Strategic Investments Led By UK-based ESG Funds For Expansion Of Climate Finance
Choosing an ESG fund is generally a more involved process than choosing an ordinary fund, since you have to consider both the ESG factors and the returns
The United Kingdom government has claimed it is still delivering its five-year £ 11.6 billion ($13.1 billion) commitment to international climate finance, after advocates raised concerns about the safety of the pledge. Once viewed as a concept as likely to hinder investment returns as improve them, ethical money-making’s recent shift to prominence is due, in no small part, to the role played by environmental, social and corporate governance investing – ESG for short. Investors are drawn to ESG investment, or impact investment, on the basis that companies with a strong ESG profile may represent better value. For example, more sustainable companies have greater prospects for long-term stability, socially responsible companies may attract the best talent, and well-governed companies are less prone to corruption and damaging scandals.
The scope of investment of ESF is climate change, air and water pollution, waste management, energy efficiency and water shortage. The scope of investment in social is human rights, consumer privacy, gender equality, data security, health and safety. The ambit for Governance is the board structure, company ownership, financial reporting, business ethics and culture as well as executive remuneration.
Scope of work for ESG Investment:
Protecting food supplies in areas of climate stress: Smallholder farmers feed one-third of the world’s population, produce 60 percent of global agriculture products, and provide 80 percent of food in developing countries. Climate change will make the lives of many smallholder farmers much harder. The impact funds will help these farmers cope with climate change, for example by introducing new crop varieties and new technologies that increase food production.
Preparing for extreme weather: Experts have predicted that climate change will make extreme weather events worse and more frequent, and that these effects are likely to be felt most in developing countries. Insurance can prevent a family from slipping into destitution after a drought or a flood, but in developing countries, less than three per cent of household and business losses from natural disasters are insured. ESG investment will reduce the vulnerability of poor people to climate-related shocks by funding better early warning systems, building cyclone shelters, and setting up insurance schemes to protect farmers and families from losses.
Managing water resources: Climate change will affect the availability of water. The ICF will help poor countries to manage their water resources. This can range from initiatives at an international level, such as cooperation between neighbouring countries on a shared water resource like a river, to local initiatives such as harvesting rainwater, and irrigation. An example is the impact investment programme in South Asia that enables seven countries to manage their shared water resources more effectively and reduce the risk of conflict. This will improve the lives of the 700 million people living beside the great Himalayan Rivers of the Indus, Ganges and Brahmaputra. For reference only, here are some of the strongest-performing UK ESG funds over the past year. Bear in mind that this period has coincided with the Covid pandemic, so performance may not be typical for the long term.
International Climate Fund ( (ICF): The UK Government has set up the International Climate Fund (ICF) to help developing countries tackle climate change and reduce poverty. We will work in partnership with developing countries to take action to reduce carbon emissions and to help people adapt to the effects of climate change. The U.K.’s International Climate Finance, or ICF, commitment is the “primary instrument the UK has to support developing countries as they seek to adapt to the impacts of climate change and reduce their emissions,” according to the ICF document. The pledge was largely protected from the cuts the U.K. made to its aid budget last year because it was simultaneously hosting a two-year presidency of the United Nations conference of the parties summit on climate, and the associated COP 26 event in Glasgow — enabling the U.K. government to flaunt its £11.6 billion commitment and use it to cajole other countries to make commitments of their own.
Threadneedle UK Equity Income: Another Silver fund with great long-term performance is Threadneedle UK Equity Income. It aims to combine capital growth and income, using a contrarian and bottom-up approach to picking its holdings. Its holdings sit at the cross section between mid- and large-caps, with names like AstraZeneca (10% of its portfolio), RS Group and GlaxoSmithKline among its 39 stocks. However, 3.23% of its portfolio is also BAE Systems, so it would be fair to question whether an arms company is really ESG friendly.
Sustainable Leaders: Royal London’s Sustainable Leaders is another Silver-rated fund with a high sustainability rating. Meakin says this is a strong choice for investors seeking a sustainability mandate, because of its disciplined approach. It aims only to invest in companies that deliver a net benefit to society through the products and services they provide, or the ESG leadership they show. Among its 40 stocks, AstraZeneca is its biggest, followed by SSE and London Stock Exchange Group.
Global Macro Sustainable Fund – J P Morgan: This fund invests in a global portfolio of sustainable securities, currencies and some derivatives where appropriate. Securities are chosen based on effective governance and superior management of environmental and social issues.
Sustainable Equity Fund Global – LGT Group: This Liechtenstein-based fund is run with a defensive approach, which may have helped it to outperform its benchmark during the pandemic that saw many funds decline. Assets include Nintendo and ITV, with the bulk of its investments being in utilities and consumer staples, which are less volatile.
Trium ESG Emissions Impact Fund: – The fund is based around a core of around 20 long-term investments, and targets companies that have the most to gain from reducing their carbon emissions cost-effectively. The fund is managed with very low net market exposure, typically -10 per cent to +10%, which helps to cushion it against the volatility of the stock market as a whole.
Choosing an ESG fund is generally a more involved process than choosing an ordinary fund, since you have to consider both the ESG factors and the returns. As with all investments, different funds also carry different levels of risk, so you need to ensure these are suited to your own risk tolerance. Therefore you should consult an IFA about your options before making any choices.
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