LEARN MORE ABOUT THE FUND
Three Minutes With
How does the Fund go beyond a traditional equity strategy to embed responsible investment
at its core?
Michael: We look at the key non-financial factors that determine whether a company is successful or not. So we may:
We also go further, by quantitatively measuring company positive outcome through net revenue exposure to the 17 UN Sustainable Development Goals (SDGs). The Fund has 100% exposure to these positive outcomes.
Perhaps most importantly, we strongly believe that you don’t have to sacrifice returns to do good through your investments. In fact, this core belief led to us change the benchmark of the Fund to the FTSE-All Share index in 2019. With the Fund continuing to deliver a strong track-record – it has outperformed the FTSE All-share and IA UK All Companies peer group since launching in 2015
– this proves investors can do well by investing for good.
Tell us about the Threadneedle UK Sustainable Equity Fund philosophy. How does it stand out in a crowded ESG sector?
Sonal: The philosophy for the Fund is different to other ESG strategies currently in the market.
Firstly, the focus of the Fund is on positive inclusion of companies and whose products or services contribute to a positive sustainable outcome, rather than simply screening out companies that have a negative impact.
The aim is to identify these types of companies with strong and improving fundamentals and financials at attractive valuations – effectively companies with a quality bias, which are structurally in a good place and should continue to do better.
But we are also looking for companies with strong and improving ESG characteristics, and we have a dedicated Responsible Investment (RI) team and a proprietary RI ratings framework to help identify those.
How is the sustainable investing sector evolving?
Sonal: The sustainable investing landscape has been evolving rapidly over the last few years, which is extremely encouraging, but that has resulted in some inconsistencies in terms of what sustainable/ESG investing is. This is creating instances of greenwashing and inconsistent disclosures.
However the sector is evolving too. Over time, we expect to see greater disclosure from companies and more thorough and consistent data, which will increasingly feed into our fund’s traditional valuation models and make sustainability a more normal point of analysis.
I also believe there will be a greater shift away from ESG funds using negative exclusion strategies in their process, and a greater focus on positive inclusion. This should drive standards up and crucially deliver on a better future.
Over time, we expect greater disclosure from companies and more thorough and consistent data, which will feed into our fund’s valuation models
The desire to become more responsible custodians has resulted in a huge shift in the narrative of what the true goal of investing is
What is behind the huge shift in focus towards sustainable investing over the past year?
Sonal: We have been seeing a rapid move towards ESG investing over the last few years and that has been a great thing. Greater awareness for the environment, the social aspects and the desire to become more responsible custodians has resulted in a huge shift in the narrative of what the true goal of investing is.
At Columbia Threadneedle Investments, we truly believe that in a transforming world, such as the one we find ourselves in today, investing sustainably is the key to creating a better future and ultimately, delivering superior investment returns too.
You can watch the interview here or read their views below
Investing sustainably is high on the fund management agenda in 2021, with Morningstar stating sustainable fund asset inflows in the second quarter of 2021 reached some $139.2bn. This followed an even stronger Q1 for inflows which topped $178bn.
This approach to investing has evolved greatly in recent years as demand for strategies that achieve market-rate returns whilst simultaneously considering the positive environmental impact grows.
Sonal Sagar, manager of the Threadneedle UK Sustainable Equity Fund, and Michael Hamblett, responsible investment analyst at Columbia Threadneedle Investments explore the growth of this asset class and their responsibility to investors as the sustainable investing momentum reaches new heights.
INTRODUCTION | ASSET CLASS | THE FUND | portfolio snapshot
Columbia Threadneedle Investments' Sonal Sagar & Michael Hamblett
Columbia Threadneedle Investments' Sonal Sagar & Michael Hamblett
INTRODUCTION | ASSET CLASS | THE FUND | portfolio snapshot
How easy is it to find companies focused on positive sustainable outcomes within the UK equity sector?
Sonal: Governments around the world, including the UK, are focusing their Covid-19 recovery plans on sustainable megatrends around energy transition, green infrastructure, healthcare, and financial inclusion, all of which the Threadneedle UK Sustainable Equity Fund has great exposure to.
In fact, there are several sustainable global leaders in the FTSE All-Share Index, which we feel is trading at too-wide-a discount compared to other international indices. This is despite over 75% of the FTSE All-Share’s earnings coming from outside the UK.
In the UK, opportunities will be created by the government’s 10-point plan for a green industrial revolution, including in areas such as alternative energy, transport, environment and innovative technologies. This global increase in green investment and infrastructure should benefit a number of UK companies - including those the fund is invested in.
On top of that we are looking for the IMPACT of what the company makes. So if we are investing in a healthcare company, how many people in poorer countries are getting access to treatment? The aim is to try and quantify the positive impact that their activities have.
Investigate the size of its carbon emissions and what it is doing to reduce these
Explore the quality of the board or management, identifying how much they’re paid
Better understand how a business treats its workers and the people throughout its supply chain
What is absolutely crucial to all of this is engagement. As an active manager, we have the discretion to pick and choose what we buy and sell and a lot of that depends on the conversations we are having with a business. As a large active manager, we get good access to and have these conversations with a range of C-suite and board level individuals as well as sustainability experts within the businesses.
By doing this, we can effect change: if we think management is missing the mark on strategy or sustainability, we express these concerns and make sure we use our proxy votes as a lever for change.
This is what allows us to find future leaders and help those companies achieve their potential; companies that are underappreciated by the market or changing their strategy to make the most of the significant market and tailwinds for companies that make sustainable solutions.
Coats Group makes thread, which is an energy and water intensive process, but essential for clothing, footwear and other industrial applications. Coats is attempting to make the process greener and more sustainable by targeting reductions in water consumption and carbon emissions. The company has also pioneered a fully recycled thread, using no virgin plastic.
