Ensuring ethical funds remain ‘fit for purpose’

Posted by Ethical Investing NZ

Thursday 4 July 2024

Ethical investing is not a static ‘set and forget’ process. At one level we and our research provider regularly review the funds we recommend to clients. Each fund also makes changes. Companies that are ‘good’ one day may not remain so, and conversely companies can improve their ratings.  That means the fund managers we use regularly review their holdings, replacing companies that are no longer so ethical with ones that have improved.

To show you how it works in practice, we’ve chosen the BetaShares Global Sustainability Leaders fund, a cornerstone of nearly all of our portfolios. This fund tracks the Nasdaq Future Global Sustainability Leaders Index.  In May the Index added 45 new companies and removed the same number.

Companies added include Global Payments, Moderna, Amadeus IT and Array Technologies. A common reason was “improvements in carbon efficiencies”; one company was included because it had sold off a part of its business that provided services to gambling companies, while another had changed its board resulting in better gender diversity.

One significant inclusion was Array Technologies Inc, a global provider of utility-scale solar tracker technology. It met the Index criteria for a ‘Scope 4’ company, one whose products or services are leaders in avoiding emissions. Array’s high-quality solar trackers and sophisticated software maximise energy production, accelerating the adoption of cost-effective and sustainable energy. There are four other ‘Scope 4’ companies in the Index and therefore in the BetaShares Fund.

The 45 companies removed were excluded for failing key screens:

  • 35 were excluded as they no longer qualified as Carbon Leaders (defined as meeting the top third most carbon efficient companies within their industry)
  • Three did not meet market capitalisation requirements
  • One company was replaced with a higher market capitalisation Scope 4 company
  • Six companies did not pass the ethical negative screens. One of these (Mercedes-Benz Group) failed the Armamants & Militarism screen as  new data showed it manufactures armour-protected trucks. Another was excluded under the controversy screen following allegations that related to harmful content and predatory behaviour targeting children on its platform.

Combined with our fund-level reviews, it means our investment portfolios are constantly being tweaked to match the ever-changing ethical investing landscape.

Got any questions?
Let’s chat.

Call 09 337 0997
or send us a message.