CAM Sustainable Portfolios: Your Questions, Answered

While our team are always on hand to answer any questions you might have about our Sustainable service, we have also put together this list of FAQs for easy reference.

If ESG considerations are already integrated in your portfolios, why are you launching a separate sustainable service?

Within a traditional ESG integrated portfolio, there are some grey areas. For example, there is scope to invest in companies transitioning their business models, rather than companies who have already made significant progress to improve their credentials. While that is a perfectly acceptable approach for many, there is growing demand from some clients to avoid certain areas and focus on the best-in-class sustainable companies. And we believe these positive impact, sustainable mandates have an important role to play, guiding the rest of the industry and establishing ‘best practice’ when it comes to analysing the ESG impact of companies.

How do you ensure diversification if certain funds, managers and possibly entire industries are excluded?

By definition, the selection pool for the sustainable portfolios will be smaller. However we do not believe this will significantly affect risk or return targets over a market cycle. A benefit to being multi-asset investors is that we can build a portfolio from assets which have had little correlation historically, to help mitigate risk.

What resources do you use to assess sustainability criteria?

There are many different sources of ESG ratings and they often have different views on how best to assess ESG criteria. This means scores can differ between different providers. Tesla is a good example. Some providers put more emphasis on the positive environmental impact of the car market while others highlight a negative governance impact. Therefore while we use Morningstar and Sustainalytics data to help guide us and provide useful information, we do not just rely on their ratings. Rather, we expect fund managers to disclose their views and portfolio information to us so that we can make our own qualitative assessment of the work they do.

Does sustainable investing impact returns?

While a sustainable solution may constrain the universe of funds we can invest in, we do not believe your clients need to compromise on their investment goals in order to invest sustainably. the need for sustainable action, such as tackling climate change or gender equality, are set to change the business landscape for companies around the world. Companies that adopt this new landscape sooner rather than later will be better placed to make larger returns for their investors.

How do you deal with small caps and companies that do not provide adequate ESG data?

We are aware that companies with better transparency can attain better ESG scores, partly due to the resources they can put behind producing data and documents. Therefore, we rely on a fund manager doing their own proprietary work to understand the ESG criteria of a company and not rely solely on quantitative disclosures.