Fund managers blur lines on SRI

The lines are being blurred between conventional Australian equities funds and those built around socially responsible investing (SRI) as fund managers pursue mandates, according to the latest analysis released by ratings house Lonsec.

The latest Lonsec sector review covering Australian and global equity SRI funds not only points to a blurring of the lines, but questions the motivations of some fund managers signing up to the United Nations Principles for Responsible Investment (UNPRI).

“There is some scepticism concerning fund managers’ motivations for signing the UNPRI, that perhaps managers are adopting a me-too, tick-the-box mentality to appease key clients as opposed to genuine belief in the investment merits of the discipline,” the analysis said.

However, it said Lonsec believed such approaches were “largely at the margins of the industry” and that discussions with those managers on the Lonsec coverage list gave confidence that the majority of managers were enthusiastic proponents of the responsible investment industry.

Discussing the blurring of the lines between SRI and conventional equity funds, Lonsec said the increased integration of environmental, social and governance (ESG) into mainstream company research processes had been influenced, in part, by the institutional sector, particularly industry funds.

It said that this had followed industry funds and European pension industry funds requiring evidence of an ESG component as integral to the manager selection process.

The Lonsec sector review noted that the ESG sector had taken a hit in the fallout from the global financial crisis and that there had been an absence of new product development since the credit crunch.

It said this was consistent with product development across most equities categories and noted, “generally, the sector is yet to experience the resurgence in interest encouraging investment managers to freshen product lines”.

The Lonsec review revealed just two funds — the BT Wholesale — Ethical Share Fund and the ING Wholesale — Sustainable Investment Australian Shares Trust — as being worthy of its ‘highly recommended’ rating, while the Australian Ethical Larger Companies Share Trust was rated ‘investment grade’ and the Challenger Wholesale Socially Responsible Share Fund (now known as Alphinity Socially Responsible Share Fund) had been placed on ‘fund watch’. All other funds in the Lonsec review gained a ‘recommended’ rating.