This is an example of the type of company we look for in the Threadneedle UK Sustainable Equity fund: a company that is perhaps under the radar, but a leading player in a fragmented market, standing to benefit from consumer trends towards sustainability.
We met the company’s head of sustainability to understand how its non-financial risks and sustainable opportunities are managed, and our opportunity to ask questions and bring the investment case to life, far more than reading the annual report.
Threadneedle UK Sustainable Equity Fund: Portfolio snapshot
Johnson Matthey is a chemicals company that makes solutions for cleaner energy and cleaner air. It has an experienced board and is investing in new and future technologies such as fuel cells and hydrogen. To continue driving its sustainability agenda, this year, it is incorporating ESG and sustainability criteria in executive pay.
Improvements are expected in its top line, margin and cash flow. We believe it is undervalued and, when you combine that with the fact that well over 80% of its revenues contribute to the UN SDGs, it is one of the leading companies within the fund.
To have confidence in our investment, engagement is key. We have met management, board members and collectively engaged with the UN Principles for Responsible Investment on its supply chain. This gives us a better understanding of the risk/return characteristics.
Reckitt is a health, hygiene, and nutrition company. It has had big changes in management and strategy over the last few years and now it is embracing its size and scope, driving more from the group level. As a result, it is well-positioned to effect change.
There is a big focus on how its products are made, with reductions in energy and water usage and more recycling. Reckitt works alongside governments and public health bodies to educate people on issues including cleanliness, infant nutrition, sexual health – this is on top of the positive impact of its products within its hygiene, health and nutrition divisions.
Again, engagement is key: we have met the CEO, CFO, chair, directors in charge of executive pay, heads of sustainability to enable us to get a holistic picture of how the company is improving its management of ESG and sustainability.
Three Minutes With
Sonal Sagar & Michael Hamblett
Past performance is not a guide to future returns and the fund may not achieve its investment objective. Your capital is at risk. The Fund has shown a medium to high level of volatility (how much the value of the Fund goes up and down). The value of investments can fall as well as rise and investors might not get back the sum originally invested. The Fund may invest in derivatives with the aim of reducing risk or minimising the cost of transactions. The Fund aims to invest in companies which deliver sustainable outcomes and in doing so adheres to a set of Sustainable Investment Guidelines. The Guidelines will affect the Fund’s exposure to certain sectors, which may impact the performance of the Fund positively or negatively relative to a benchmark or other funds without such restrictions. Such derivative transactions may benefit or negatively affect the performance of the Fund. The Manager does not intend that such use of derivatives will affect the overall risk profile of the Fund. The risks currently identified as applying to the Fund are set out in the “Risk Factors” section of the prospectus.
Please read the Key Investor Information Document and the Fund Prospectus if considering investing. For a simple reference guide to some of the technical terms used in this document please visit columbiathreadneedle.co.uk/investment-terms.
For use by Professional and/or Qualified Investors only (not to be used with or passed on to retail clients).
Past performance is not a guide to future performance. The value of investments and any income is not guaranteed and can go down as well as up and may be affected by exchange rate fluctuations. This means that an investor may not get back the amount invested. Your capital is at risk.
Threadneedle Specialist Investment Funds ICVC (“TSIF”) is an open-ended investment company structured as an umbrella company, incorporated in England and Wales, authorised and regulated in the UK by the Financial Conduct Authority (FCA) as a Non-UCITS scheme.
This material is for information only and does not constitute an offer or solicitation of an order to buy or sell any securities or other financial instruments, or to provide investment advice or services.
The fund characteristics described above are internal guidelines (rather than limits and controls). They do not form part of the fund’s objective and policy and are subject to change without notice in the future. Please note that the outperformance target may not be attained. Please refer to the Fund Objective in the appendix for further information regarding the Funds benchmark.
The mention of any specific shares or bonds should not be taken as a recommendation to deal.
Subscriptions to a Fund may only be made on the basis of the current Prospectus and the Key Investor Information Document, as well as the latest annual or interim reports and the applicable terms & conditions. Please refer to the ‘Risk Factors’ section of the Prospectus for all risks applicable to investing in any fund and specifically this Fund. The above documents are available in English only and may be obtained free of charge on request from Columbia Threadneedle Investments at PO Box 10033, Chelmsford, Essex CM99 2AL.
This video is a marketing communication. The analysis included in this document have not been prepared in accordance with the legal requirements designed to promote its independence and have been produced by Columbia Threadneedle Investments for its own investment management activities, may have been acted upon prior to publication and is made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change without notice and should not be seen as investment advice. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed.
Issued by Threadneedle Investment Services Limited. Registered in England and Wales, Registered No. 3701768, Cannon Place,
78 Cannon Street, London EC4N 6AG, United Kingdom. Authorised and regulated in the UK by the Financial Conduct Authority.
Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies.
Tap on each image to show details
Tap to go back to options
2 Source: Morningstar, net of fees, launch 31 October 2015 to 31 July 2021. Past performance is not a guide to future performance.
3 Source: Columbia Threadneedle Investments as at 30 June 2021.
Source: Morningstar as at 31 July 2021, net of fees, based on Z Acc share class (ISIN: GB00BZ21SS97). Net performance using 12pm prices, unadjusted income reinvested. Peer group is IA UK All Companies. The index is a Composite benchmark. The fund launched 30 October 2015. Past performance is not a guide to future performance.
Threadneedle UK Sustainable Equity Fund: Performance (%)
IA UK All Cos
Year to Date
1 Source: Factset, as at 30 August 2021.