No ordinary world | A Wealth DFM special supplement | June 2021

June 2021

No ordinary world A Wealth DFM special supplement uncovering opportunities within sustainable investing The Power of Clean Energy - Invesco

Sustainable Investment in Multi Asset Mandates - M&G Investments

The Green Bond Revolution - Blackrock

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Issued by Invesco Investment Management Limited, Central Quay, Riverside IV, Sir John Rogerson’s Quay, Dublin 2, Ireland.

CONTENTS

4

Welcome

6

Sustainability within multi asset strategies

12

It’s all about measurement…right?

June 2021 | WealthDFM

Wealth DFM talk to M&G’s Maria Municchi about managing ESG requirements in multi-asset mandates

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May 2021 | WealthDFM

Mike Penrose, Chair of the Investment Committee for Vala Capital’s Sustainable Growth EIS makes a strong case for rethinking the way in which businesses are screened in terms of their ESG and impact credentials

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4 4Better for you, better for the planet 15

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18

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* Projected growth.

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20

The power of clean energy

To learn more To learn about more investing about investing in sustainable in sustainable ETFs, visitETFs, iShares.com/uk visit iShares.com/uk

A Wealth DFM interview with Dr. Chris Mellor CFA, Head of EMEA ETF Equity & Commodity Product Management at Invesco

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24

nerate eek to generate a measurable a measurable ustainable e outcome,outcome, alongsidealongside a a nancial turn. return.

WealthDFM.com

20192024

Five reasons to choose indexing for sustainable investing

5 5 A brief summary from Ishares highlighting what you need to

$220bn $220bn $44bn $44bn $15bn $15bn

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*Source: BlackRock 2020 data from Bloomberg andas Morningstar as *Source: BlackRock with Q1 2020 with data Q1 from Bloomberg and Morningstar of Over May 7, 2020.

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$1,200bn* $1,200bn* $550bn* $550bn*

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Pictet-Nutrition Fund’s Mayssa Al Midani analyses food after Covid

strategy. strategy.

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ing ts you puts in you control in control eatoftype sustainable of sustainable utor want youto want be. to be.

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During last During year’slast market year’s dislocation, market dislocation, a majorityaof majority of sustainable sustainable indices exhibited indices exhibited resilienceresilience relative torelative to broad market broad benchmarks.* market benchmarks.* We believe We that believe this is that this is We believe We that believe indexing that is indexing bringing is clarity bringing to the clarity to the because sustainable because sustainable indices are indices generally are generally comprised comprised sustainable sustainable investinginvesting space by providing space by providing transparency transparencyof companies of companies with higher with profitability higher profitability and lowerand levels lower levels and accelerating and accelerating the adoption the adoption of new market of new market of leverage of than leverage the broader than themarket. broader market. standards. standards.

This is one This of many is onereasons of manywhy reasons we believe why we believeRisk: PastRisk: performance Past performance is not a reliable is not aindicator reliable indicator of of investors investors will choose will tochoose put USD to $1 puttrillion USD $1 into trillion into current or current future or results future and results should and not should be the not sole be the sole sustainable sustainable index assets index in the assets next indecade. the next decade. factor of factor consideration of consideration when selecting when selecting a productaor product or

A multi asset approach to ESG

M&G’s Maria Municchi and Marie-Benedicte Senou discuss some of the challenges in effective ESG integration within multi asset strategies 15

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MKTGM0421E/S-1614361-1/1 MKTGM0421E/S-1614361-1/1

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Full steam ahead for renewable energy infrastructure

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Clean energy is the key to the world’s climate challenge

34

The Green Bond Revolution

AIC’s Annabel Brodie-Smith reminds us that closed-ended companies are no strangers to ESG, impact investing and renewable energy infrastructure

Insight and analysis from Chris Mellor, Head of EMEA Equity and Commodity ETF Product Management, Invesco

An interview with Blackrock’s Cara Milton-Edwards about the growth in popularity of green bonds as an investment vehicle in the ESG space

Designed by: Becky Oliver WealthDFM Magazine is published by IFA Magazine Publications Ltd, Tel: +44 (0) 1173 258328 3 Worcester Terrace, Clifton, Bristol BS8 3JW © 2021. All rights reserved

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3

WealthDFM | June 2021

WELCOME

From the editor

No ordinary world:

uncovering opportunities in sustainable investing

T

he environmental, social and governance-based (ESG) market looks set for yet more dramatic growth this year, as the popularity of this investing approach goes from strength to strength.

