Global Sustainability offers a rare opportunity to invest in ESG alongside big pension funds.
There has been an explosion of funds within the fast-growing ESG investing space in recent years. The acronym stands for environmental, social and governance, and refers to an investment approach that takes account of these factors.
In my experience, active investors want a direct approach to ESG. They want to invest in a wide range of businesses where the specific purpose of the investment and business case is to make the world a better place. People want to see their pounds make a difference. This has inspired a trend known as impact investing, where investors attempt to measure the ESG effect of a business.
Invest with the big guys
Most of the interesting funds in this space tend to be closed to mainstream investors: big pension funds and sovereign-wealth funds are keen on this approach and prefer private-market vehicles. There are a few impact-based unit trusts and investment trusts, but they are few and far between.
However, that could be about to change with the imminent launch of the Global Sustainability Trust on the London Stock Exchange. I tend to avoid writing too much about proposed launches, but this novel fund has been quietly building a head of steam for at least six months now.
Unlike many of its peers in the ESG space, this fund is planning to invest exclusively in private-market investments: deals traditionally only available to private-equity funds and large institutions. The aim is to build a portfolio across different asset classes with a target return of 6% to 8% per year. The managers will only include businesses that can advance the UN’s sustainable development goals, which include developing clean energy and tackling world poverty.
The fund has a strong independent board of City grandees, and the portfolio itself is managed by Aberdeen Standard Investments. This huge UK investment manager has long been strong in both sustainable investing and private markets, and was chosen after an exhaustive “beauty parade”. Fees will be relatively reasonable at 0.7%, falling to 0.65% on assets of more than £200m.
The key consideration is how your money will be invested. If the fund is just another private-equity vehicle which nods in the direction of sustainability, then it will represent a lost opportunity. The managers have indicated they’ll focus on private-equity structures, as well as infrastructure assets and sustainable real estate. The biggest chunk of money will be put to work in businesses in the circular economy sector (where the idea is to keep resources in use for as long as possible, extracting the maximum value from them) and financial-inclusion strategies (extending access to financial services).
In practical terms, typical businesses could include everything from Nordic hydro-electric ventures to timber projects in the US aiming to improve tree diversity.
Along the way you might even find sustainable business parks in the Netherlands and fintech providers focused on providing micro-finance loans to poorer customers around the world.
Only time will tell
As always, the devil here will be in the detail. Will the portfolio businesses be intentionally set up to help with a wider social good? Will they make money, and how will investors measure the returns, both financial and social?
My guess is that most of the interesting ideas are still relatively early stage, and probably sitting in the private sector, which will help this fund provide real focus. The challenge will be to achieve scale quickly, and not invest in worthy projects that fail to provide a decent return.
The prospectus is out now, with an 11 December deadline to apply. The fund goes live on 17 December.