The Association of Investment Companies (AIC) helps a reader with a question about ethical investing.
I like the notion of ethical investing and note your portfolio, but I prefer to invest in investment trusts. That said, while I can see which of my trusts invest in oil or tobacco companies, the rest of the picture is rather opaque. Do you have any sort of ranking for the ethical status of trusts, or a facility to ‘look through’ the investments held in each trust and rank them ethically?
Andrew Johnston, by email
The Association of Investment Companies (AIC) replies: Ethical investing and investment strategies incorporating ESG (environmental, social and governance) criteria are among investment’s biggest trends. The Association of Investment Companies (AIC) does not currently have an ESG or ethical ranking, but it is exploring what can be done to help investors research this element of investment company investing. However, you may find a tool such as Morningstar’s ‘sustainalytics’ useful, as this gives each investment company’s portfolio a sustainability score based on the sustainability of its underlying portfolio holdings.
The investment company industry has a large renewable energy sector that invests in green infrastructure such as wind farms, solar farms and battery storage. This sector has grown very quickly since launch, due to strong demand from investors and the high income it pays. Since 2013, the renewable energy infrastructure sector has grown by 816%, and in the first half of 2019, existing investment companies in this sector raised more than £1 billion of new money, the most of any sector. There is also an environmental sector, which is home to investment companies investing in environmental solutions such as plastic recycling and electric car production, and this has generated strong returns.
A number of asset managers in the investment company industry are vocal on how they bring ESG considerations into their investment approaches. The AIC issued a press release in March that looked at how investment company managers in a variety of sectors incorporate ESG considerations into their strategies.
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