Perhaps one of the few positives to emerge from the Covid-19 pandemic is that it has reinforced the importance of sustainability and ESG issues and accelerated the transition to such an investment approach.

Within such an approach, asset managers combine traditional, quantitative analysis techniques around financial risk and return with qualitative and quantitative analysis of ESG policies, performance, practices and impacts. But it’s certainly not “one-size fits all” though. Whether it’s ‘best in class’, impact, sustainability-themed or a host of other titles, asset managers can employ a number of different approaches as to how they incorporate ESG issues into the investment process as part of their wider evaluation of risk and return. For asset allocators and portfolio managers, getting to grips with these differences is not as straightforward as it might first appear.

THE TIME IS NOW According to research by Morningstar, 2020 was an exceptional year for ESG funds. Driven by increased interest in ESG issues, European sustainable funds broke new records in terms of inflows, assets and product development. Their analysis showed that during 2020, sustainable open-ended funds and ETFs available to European investors attracted net inflows of €233 billion.

This was almost double the figure for 2019. In the fourth quarter alone, sustainable funds pulled close to €100

4

billion in net new money, taking 45% of overall European funds flows. That’s an impressive rate of growth in anyone’s book. Morningstar also reported that 505 new sustainable funds came to market.

THE CONVERSATION Of late, tales of fortunes won and lost by retail investors through trading the likes of cryptocurrencies and tech stocks have grabbed the media headlines. In the world of portfolio management and sound, sustainable investment strategies in particular, due diligence and research remain firmly at the core.

But where can asset allocators and investment managers find real value in the rapidly growing ESG market?

It is one of the questions which we’ve asked of various leaders in the UK ESG investment management arena in compiling this Wealth DFM special supplement. Some of our conversations have also been recorded so you can watch them on www.wealthdfm.com as well as reading the detail on the following pages of this supplement.

Investors’ needs are focused on attempts to see through “greenwashing” attempts and to identify the businesses which offer significant growth potential as well as a sound approach to ESG issues. Throughout, it is clear that in the current market conditions, insight and detailed analysis come to the fore more than ever before.

We hope you find our experts’ opinions and insight of interest.

Sue Whitbread Editor, Wealth DFM Magazine

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Real change starts small.

At Vala, we’re investing in the early-stage, innovative companies that will change our future for the better.

Their visionary founders are creating technologies, products and services that will help us all live more sustainably.

And with change comes growth the Vala Sustainable Growth EIS targets substantial returns to investors.

Get in touch to find out more. invest@valacap.com 0203 951 0590 Investing in start-ups and early-stage businesses involves risks, including illiquidity, lack of dividends, loss of investment and dilution. EIS-qualifying investments should be seen as long-term investments. Investments are targeted exclusively at investors who understand the risks of investing in early-stage businesses and can make their own investment decisions. Please note that any investments into the Vala Sustainable Growth EIS Fund can only be made after an investor has received the information memorandum, Key Information Document and completed an application form. Investments made in investee companies via alternative investment funds are not covered by the Financial Services Compensation Scheme (FSCS). Vala Capital Ltd (FCA number 827386) is an appointed representative of Sapphire Capital Partners LLP (565716), which is authorised and regulated by the Financial Conduct Authority.

WealthDFM | June 2021

M&G INVESTMENTS

Sustainability within multi asset strategies

M&G Investments’ Maria Municchi talks to Wealth DFM about balancing sustainability and ESG requirements with the need for financial returns within multi asset portfolios

WEALTH DFM: MARIA, HOW RELIANT ARE YOU ON THIRD PARTIES TO HELP YOU TO MAKE JUDGEMENT ON THE ESG CREDENTIALS OF COMPANIES YOU ARE RESEARCHING? AND HOW MUCH DOES QUALITATIVE WORK COMPLEMENT THIS INITIAL SCREENING PROCESS WITHIN MULTI ASSET STRATEGIES? MM: Over the last few years we have seen an incredible evolution of the third party data available to fund managers. This goes from the governance side to the social and the environmental, which is another area that has seen an incredible amount of growth in terms of data availability and data type.

