Liz gives an update on the impact of the Janus Henderson funds following their reassessment by The Big Exchange.
Three of the Janus Henderson funds on The Big Exchange are managed by the sustainable funds team, headed up by Hamish Chamberlayne, whilst the fourth sits with the specialist technology team. The fund managers are supported by a global team of ESG experts.
Janus Henderson is a founding member of the UN Principles for Responsible Investment (PRI) and since 2007 has been a Carbon Neutral business. It has long incorporated ESG (Environmental, Social & Governance) criteria into the investment process, having been one of the first asset managers to launch a sustainable fund in the early 1990s.
A Responsible Investment Policy sets out their approach to ESG issues and voting, whilst an Ethical Oversight Committee meets four times each year to oversee development and implementation of the avoidance criteria. Screening is monitored and checked by Vigeo Eiris, one of the largest independent sustainable research specialists.
Company engagement forms an important part of the process and meetings cover a wide range of topics. Feedback is given to companies and improvements in performance sought where considered necessary. All investments must comply with the United Nations Global Compact (whose 10 principles cover human rights, labour, the environment, and anti-corruption).
Two of the funds are awarded a silver medal and two received a bronze. An outline of their key features is provided below, along with an example of a company that each fund has invested in.
The aim of this fund is to produce long-term capital growth (over 5 years or more), and a growing income, from companies of any size and in any industry worldwide.
Investments will only be made in companies whose products and practices are considered to enhance the environment and society, thereby contributing to a sustainable global economy. The first question the managers ask is whether ‘the world is a better place because of this company’. They also adopt a low carbon approach.
The fund avoids companies that negatively impact the environment or society or conflict with the UN Sustainable Development Goals (SDGs). Exclusions encompass fossil fuels, tobacco, weapons, alcohol, meat and dairy production, fast food and sugary drinks, toxic chemicals, and fur.
The focus is on four environmental and social megatrends (population growth, resource constraints, ageing populations, and climate change). These translate into 10 investment themes including: clean energy, water management, sustainable transport, safety, knowledge & technology, and health.
This is a high-conviction portfolio of around 50 companies with the biggest proportions being in the US (61%), Japan (9%) and Canada (6%). The largest sector weightings are Information Technology, accounting for 35% of the portfolio, Industrials at 17% and Financials at 17%. The fund offers significant exposure to technology innovations providing solutions to the challenges of the modern world yet avoids contentious stocks such as Amazon and Meta (Facebook).1
The fund maps most closely to SDG 9 (Industry, Innovation & Infrastructure), SDG 12 (Responsible Consumption & Production) and SDG 11 (Sustainable Cities & Communities). These represent 15%, 18% and 6% of the portfolio respectively.2
There is evidence of engagement in the fund's Annual Sustainability Report and quarterly ESG (Environmental, Social & Governance) report with the latter providing recent examples of engagement case studies and voting activity. The fund group is involved in several industry collaborative initiatives, including CDP, Climate Action 100+, Access to medicine Index.
Reporting is comprehensive, although somewhat limited in its impact outcomes scope. A quarterly impact report shows alignment to sustainability themes and gives impact theses for companies, though few other metrics are provided. The annual sustainability report is more detailed and includes information on carbon alignment as well as more detailed case studies.
The fund scores 2 out of 3 for both positive influence and transparency and to improve further we would like to see more information on connection to the SDGs, evidence of impact outcomes and monitoring of engagement.2 The application of comprehensive exclusion criteria and ESG research have helped to ensure that at the time of assessment the fund has limited exposure to controversial activities.
We believe the disciplined and proven approach, executed by a highly experienced team, and the impressive level of reporting justifies the high silver medal awarded.
Shimano products are used in cycling, fishing, and rowing and its mission is to ‘promote health and happiness through the enjoyment of nature and the world around us’. Demand for bicycles is growing as an environmentally friendly form of transport and Shimano’s reputation for high quality, reliability, and safety, has helped them become a global presence in the component market. The Shimano Green Plan aims to reduce the environmental impacts of their operations by cutting carbon emissions, preventing air, water, soil and other pollution and responsible waste management. Electricity used in their factories is almost entirely from renewable energy, they have reduced the amount of disposable plastic used, and are tracking water consumption.
This multi asset fund aims to deliver capital growth over the long term (five years or more) from shares and bonds of companies and issuers, across a range of industries. It typically has a significant allocation to the UK as well as exposure to other countries.
The fund is actively managed with reference to its benchmark, the IA Mixed Investment 40-85% Shares sector, which limits the level of exposure it may have to company shares. However, the managers have freedom to vary allocations between different investments within the constraints of the sector.
