethical funds for retail investors wanting to better align their investments with their personal values. All ACE 40 investments are categorised into one of three broad ethical investment ‘styles’ to help investors find a fund that meets their values. The three categories are Avoids, Considers and Embraces and you can find out more about them here.
There is also the ii Ethical Growth portfolio, which is designed to give investors an idea about how they can build their own diversified ethical portfolio.
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.