Invesco Wealth Management reallocates €105m towards ESG Fund
25 June 2021
Over the last number of years, we have seen a significant increase in discussions surrounding the management of Environmental, Social & Governance (ESG) Investing factors, as investors are seeking options of investing for the good of society, the environment and climate change. This further gathered pace during the covid-19 pandemic, as investors gained a greater awareness of the importance of a global community and the need to work together to make the world a better place.
Taking account of ESG means assessing investments in terms of their environmental sustainability, the social impacts (both positive and negative) of the company assets being invested in, and the governance practice within each invested business. Incorporating ESG is not only good for the world we live in, it also helps in ensuring the long-term sustainability of an investment, with positive impacts on both investment performance and on reducing investment risk.
Having carried out an in-depth review of the industry, the investment committee at Invesco reallocated €105m of our multi asset funds (Diversified Opportunities 3, 4 and 5) on the 24th May last into the MSCI World ESG Screened Index, to reflect our views regarding ESG factors. We firmly believe that investing for the good of the environment, our climate and society need not be a cost to our wealth management clients. Indeed, this move has been mirrored by the Invesco corporate investment team on behalf of our corporate clients too.
The New ESG investment index replaces our investment in the MSCI World Equity Index. The MSCI World ESG Screened Index is similar to the World Index, but removes components such as weapons (nuclear, conventional, controversial), tobacco, thermal coal, and companies in violation of UN global compact. In aggregate, there are approximately 120 stocks removed from the 1600 stocks in the non-ESG integrated Index.
The new index is weighted towards companies that are less likely to be subject to ESG risks because of their activities and the decisions they make. In addition, the reduction in stocks will not have a significant impact on returns, with a relative performance tracking error of +/-0.5% predicted, which means a very marginal difference over the longer term.
ESG funds invest significantly in companies that take their own ESG responsibilities very seriously. For many of these companies, their focus on reducing their own ESG risks and impacts is a central and differentiating position within their own markets. These companies tend to be well-run and usually perform strongly in terms of their financial results too. As a result, these companies are very attractive to invest in, and tend to yield strong returns for investors.
While ESG funds screen out companies whose products are harmful to the world, they still retain most of the leading companies in the world. This ensures returns can be maximised, and diversification across sectors and countries is still achieved.
Individual sectors have their time in the sun which can impact the returns of investors, depending on the weighting of their funds in different sectors. For example, tobacco stocks were strong performers around the turn of this century, boosting non ESG screened funds. But tobacco stocks subsequently were very poor performers, causing a drag on non ESG funds. We know that these impacts are often cyclical, and that when investors maintain a longer-term horizon, that these impacts tend to smoothen out.
At Invesco, it is our goal every day to enable our wealth management clients to achieve their investment objectives and indeed their goals in life. By reallocating part of our multi asset funds to ESG funds, we firmly believe that we have enhanced the potential for success. And in doing so, both Invesco and our clients are making the world a better place.
If you would like to find out more about investing in ESG funds with Invesco, please contact Paddy Swan at PSwan@invesco.ie or at 086 2570354, or speak to your Invesco consultant.
Paddy joined Invesco in 2000 having built up 13 years’ industry experience in Trinity Bank, Eagle Star in Dublin and the State Street Bank in Boston. He graduated with a degree in Economics from UCD in 1987. Paddy is responsible for the overall running of the Investment department, in particular the private wealth management section of the business.