The managers will only invest in companies which demonstrate responsible behaviour and careful management of ESG (Environmental, Social and Governance) risks. Holdings must be compliant with the UN Global Compact and the managers avoid businesses that could have a negative impact on the development of a sustainable global economy. This includes activities such as fossil fuels that stand to be disrupted by the transition to a low-carbon economy.
Equally, the team seeks companies that should benefit from key sustainability trends such as the energy transition, improving healthcare, and the move to a circular economy. The global shares portion of the fund follows the Global Sustainable Equity Fund’s approach, described above, to identify sustainable businesses which provide solutions to environmental and social challenges. The UK equities (shares) and fixed interest (bonds) portions of the portfolio focus on responsible practices.
This is a very well-diversified fund with around 200 holdings, spread across shares, bonds (loans), cash and other investments. US equities are the largest geographic exposure, at 39% of the portfolio, whilst 36% is in UK equities and 5% in Japanese equities. The main industry exposures are Financials at 14%; Technology at 16% and Industrials at 15%. Fixed Interest holdings account for 22%.1
The fund is notably aligned with SDG 3 (Good Health & Wellbeing), SDG 9 (Industry, Innovation & Infrastructure) and SDG 12 (Responsible Consumption and (Production). These represent 8%, 8% and 6% of the portfolio respectively.2
The quarterly voting and engagement report provides evidence of engagement carried out at a fund level although information is limited in terms of tracking progress or explaining outcomes. Janus Henderson participates in a range of initiatives including Climate Action 100+ and Access to medicine Index etc.
An annual ESG (Environmental, Social & Governance) report is produced for the fund, however, this is limited in scope to some ESG indicators or scores relative to a global financial index and some carbon focused reporting. It is not entirely meaningful in terms of evidencing how the fund is positively contributing to society and the environment. No holdings justifications were provided.
The fund scores 1 out of 3 for positive influence and impact evidence. This could be improved with more systematic monitoring of the progress and outcomes of engagement and stewardship activity along with more detailed stewardship/impact reporting including a full rationale for holdings.
The application of comprehensive exclusion criteria and ESG analysis have ensured that at the time of assessment the fund's level of exposure to controversial activities was relatively modest. Taking all this into consideration, we believe the established process, with rigorous exclusion criteria and a clear focus on positive solutions, warrants a silver medal.
Wabtec provides equipment, systems, digital solutions, and services for the freight and passenger transport rail sectors. Its mission is to make the industry more efficient and sustainable. Expanding freight rail has the potential to significantly lower carbon emissions, reduce road congestion in cities, and make transportation safer. For passenger trains there is scope to boost efficiency and reduce pollutants. As a supplier of essential technology, Wabtec are well placed to play an important role in shaping a clean energy economy. The firm is already transitioning diesel-powered locomotives to battery power and expects to extend its expertise to hydrogen fuel cells, helping lead the rail network to a zero-emission future. The firm has set sustainability targets for 2030 including the eco-efficiency of their products and reductions in GHG emissions and energy intensity.
The aim of this fund is to provide income, with prospects for capital growth, from a portfolio of UK equities (shares in companies). It targets a yield above that of the FTSE All Share index from a well- diversified portfolio of companies.
The fund was launched 25 years ago as an ethical strategy with strict exclusions, notably alcohol, gaming, defence, and tobacco. It has evolved to include companies that are responsibly managed in relation to ESG (environmental, social and governance) factors whilst still avoiding any that could have a significant negative impact on people, the environment, or animals. The fund is low carbon, with no oil, cement, or mining stocks.
This approach differentiates it from many of its peers in the UK Equity Income sector which may have high exposure to mature industries, such as oil and tobacco, where high dividends are commonplace. Instead, the managers aim to focus on sectors with strong cash flows and the potential to grow dividends over time. There is a bias to large and medium-sized UK companies, although the manager has flexibility to invest in smaller companies too.
The fund is diversified across industry sectors in the UK, with the largest exposures being to Financials which represents 28% of the portfolio, Consumer Discretionary 16%, and Industrials 15%.1
The fund maps most closely to SDG 3 (Good Health & Wellbeing), SDG 4 (Quality Education) and SDG 12 (Responsible Consumption & Production). These represent 14%, 8% and 7% of the portfolio respectively.2
There is evidence of stewardship at a fund level in the fund's quarterly voting and engagement reports, in which the managers summarise their ESG related activity, via case studies and/or the rationale for the activity. However, the information is lacking monitoring of progress and achievement of targets. The fund group is involved in several industry collaborative initiatives.
As well the engagement report, an annual ESG Report for the fund shows relative ESG performance over several criteria against its index. This includes several carbon-based metrics to show the fund's carbon footprint, carbon intensity and net zero alignment.
Since engagement is on a selective basis and reporting focuses on the environmental footprint rather than measurable impact, the fund scores 1 out of 3 for both positive influence and transparency. Comprehensive exclusion criteria ensure that the level of exposure to controversial activities is modest, though there is some exposure.
