M&G ranks as one of the UK’s leading fund management groups, with a long history of responsible investment and stewardship. The fund manager was an early adopter of environmental, social and governance (ESG) standards and in recent years has been stepping up its fund offerings in the field of sustainable and impact investment, whereby investors seek outcome-oriented investment strategies designed to tackle global challenges such as climate change, scarce natural resources and rising levels of global inequality.
In 2018 M&G launched a Positive Impact Fund investing in global listed equities, one of an early cohort of funds aimed at democratising impact investing while also preserving the established principles in this investment approach; this followed the launch in 2017 of the M&G Impact Financing Fund one of the first institutional-scale impact funds investing in private and illiquid debt. It is planning further impact-oriented fund launches, tapping into the growing appetite from retail and institutional investors who want their money to have a tangible positive impact on people and the planet.
The UK is in a privileged position at the centre of global finance. With its history of innovation in financial products, its tradition of responsible stewardship and its leadership in green finance, the UK can solidify its reputation as a world leader in sustainability
Being UK-based is helping drive this innovation, according to Ben Constable-Maxwell, Head of Sustainable and Impact Investing at M&G.
“The UK is in a privileged position at the centre of global finance. With its history of innovation in financial products, its tradition of responsible stewardship and its leadership in green finance, the UK can solidify its reputation as a world leader in sustainability” he says. “The delayed COP 26 climate talks in Glasgow put an enormous responsibility on us to turn encouraging commitments into much-needed action.”
Further, in his roles as chair of the Financial Stability Board and Governor of the Bank of England, Mark Carney put the UK at the centre of major changes in global climate policy, setting up a strong platform for future growth in sustainable finance, Constable-Maxwell argues.
At M&G, sustainable and impact investing approaches have been developed across a wide range of asset classes from equities and fixed income through to real estate and infrastructure. The fund manager continues to develop new performance indicators to gauge the impact companies are having on the outside world, Constable-Maxwell explains. So, in the case of a healthcare investment, for example, this could mean looking beyond drug sales towards analysing the positive health outcomes generated for patients by the treatment.
The IMP+ACT Classification System (ICS), a new digital tool which allows fund managers to classify the social and environmental impact of their funds, can help fund managers like M&G clearly communicate differences between their investment approaches, Constable-Maxwell says. M&G has already trialled the platform on its Positive Impact Fund and is looking to roll it out across other funds in its ESG/sustainable fund range and beyond.
“To understand the social and environmental impact of their portfolios, investors need fund managers to use a common language,” he explains. “Fund managers therefore have a crucial role to play in moving this agenda forward. The ICS, which encourages transparency and comparability regarding the impact of different investment products, can improve understanding and ultimately help scale up the impact achieved. It can also help investors segment their portfolios to understand which funds are aligned with their sustainable investment goals.”
The world was already shifting towards sustainable investing and - more gradually - towards an impact mindset. But what has happened recently is that the crisis has shown that these types of investment strategy make sense from a financial point of view as well as from a societal one.
Constable-Maxwell believes the COVID-19 crisis has only accelerated the switch to sustainable investment strategies, not least because funds following these strategies have proven resilient amidst recent market turmoil.
“The world was already shifting towards sustainable investing and - more gradually - towards an impact mindset,” he says. “But what has happened recently is that the crisis has shown that these types of investment strategy make sense from a financial point of view as well as from a societal one. Sustainable investment has proven pretty resilient and performed well during this period, but also over much longer periods.”
Further, the crisis has highlighted the growing importance investors place on social issues such as how companies protect their human capital or interact with local communities during difficult times. These issues will become more important for investors, he says, making platforms such as the ICS an increasingly useful tool for investors.