Jon Smith, portfolio manager of the Casterbridge Sustainable Impact Portfolios, takes a closer look at how advisers can meet client ESG objectives…
Who are the Sustainable Impact Portfolios suitable for?
In our previous two articles Does an ESG portfolio have to be riskier than a traditional portfolio? and Are you aware of the new ESG regulations? we discussed whether a sustainable portfolio has to carry higher risk than a traditional portfolio and how we at Casterbridge Wealth support financial advisers in determining client attitudes towards Environmental, Social and Governance (ESG) concerns. In this final part of our series, we identify who our Sustainable Impact Portfolios may be suitable for, and how we can explicitly help clients meet their ESG objectives.
Traditional portfolios: Traditional portfolios are typically invested to meet clear and time-bound financial objectives, for example, planning for retirement. Therefore, risk is the traditionally the biggest consideration for the financial adviser and the investment manager to consider. Any ESG considerations are of less or little importance to the investor.
Higher risk portfolios or philanthropy: In contrast, some investors have little need for their capital and want to see this invested for good. In these cases, with the investor choosing to gift the investment to charity, they will have very little need to consider risk and can therefore be invested in higher risk assets.
Casterbridge Sustainable Impact Portfolios: The Casterbridge Sustainable Impact Portfolios are the hybrid between the two. They are designed for clients who have both financial and ESG objectives and hold them both at equal weight: by aiming for a 5% investment return, for example, whilst ensuring the negative impact on the environment is minimised. The portfolio matches a traditional portfolio on risk, but ensures all investments are made in a sustainable way. The equity portion of the portfolio seeks to make investments into companies that have a positive impact on society.
Introducing the Casterbridge Impact Report
Once a client has been identified as having ESG requirements, it is important to place them in the correct investment portfolio. A client who wishes to invest sustainably must have a way to measure their ESG objectives in a similar way they would measure performance objectives. To meet these needs, our clients receive a quarterly valuation which shows the performance of their investment and determines whether they are on track to achieve their financial goals. Similarly, to meet the needs of clients with ESG objectives, we produce an annual Impact Report.
The report gives an indication of how the client’s money is being invested, and the good it is doing. For clients already invested, we also offer a one-page summary document that expressly shows this for their exact portfolio amount. Please speak to us to request a copy for your clients…
In summary, there are three key points to highlight:
- Myths busted: Sustainable investing that prioritises environmental, social and governance objectives does not need to carry outsized asset allocation risks compared to a traditional portfolio. For example, we can construct portfolios that, in the long term, carry similar risks but are invested in sustainable and impactful assets. While there is a risk of higher short-term volatility due to the thematic nature of sustainable investing, the Healthcare, Technology, and Industrials sectors are at the forefront of innovation, and are clearly driving positive and meaningful change. We believe these three sectors will be the fundamental long-term alpha contributors to sustainable investing.
- Suitability is key: Now more than ever, it is vital to ensure clients are placed within the correct portfolio for them – as determined by both attitudes towards risk and ESG objectives. We have constructed an Impact Questionnaire with examples of what might be important to a client and to help establish whether they do in fact have ESG considerations that should be reflected in their investments. Our traditional Bespoke and Hardy services are ESG-integrated, which means that we explicitly consider ESG factors and these factors may have an impact on our decision-making process, but are not required to. Our Sustainable Impact Service means your clients can invest in both a risk-appropriate portfolio whilst ensuring that all investments are made on a sustainable basis.
- Measuring ESG objectives: Any client with ESG objectives must feel confident that these objectives have been met. Our Impact Report outlines our sustainable approach to investing, demonstrates how a client’s money is invested and outlines the positive impact the investment has on the whole of society.
Portfolio performance: three years of returns
As our three-year performance data demonstrates, investments that focus on quality companies with strong ESG policies can demonstrate strong out performance when compared to conventional benchmarks. From an investment perspective, it is becoming undeniable that backing companies demonstrating a strong commitment to a clear set of values can generate future value and profit, effectively creating revenue for all stakeholders and investors.
For more information on how we can help you meet your client’s ESG objectives or anything else Casterbridge related please don’t hesitate to contact one of the team Contact Us
You can get much more information on our Sustainable Impact Portfolio range here
This update is for information only and does not constitute advice or a recommendation and you should not make any investment decisions on the basis of it. The views and opinions within this document are those of Casterbridge Wealth at time of writing and may change without notice. They should not be viewed as indicating any guarantee of return from an investment managed by Casterbridge Wealth nor as advice of any nature. Past performance is not a guide to the future. The value of an investment and any income from it may go down as well as up and the investor may not get back the original amount invested.