Trustnet Magazine 78 November 2021 | Page 66

YOUR PORTFOLIO ESG may be encouraged to divest and buy into renewable energy . But there are potential consequences from making decisions that seem sensible on face value . “ I ’ ve increased my exposure to the green economy to 30 % of the Stonehage Fleming Global Sustainable Equity fund ,” says Shah . “ And that ’ s actually increased my carbon footprint . Making wind turbines , electric vehicles and upgrading the grid so you can attach new solar and wind farms to it in the short term are carbon-intensive activities . “ But over the longer term , they ’ re absolutely going to get us to a good place .” While switching from investment in high-carbon companies or sectors to lower-carbon alternatives may be sensible for risk mitigation over the long term , other potential problems need to be addressed . “ It can be much riskier ,” says Lisa Beauvilain , head of ESG at Impax Asset Management . “ For instance , though it depends on what type of renewable energy you are interested in , this sector can have some quite commoditised areas with low barriers

“ Dangerous rubbish ” Baillie Gifford ’ s James Anderson , the outgoing manager of the Scottish Mortgage Investment Trust , warns that commonly used ESG metrics and ratings are ineffective for measuring a company ’ s true sustainability credentials .

As an example , he points to Tesla , in which Baillie Gifford is the second-largest investor behind the company ’ s chief executive Elon Musk . Even though it is the world ’ s largest manufacturer of electric vehicles , Anderson notes standard ESG ratings suggest it is a polluter with ill-defined future metrics .
“ This is dangerous rubbish ,” he says . “ The relevant number isn ’ t the carbon Tesla expends , not even just the driving emissions removed and pollution deaths avoided , but all those plus the resultant benefits of its transformation of the rest of the industry . It ’ s all the electric vehicles made by others from Volkswagen to General Motors , because Tesla changed the world . That ’ s the scale of the contribution .”
/ 34 /
IN THE BACK We have recently added LF Montanaro Better World to the Square Mile Academy of Funds, with a Responsible A rating. Montanaro Asset Management is an investment boutique that was founded by Charles Montanaro in the early 1990s, specialising in small- and mid-cap equity investments. Originally focused on European equities, the group has expanded its coverage to include UK and global remits. It uses the same investment process across its funds: managers identify and invest in the best-quality growth companies, with the intention of sustainably increasing the value of capital over the long term. Life through a lens On the LF Montanaro Better World fund, managers Mark Rogers and Charles Montanaro also look at businesses through a positive impact lens. Every company must derive at least 50% of its revenue from operations that make an impact in one of the following six areas: environmental protection, the move to a low-carbon economy, healthcare, nutrition, innovative technologies and wellbeing. In this way, the fund / 66 / What I Bought Last LF Montanaro Better World Square Mile’s Daniel Pereira says this impact fund is not trying to maximise its impact, but deliver the highest returns within sustainable guidelines aligns itself with the United Nations Sustainable Development Goals. We like this clear definition, combined with the fact that potential holdings are ratified by the firm’s sustainability committee prior to investment, ensuring high impact standards. Yet Rogers and Montanaro are not trying to maximise the fund’s positive impact, but to deliver the best financial performance from the pre-approved responsible investment list. This separates it from many other responsibly oriented funds, which primarily seek to deliver a responsible investing outcome. Although the fund was only launched in early 2020, the strategy has a longer history, with the offshore mirror launching in April 2018. It is worth bearing in mind that investing in small- and medium- sized companies typically comes with a greater level of volatility and therefore risk, and given the fund’s focus on responsible investment, it is likely to be absent from certain areas of the market. For example, it will not invest in businesses that derive 10% or more of their revenue from the following areas: fossil fuel exploration or production, tobacco production or distribution, alcohol production or distribution, controversial weapons, gambling, adult entertainment, high- interest loans and animal testing. Issue 78 / November 2021 Standing out Overall, we believe there are a few tenets of this approach that stand out: the focus on small and mid caps, the long-term approach, the preference for quality, an embedded ESG culture with a good hurdle for impact, and the team’s collegiate approach. We believe this is an exceptional fund for long-term investors who want to invest responsibly in a fund that has a well thought-out investment process. Daniel Pereira is an investment research analyst at Square Mile Investment Consulting & Research / 67 /