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ESG criteria and considerations

Sustainable funds are not all the same

Environmental, Social and Governance (ESG) factors are the three pillars of sustainable investing. As such, fund managers will typically consider the following within these three areas when analysing investment opportunities:

  1. Environmental issues – how a company is addressing issues such as climate change, resource depletion, waste, pollution and deforestation
  2. Social issues – a company’s policies and record in relation to human rights, modern slavery, child labour, working conditions and employee relations
  3. Governance issues – a company’s record in relation to bribery and corruption, executive pay, board diversity and structure, political lobbying/donations and tax strategy. 

A potential issue for investors is that sustainable funds adopt different policies and investment approaches. In order to create a common language for advisers, fund managers and investors, the Investment Association (IA) has introduced a range of definitions for investment approaches.

Stewardship
ESG Integration
Exclusions
Sustainability Focus
Impact Investing

Implications when recommending funds

Some clients may be satisfied that a fund is managed on a broadly sustainable basis. Stocks from certain ‘sin’ sectors may be included, for example, if the company has demonstrated that their ESG credentials are moving in the right direction. However, due to ethical, moral or religious considerations, other clients may state that certain stocks or industry sectors should be avoided completely. 

It is therefore important to check a fund’s investment approach and policy on exclusions before making a recommendation.

In our  Adviser Guide to Sustainable Investing, we examine the various types of funds and approaches in more detail.

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Adviser guide to sustainable investing

To aid your client discussions, we’ve produced a guide that explains all things ESG to your clients.

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Sustainable investing glossary

Our glossary defines some of the more frequently-used terms in this field of investment.

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Sustainable Investment Finder

Our tool is designed to make the process of selecting sustainable funds easier. Take a look at how it could help to identify potential fund solutions, whatever a client’s sustainable outlook may be.

Important Information - Please note that the value of investments and the income from them can go down as well as up so your client may get back less than they invest.

Introducing the Fidelity Sustainable Investment Finder

Our tool is designed to make the process of selecting sustainable funds that much easier. Fidelity’s Maike Currie and Julia Dreblow of SRI Services discuss how our tool could help to identify potential fund solutions, whatever a client’s sustainable outlook may be.

Take a look at the tool