What makes a fund a “sustainable investment”? As demand grows for investments that address environmental, social, and governance risk (ESG), this is an important question to ask. What factors are considered? What weight is given to those factors? Is there is a risk of “greenwashing” by which funds claim they consider ESG, but don’t make sustainability central to their investment strategy?
Fossil Free Funds is now using a more selective definition of ‘sustainability mandate’
We’ve updated Fossil Free Funds and the other Invest Your Values tools to use a more selective definition of “sustainability mandate”, applying it only to funds that have an intentional focus on environmental and/or social issues when choosing what companies to hold in the portfolio.
We're being more selective about which funds receive the "sustainability mandate" label on our Invest Your Values tools.
By being more selective, we hope to highlight asset managers that are truly embracing ESG. It’s not enough to add language to a fund prospectus saying that the fund “may consider” ESG. For a fund to be considered as having a “sustainability mandate” by Invest Your Values tools, ESG must be the central focus of the fund.
Specifically, the “sustainability mandate” label is now applied to funds that are members of US-SIF, the sustainable investing industry group, and to funds identified by Morningstar as having “a sustainable investing focus as a central feature of their strategy.” Previously, funds that had added ESG analysis in a more limited way to their investment process had the label applied. The new methodology is more selective and is applied to fewer funds.
The purpose of sustainable investing is to create sustainable value for all stakeholders - including the planet, and the people who live on it - over the long term. This doesn’t mean sustainable funds are ignoring traditional investing metrics. To the contrary, professional asset managers are realizing that incorporating ESG metrics often creates better financial performance. In fact, in 2019 Morningstar found that sustainable funds as a class outperformed their conventional peers.
For us, sustainable investing doesn’t stop when the asset manager has chosen which companies to include in their funds. Active ownership through voting on ESG shareholder resolutions (the kind As You Sow files at companies every year) is a critical part of being a sustainable investor and a sustainable fund. Most sustainable funds show higher levels of support for ESG shareholder proposals than traditional funds.
To learn more about the landscape of sustainable funds, check out this report from Morningstar, our data provider.
To see the list of sustainable funds in our database, and the grades they earn from the Invest Your Values tools, click here.