Established in 2012, these portfolios are for clients that:
They can be used as a stand-alone investment solution for those who view social and environmental considerations as paramount to their investment objectives, or as separate specialist portfolios.
Each investor has their own portfolio which is invested in a well-diversified mix of 20-25 funds and actively managed by EQ. They can be held both in ISA (tax-free savings) or SIPP (personal pension) accounts. There are six levels of risk available, with the maximum equity exposure ranging from 35% to 85%.
Stockmarkets are volatile and so in all cases we advocate a minimum time horizon of five years (although portfolios can usually be liquidated on seven days notice).
An investment approach that aims to make a positive contribution to society or the environment, alongside an attractive financial
Socially responsible investing is not a recent phenomenon, it can actually be traced back several centuries. Early initiatives were all based on the exclusion of controversial sectors such as tobacco or armaments rather than on investing in businesses which have the power to do good. That’s what Impact Investing is seeking to achieve and it has begun to take off. Read more.
The EQ Positive Impact Portfolios are not just about selecting investments that do good, they are also about selecting good investments.
Negative screening techniques inevitably result in nil, or minimal, exposure to some sectors such as tobacco which have often been highly profitable investments for a century or more. Therefore, it is not surprising that some studies have demonstrated that a ‘sin portfolio’ outperforms an ethical one.
However, the positive impact approach leads to selecting companies that are actually trying to do good and run their business in a sustainable manner. Such companies avoid fines and other penalties; they have stronger relationships with their customers, suppliers
and staff. Furthermore, they tend to operate in sectors with high growth potential. Research by fund manager Wheb has illustrated that growth is higher in their universe of 1,000 investable companies than in the stockmarket generally.
Research carried out by Cambridge Associates in conjunction with its launch of an impact investing benchmark suggests positive impact funds may actually outperform conventional funds.
Our own analysis of past performance suggests that there is little or no correlation between impact and financial return – the adverse impact of negative screening seems to be compensated by the benefits of the positive impact investments. On that basis there is no reason to expect a positive impact approach to have an adverse impact on performance.
Each portfolio is constructed from typically 20-25 funds that have been approved by our Fund Selection Committee. We have developed a rigorous and systematic approach for impact assessment which takes into account that different fund managers screen their investments in different ways. Our investment team conducts parallel research and due diligence processes. One to validate and verify that a fund meets the socially responsible criteria we have set. The other is focused on the financial performance alone and follows the same high standards we apply to all our investment selections. When it comes to social responsibility, we score investment funds more highly the greater the positive contribution they make to people and planet. So a fund that just excludes potentially harmful industries will pass our initial test but is less likely to reach our portfolio.
|Positive issues (maximum score of 64 for positive inclusion)||Negative issues (maximum score of 16 for negative screening)|
|Affordable housing||Natural food production||Alcohol||Human rights abuses|
|Clean fuels||Natural resource conservation||Animal testing for cosmetics||Medical research (Stem & Tissue)|
|Community engagement||Pollution control||Animal testing for medicine||Mining|
|Education||Public transport||Armaments||Nuclear energy|
|Empowerment||Recycling||Banking sector||Oil & Gas|
|Energy conservation||Renewable energy||Fur trade||Ozone depleting chemicals|
|Environmental focus||Social change||Gambling||Political corruption|
|Ethical employment||Sustainable agriculture||Genetic engineering||Pornography|
|Health care||Sustainable forestry||Government debt||Tobacco|
|Job creation||Water resources|
Our quarterly update focuses on specific investments made by the funds within the Positive Impact Portfolios. This is available for download here.
Our philosophy is about investing for the long term. We build long term relationships with our fund managers and engage proactively with them on the issues we care about.
Ethical investing is rarely black and white. Should we invest in a fund that has holdings in the oil and gas sector, but which includes innovations to reduce carbon emissions? In our view there is no simple answer to this.
Using a scorecard approach enables us to identify the managers that, on balance, are making the most impact addressing climate change, conserving natural resources, improving health and reducing inequality.
If we decide to invest then this is just the start of an ongoing conversation. If we see a holding that doesn’t meet our expectations then we question it. And as a result of our dialogue we have seen managers divest in companies that we’d rather avoid.
Below are a few of the fund groups that we use: