Environmental funds have existed in the investment marketplace for quite some time but have often been overlooked in favour of other more mainstream funds. Frequently, they’ve been considered niche and so have not been given a place within asset allocation in most investors’ portfolios.
With that said, the current focus on the environment has caused the UK investment industry to adapt – there are now a whole host of environmental funds which are available to retail investors.
This still doesn’t mean they are actively included within most firm’s asset allocation criteria, however there are a number of investible products in the marketplace - if a client has a particular proclivity towards a specific area.
Below are some of the more popular areas which clients may bring up, and a couple of the options available to satisfy their requirements.
The need to secure the current water supply and increase its capacity through new technology and services will be a major theme over the years to come, if it is not one already. Water scarcity has been a problem for years and it is estimated that 1.2 billion people lack access to clean water. Moreover, it is not just a developing world problem, with the UN commenting that water scarcity affects every continent. Sadly, this issue appears as though it will only become more pertinent in the future as further water usage has been growing globally at more than twice the rate of the increase in population in the last century. Pictet Water was launched in 2000 and was the first investment strategy of its kind. Its aim is to provide effective water infrastructure by investing in companies globally which support this aim. RobecoSAM Sustainable Water is another fund which investors can access to invest in line with this environmental theme. Launched in 2009, it focusses on growth opportunities which have resulted from the rising industrial demand (due to rising population growth, urbanisation and water-intensive dietary changes), and tends to focus on wastewater treatment, water analytics and infrastructure companies.
If investors are seeking a more passive approach to accessing companies which are linked to this water theme, iShares Global Water and Lyxor World Water ETF are available at lower cost, however are less likely to undertake improvement/impact approaches than their active counterparts.
All-inclusive Environmental funds
There are several Environmental funds which have a broad ‘environmental’ approach. These funds invest across companies which support generic environmental solutions, sustainable food and agriculture, pollution control, and other areas like resource management. Many of these funds, particularly the sustainable food and agriculture funds, are newer to the market than other environmental counterparts, as the investment industry echoes trends in society over recent years i.e. think of the rise of plant-based diets. However, there are some environmental funds which have a solid track record with years of experience under their belt.
One of the oldest environmental trusts, Impax Environmental Markets, launched in 2002 with the aim of investing across multiple companies which offer to solutions to a range of environmental challenges. The trust is still available to access for investors and seeks stocks which offer clean energy, as well as pollution and waste solutions. It is a catch-all fund which even invests in sustainable food companies and could be a great one-line exposure for those looking to add an environmental investment approach to their portfolios.
Equally, Jupiter Ecology is another fund which has stood the test of time. Focussing on environmental solution companies, this fund has been running for over thirty years. However, it is a little broader than some others as it also focusses on social problems within the fund’s strategy.
RobecoSAM is well known for their niche yet forward thinking fund launches; one such example is the RobecoSAM Smart Materials fund which has been in existence for over ten years. This fund focuses on innovative materials and process technologies, the very mechanisms that have driven efficiency gains over time and that have enabled humans to cope with limited natural resources, despite population and economic growth. This means that it invests in organisations which are substituting existing materials and processes to make processes more efficient. Although this fund has been around for a long time, it’s investment strategy and approach could not be more relevant in the current climate.
In terms of more recent launches, Triodos and RobecoSAM have delivered. Triodos, for example, have created an innovative product called Triodos Organic Growth which invests in private equity companies focused on organic and sustainable food businesses. However, given the more complex nature of these investments, investors will have to access these funds via an intermediary, and even then, there are some dealing/trading limitations – unsurprisingly, as the fund is Private Equity it is not daily traded. Correspondingly, RobecoSAM recently launched a circular economy fund (RobecoSAM Circular Economy Equities) earlier this year which aims to invest in firms which foster resource-efficient business models. The fund is still small (c. €40m) and has yet to launch a sterling share class – although I suspect it won’t be a long wait given where investor demand currently sits for ethically alternative products!
Finally, another area where we are seeing the UK investment marketplace deliver is within sustainable farming and agriculture funds. Food supply is such a hot topic in terms of ensuring our carbon footprints remain low while still being able to maintain a level of food supply which will feed the global population (both now and in the future). Thus, retail investors are able to invest directly in line with this theme via the Barings Global Agriculture fund. While the fund isn’t specifically ethical, it invests purely to capture the increasing demand for grains and edible oils due to population growth.
In terms of funds which are more ethically aligned, the Pictet Nutrition fund invests in firms which are developing solutions to help secure the world’s food supply. They are distinctly aware that, every year, food loss amounts to an estimated economic cost of USD 750bn (according to the Food and Agriculture Organization). Thus, they seek organisations which aim to develop innovative approaches to improve farming productivity, food transportation efficiency, and those which aim to maximise the nutritional value of the food we consume.
If a passive yet cheaper approach is what investors are seeking, RIZE ETF, a specialist thematic ETF issuer, has issued a new Sustainable Future of Food ETF. The ETF provides investors with exposure to companies that are innovating across the food value chain to build a more sustainable, secure and fair food system for the planet.
Finally, it is worth mentioning the Global Sustainable Farmland Income Trust (FARM), which was set to be launched earlier this year but delayed its IPO due to market conditions. It invests in farmland across multiple counties and will ensure that its farms will farm sustainably and adhere to initiatives such as Linking Environment and Farming’s (LEAF) Integrated Farm Management framework. It is an investment opportunity worth watching out for.
So, there we have it, our overview of the increasing supply/demand for Environmental funds as societal trends lean evermore towards sustainability. While we know this is not currently a typical part of asset allocation decisions, even within the ethical investing universe, it’s worth thinking about what might happen over the coming years - the next question could be will Environmental funds become a standard part of investors’ portfolios?
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