Investment professionals

How to evaluate funds

"Responsible investing should never be an
excuse for underperformance."

Mike Fox, Sustainable Leaders Trust's A rated fund manager (as 30/06/08)

No two funds are the same – so here are the key issues you'll want to take into account when assessing responsible investment funds for your clients.

Performance: As with any investment, the track record – especially over the long-term – of the fund manager is paramount.
Values: Do the values, preferences and no-go areas of the fund match your clients'?
Transparency: Ensuring that you and your client can understand exactly what the fund does is crucial. It ensures the client understands what they are buying. And it helps you compare products. It may be wise to avoid funds whose investment and stock selection processes seem complicated, confusing or riddled with ethical jargon.
Experience: Embedding ethical issues into the investment process is notoriously difficult. Does the organisation have the necessary experience and resources? How does the fund manager come up with a rounded view of a company based on a balance of financial and ESG (environmental, social and governance) considerations?

Our commitment to transparency

At The Co–operative Asset Management, we aim to make our investment approach and fund range clear and easy to understand. The purpose and strategy of our funds are very straight–forward. Our own commitment to corporate transparency is demonstrated by our being the first UK institutional investor to publish online a record of how we voted at company AGMs.

Research and risk: Investment decisions are only as good as the quality of research they're based on. How does research integrate financial considerations (eg balance sheets, business strategy, competitive position) and ESG issues (i.e. governance risk, impact on the environment, employee policies)? How do the research outcomes feed into stock selection? How does the fund manager construct a diversified portfolio and mitigate risk?
Engagement: Your client wants a fund that reflects their values. How are those values applied when selecting companies for investment? How does the fund engage with the companies it invests in to put your clients' values into practice? Can it demonstrate success in improving companies' performance?
Leadership: Does the fund provider itself show leadership in corporate social responsibility? It's as simple as putting your money where your mouth is. Research shows that ethical consumers are wary of companies jumping on the green bandwagon^vii. For some clients how the fund provider behaves is as important as financial returns.

"Responsible investing is not something we apply to a few isolated funds, it's integral to our whole investment process. Corporate social responsibility is what our organisation was built on. In 2007, we were ranked in the highest category of the UK's leading benchmark – the Corporate Responsibility Index."

Ian Jones, Head of Responsible Investing

Leadership at The Co-operative Asset Management

The Co-operative is considered to be Britain's most ethical brand.^viii
We are one of the world's largest purchasers of renewable electricity – 98% of the electricity we use comes from green sources.^ix
Our Solar Tower head office in Manchester is the largest solar power project in the UK^x – and we've brought together 40 of the UK's biggest Plcs to share our expertise in powering business with wind power.^xi

^viiAn independent consumer survey carried out in 2007 and 2008 found that The Co-operative was the most ethical brand in Britain in both years. The Co-operative Group (including The Co-operative Bank) was ranked number one for both years, with Body Shop and Marks & Spencer ranking second and third respectively. The GFK NOP Ethics Brands Survey was conducted in the US, UK, France, Germany and Spain, amongst 5,000 individuals in total. The study found that consumers are increasingly choosing to buy brands which they believe to be ethical, with many willing to pay a premium for an 'ethical guarantee'. (GFK NOP Press Release 2007 and 2008).
^viii Stephen Cheliotis, Superbrands
^ix Co-operative Group Sustainability Report 2005 p23
^x www.cis.co.uk/servlet/Satellite?cid=1116834043935&pagename=CoopBank/Page/tplBlank&c=Page
^xi http://www.cis.co.uk/images/pdf/Res_share_book.pdf