EQ Investors' Kennedy Warns On Rise Of 'impact-washing'

Sophie Kennedy of EQ Investors

Sophie Kennedy of EQ Investors

Sophie Kennedy, head of investment at EQ Investors, has shared concerns that many ESG funds do not actually positively impact the environment or society.

She said there has been a plethora of launches in the space in recent years, with the number of impact funds up by 20% between March 2017 and December 2018. 

"But whether some funds actually have a positive impact is up for debate," she added. Performance has also been weak in some cases, which has given the space a bad name."

"Every firm is launching these mandates now, which can make it harder to find the actual impact funds. But we are big advocates against impact-washing and engage with a huge amount of fund managers pre-launch to ensure this does not happen.

"Often there have been products we would not invest with, but we have worked with their teams to create an impact fund we would be happy to help seed."

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EQ Investors' Positive Impact Portfolios (PIPs), which launched in 2013, invest in such funds that are then held across its Cautious, Balanced and Adventurous strategies. There are 20 funds in each portfolio enabling exposure to more than 1,500 companies through both equity and bond allocations.

Rather than looking at a company's operational structure, the PIPs focus on the products and services it provides. "We only look at companies actually making a positive impact," said Kennedy.

She used Unilever as an example, which "has great governance," but would not be included in PIPs because one of its products is Ben & Jerry's ice cream, which contains excessive amounts of sugar and can lead to obesity.

"Since 2015, the United Nations Sustainable Development Goals (SDGs) have been the main drivers of publicity and demand for ESG within the industry," she added.

"They do not determine how we invest, but the goals are helpful to map the impact of our companies and show clients what their money is doing. We do not just say we have a positive impact, we actively measure it."

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For example, the latest PIP Impact Report revealed £1m invested in its Adventurous portfolio generated 168 MWh of renewable energy, recycled 45 tonnes of waste material and saved 1.6 litres of water.

The PIPs are the fastest-growing part of EQ Investors' wider business, taking two-thirds of inflows and seeing AUM more than doubling over the last year.

Kennedy said: "There has been a huge take-up from IFAs as clients are demanding more impact and ethical-focused products. We have also seen that 55% of our DFM clients are female who, in our experience, show a higher interest in social and environmental good than men.

"Older investors are also more involved as they tend to have a philanthropic bucket for charity and another bucket for their children's future. Impact investing falls nicely across both of those."

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