Can sustainable investing help fight climate change?
With the world facing a climate emergency, the more we can do to support companies in reducing their carbon footprint, the better.
One way we do this at OneFamily is by giving our customers the option to invest with a focus on the environment.
If you’re a OneFamily customer, you’ve probably heard us talk about “climate-focused investing”. We’re pretty proud of it.
But when we say that we have a fund that invests with a focus on the climate, what are we actually claiming and does this fund live up to its targets?
In this article, I'm going to explain how this fund tilts towards investing in companies that are working towards reducing their negative impact on the environment and look at how it's comparing against its targets.
What is an investment fund?
An investment fund is a pool of money that many investors pay into. The money in the fund is invested in assets, which could be company shares, bonds, property and others. The value of the fund changes as the value of those assets goes up or down.
Different funds have different rules which affect how the money is invested.
Click the questions below to find out more about investment funds.
What makes OneFamily's Global Equity fund “climate-focused”?
The OneFamily Global Equity Fund, which our Stocks and Shares ISA and Lifetime ISA customers can choose to invest in, takes into account the climate credentials of companies when choosing which to buy shares in.
An algorithm assesses all the companies in the MSCI World Index (around 1,600 companies) every three months and applies the following criteria.
- It checks how each company is making its money. Companies that make 10% or more of their money from controversial activities, such as producing certain types of high-carbon fuel or manufacturing particular types of weapons, are excluded.
- Then, an SSGA algorithm scores the remaining companies from the MSCI World Index based on five factors:
This scoring helps the algorithm decide how much of the fund should be allocated to each company's shares. To diversify the fund, the manager will buy shares in companies from many industries.
This approach incentivises companies to do more to fight climate change as this makes them more likely to be invested in by this type of fund.
How effective is this climate-focused selection criteria?
As of 30 September 2023, we can see that the companies the Global Equity Fund is investing in are less damaging to the environment than the average for all the companies on the MSCI World Index.
The table below shows the climate characteristics of the Global Equity Fund and the MSCI World Index, as well as the percentage difference for each characteristic. We compare against the MSCI World Index to get an idea of how the fund's climate credentials would look if the climate-friendly criteria wasn't applied.
| Global Equity Fund | MSCI World Index | Target difference | Actual difference | |
|---|---|---|---|---|
| Carbon Intensity (tonnes CO2e/USD mn) | 72.73 | 177.14 | -60-80% | -59% |
| Fossil Fuel Reserves (million tonnes) | 14.22 | 155.35 | -90% | -91% |
| Brown Revenue (%) | 0.27 | 2.66 | -90% | -90% |
| Green Revenue (%) | 14.05 | 3.49 | +300% | +302% |
| Adaptation Z-Score | 0.25 | 0 | +0.25 | +0.25 |
Sources: FactSet, GICS®. Characteristics are as of 30 September 2023 and are subject to change.
Carbon intensity: down 59%
For every USD$1 million that the companies made, on average 59% less CO2 was emitted by those on the Global Equity Fund list, than those on the MSCI World Index list.
Target: 60 - 80% less
Fossil fuels reserves: 91% less
Yep, you read that right. Companies that the fund invests in have 91% less fossil fuel reserves than that rest of the MSCI World Index. That’s a lot less reliance on non-renewable energy.
Target: 90% less
Brown revenue: down 90%
Brown revenue is money made from activities that are particularly damaging to the environment, such as certain techniques for extracting fossil fuels.
While 2.66% of the money made by all the companies on the MSCI World Index is reliant on this type of activity, only 0.27% of the money made by the companies that the Global Equity Fund invests in is.
That’s 90% less!
Target: 90% less
Green revenue: up 302%
Green revenue, on the other hand, is money made from activities that benefit the environment, such as technology designed to fight climate change.
The companies that make up our fund portfolio make a whopping 302% more money through green revenue activities than companies on the MSCI World Index do.
Target: 300% more
Adaptation Z-score: 0.25
This might not look huge, but it’s one of the most important factors.
Adaption Z-score refers to how ready companies are for climate change. Companies that have plans in place are more future-proof and we’re more willing to invest in them.
Target: 0.25
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