Winterflood Monthly Report - June 2021

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Sector responds to demand for ESG+ mandates

One of the key issues across the investment management industry at present is how ESG factors should be incorporated into investment approaches. While it is clear that ESG means different things to different people, it is impossible to attend a presentation by a fund manager without an obligatory slide on ESG considerations. Arguably the investment trust sector has been off the pace regarding this trend, with relatively few, despite the rhetoric, meeting the demand for equity strategies that embrace higher levels of ESG criteria. There are of course exceptions to this, with Impax Environmental Markets immediately springing to mind, while last year saw the launch of Schroder BSC Social Impact* and the conversion of Keystone Positive Change under Baillie Gifford’s stewardship. More recently, Dunedin Income Growth proposed the adoption of an enhanced ESG approach that will differentiate it from its peers in the UK Equity Income subsector, while Acorn Income Fund has announced plans to appoint BMO Global AM and adopt a sustainable global equity income strategy. In addition, the IPO of Liontrust ESG Trust*, which will have a focus on sustainable companies, is scheduled to close later this month.

There will no doubt be some who dismiss all this as a passing fad, observing that the market over the last few years has rewarded ‘growth and virtue’. However, we suspect that the reality is different and that there is growing demand for mandates that can demonstrate their genuine ESG credentials. As a result, we would not be surprised to see other investment trusts honing their approach in order to appeal to investors who are not simply motivated by financial returns.

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