Overall, the process is thorough with a clear intention to identify sustainable business models, integrate ESG factors, and engage with holdings which we feel justifies a bronze medal award. To improve, we would like to see more investment in companies offering solutions to social and environmental challenges, monitoring of the progress of engagements and more detailed sustainability reporting.
Johnson Matthey is a specialist in sustainable technologies. These include automotive catalysts that prevent harmful pollutants entering the atmosphere, catalysts that help turn household waste into sustainable fuels, and recycling processes to recover and reuse scarce precious metals. All are key to the transitions needed in transport, energy, and chemicals, and to create a circular economy. The firm also makes components for hydrogen fuel cells and is developing catalyst coated membranes for green hydrogen (made using renewable energy) which has potential to help heavy, hard-to-decarbonise industries, such as cement, reach their net zero targets. Johnson Matthey is also addressing the environmental impact of its own operations with targets to measure how much their products benefit society, and to increase the use of recycled PGMs (platinum group metals).
This fund aims to deliver long-term capital growth by investing in technology-related companies that contribute to positive environmental or social change, thereby having a positive impact on the development of a sustainable global economy.
The fund is actively managed by an experienced technology team, including a dedicated sustainability research analyst. Lead Fund Manager, Richard Clode, believes that technology has a critical role to play in helping to democratise access to services, reduce inequality and improve quality of life.
The managers seek companies that derive at least half their revenues from the fund’s eight identified sustainable technology themes and align with the UN’s Sustainable Development Goals. They believe a sustainable future requires innovation and disruption in clean energy, transport, health, education, communication, and financial inclusion.
Fossil fuels and other carbon intensive industries are excluded and at least 20% of portfolio holdings must have committed to being carbon neutral by 2030. Investee companies must also demonstrate best in class practices, to ensure a ‘technology for good’ portfolio.
The sustainability objective means the portfolio looks somewhat different to a typical technology fund with less exposure to the well-known mega caps and more to mid and small sized emerging companies which are harnessing technology to provide solutions to the challenges facing the planet.
Given its thematic nature the fund is concentrated, with 45 holdings currently of which the top 10 represent around 36% of the portfolio. The US, renowned as a leader in technological innovation, accounts for 76% of the portfolio, with the Netherlands 5% and Germany and Canada around 4% each.1
At a sector level, clearly all the holdings are technology related but this can be broken down into semiconductors and semiconductor equipment at 26% of the portfolio, software at 23%, and Electronic Equipment, Instruments & Components at 10%.1
The fund is most aligned with SDG 9 (Industry, Innovation, and Infrastructure), SDG 12 (Responsible Consumption & production) and SDG 16 (Peace, Justice & Strong Institutions). These represent 14%, 7% and 6% of the portfolio respectively.2
The fund's managers state that engagement is a key part of their investment process and report on this activity quarterly. This includes a summary of all engagements undertaken over the quarter and evidence of tracking of progress at a fund level via the documented engagement action plans. At a group level, Janus Henderson is involved with several industry collaborative initiatives.
The fund's managers also release a Positive Impact report which shows the portfolio broken down by theme and includes holdings justifications, as well as ESG metrics of the fund versus a financial benchmark. However, it lacks impact outcome reporting and could be enhanced with the addition of more case studies. For these efforts the funds scores 3 out of 3 for Positive Influence and 2 out of 3 for Transparency. Additionally, comprehensive exclusion criteria and an overriding sustainability theme associated with the fund means that, currently, there is no material exposure to any controversies.
However, only c.36% of the fund (versus 54% at the last review) was invested in companies we would classify as offering solutions to social and environmental challenges which is low relative to other funds on The Big Exchange. That said, technology companies often supply other companies which are providing a solution, rather than delivering it themselves, so this is not unsurprising.2
The lower exposure to solutions does, however, mean that the fund is downgraded to a bronze medal, as it no longer meets the 50% threshold for a silver. More investment in companies providing solutions to social and environmental challenges, along with more detailed impact reporting would improve the rating.
TE products power electric vehicles, aircraft, factories, and smart homes as well as enabling life-saving medical care, efficient utility networks, and global communications infrastructure. With higher speeds and greater data capacity, network connectivity becomes possible for many more people. TE innovations support renewable energy projects and electric vehicles that are essential in the transition to cleaner transport. The firm takes seriously its responsibility to customers and communities as well as the future of our planet. In 2021 TE made a commitment to reduce absolute Scope 1 and 2 GHG emissions by more than 40% by 2030; decrease hazardous waste disposed by 15% by 2025; reduce water usage in water stressed regions by 15% by 2025; and reduce hazardous waste generation.3
1 Source: Fund factsheets 30 April 2023
2 Source: TBE assessment January 2023
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