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Climate Assets monthly update: Sticking to our Knitting

Date: 19 January 2023

Happy New Year and thank you for your continued support of our Sustainable Investment strategy over what has been a very challenging year for investors. It was, however, a very special year for the team, as we launched our Climate Assets Growth Fund and renamed the Climate Assets Fund as Climate Assets Balanced Fund, to differentiate between the two risk profiles.

We have seen strong flows into both the Climate Assets Balanced and Growth Funds, proudly finishing the year with c.£450m in assets under management for the strategy. The Climate Assets Balanced Fund had a slightly disappointing year, marginally underperforming the peer group (-11.22% versus -10.04%), however history shows that when US stocks in particular fall 25%, as they did last year, they tend to recover a year later. Whilst we know very well that past performance is not a reliable indicator of future returns, we are cautiously optimistic for 2023.

A clear understanding of your purpose

During periods of market stress, it is important to have a clear understanding of your purpose, as stated by Tom Slater, Fund Manager of Baillie Gifford’s Scottish Mortgage Fund. I read it as 'stick to your knitting', as that is what the team have been doing for 12 years, staying true to our positive investment themes - measured by the United Nations Sustainable Development Goals - through many market cycles.

Although it is tricky to see past the regular daunting inflation figures, interest rate hikes and unemployment statistics, it has been a positive year in the world of sustainability. Regulators have been stamping out greenwashing by companies and fund managers alike. Greenwashing is the 'art' of deceiving the public to present an environmentally responsible image. One of the most publicised cases last year was HSBC’s banned series of adverts. The company promoted their planting of trees and plans of net zero emissions whilst failing to include information on its financing of fossil fuel projects and deforestation. In previous newsletters we also mentioned Tesco claiming its plant-based food range was more environmentally friendly than meat equivalents, but then failing to prove the statement when questioned by the regulator. Sustainability claims require strong evidence. Cherry picking what information one provides to customers when it comes to sustainability is no longer acceptable.

Looking ahead, I think we can expect more regulatory scrutiny on companies claiming to be doing better than they actually are. Globally, companies are increasingly expected to improve their sustainability disclosures, forcing them to pay more attention to human rights abuses in their supply chain or water usage, for example. Much to the dismay of Jerome Powell, Chair of the Federal Reserve, central banks are being drawn into the climate agenda and they are expected to protect themselves and the financial system from climate shocks. Push back across the board can be expected, but it's great to finally see climate change so high on regulators’ list of priorities.

When it comes to regulation of investment funds, the Financial Conduct Authority in the UK is currently consulting on a paper that demands sustainable funds label themselves appropriately, as we mentioned in last month’s newsletter. Funds must be classified in three categories: Sustainable Focus (investing in sustainable companies), Sustainable Improvers (aiming to improve the sustainability of investee companies) and Sustainable Impact (aiming to achieve a positive environmental impact). The consultation comes to an end this June and funds need to have complied by June 2024. Our Climate Assets Funds aim to sit in the Sustainable Focus category and if you would like further information on this classification, please reach out to our team.

To round off I would like to introduce you to the first in a series of thematic factsheets written by our Sustainable Investment Specialist, Toby Rowe. Please read our Water factsheet and I hope you enjoy the series.

Author

Harry Gibbon

Investment Manager

I assist with the management of clients’ portfolios for private clients, pensions, trusts, charities and funds, including the Climate Assets. I also work with colleagues from across the business striving together to enhance the service we provide to our clients.

Climate Assets Funds

The Climate Asset Funds invests in companies that make a positive contribution to the world, with a strong underpinning of ethical values.

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The value of your investments and the income from them can fall and you may not recover what you invested.