If you think about all the third party research that is present in the market today, we're definitely seeing a level of consolidation. The way I see it is that we're still seeing some differences across third parties and the way they construct their ESG ratings or scores. This is fine as long as, as fund managers, we understand

6

the methodology and what the difference is across the range of providers.

The benefits of using a third party are that the coverage it gives us is really large. For multi asset investors like us for example, which operate across different asset classes, it can be quite beneficial to have an initial coverage like this which is so broad. It enables us to cover all the different indices, different markets and different asset classes. Then we need to look into the detail of the ESG characteristics, to really look under the bonnet.

First of all, it's key to understand the methodology and how this differs across the range of third parties.

Also when needed, to dive into some of the key issues that these ratings might have identified and try to understand how the companies respond to that.

Sometimes we use these as ideas for engagement with the company to try to find out more about some of the ESG issues that the ratings or scores might have identified.

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M&G INVESTMENTS

Finally, there is an area of our portfolios in particular that is dedicated to positive impact assets. This is an area where we're looking not only to deliver investment returns, but also to achieve some sustainability outcomes being environmental or social.

In this part of the portfolio, our ESG analysis becomes a lot more qualitative.

We would use the third party very much as a starting point here. But then we go into the details of these ratings and scores and using different sources of information to actually validate what the ESG characteristics of these investments actually are. This is because we're not only trying to achieve a financial return, but we're also trying to achieve different sorts of outcome as part of this core part of the portfolio. It tends to represent between 20% and 50% of our overall portfolio of our sustainable multi asset strategies.

WEALTH DFM: AS AN ACTIVE FUND MANAGER, COULD YOU GIVE US SOME EXAMPLES OF HOW AND WHERE YOU ENGAGE WITH CORPORATES WITHIN THE PORTFOLIOS? MM: I believe in engagement and in general, stewardship and active ownership. It's a very important aspect of active management and it’s becoming more and more important for integration of ESG investing.

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June 2021 | WealthDFM

I believe in engagement and in general, stewardship and active ownership The way we approach this is that we will tend to identify some key environmental, social and governance issues that we decide to engage with. In those areas, we talk with the companies more directly to try to identify their way of dealing with some of those issues and challenges. It's almost like a two way process, where we learn from them and they learn from what we would demand, as investors, from them going forward.

Engagement can also take place at different levels.

You can have engagement at the fund level directly or at company level. For example, some businesses we engage with at the fund manager level, but also you can have engagement more broadly at the company level, so as M&G as a whole. Also there can be engagement across different asset managers. So following initiatives like Climate Action 100+, those are types of engagement where asset managers get together and work together to achieve some clear objectives with the companies.

As to some of the companies in our portfolios in particular, I think there are a couple of interesting examples we can talk about here.

7

WealthDFM | June 2021

M&G INVESTMENTS

One is an engagement that has been done at the M&G level, which is with Sainsbury. It has been very much focused on modern slavery and trying to understand how this company deals with the issues around supply chain and the challenges of potentially modern slavery appearing across the supply chain. They've put together a very interesting programme that we want to explore further and that we think could be quite interesting for the industry at large to continue to evolve in monitoring these risks and to move forward on this.

Another example that is more fund specific and relates to what we have in the portfolio regards green bonds.

As part of our sustainable multi asset strategies, we will also consider investing in green bonds as part of our positive impact exposure of the portfolio. Again, it’s an area of the portfolio where we're trying not only to achieve financial returns, but also to get some sustainability outcomes.

For the green bonds in particular, those are obviously environmental in nature. So we will look at things like CO2 emissions reduction, as well as the number of trees planted for reforestation etc. We look at a range of different metrics that are linked to environmental sustainability.

Often with green bonds issuers, we get in touch with the company trying to understand more about what

8

are they using the proceeds for. Normally green bonds are debt that is issued with particular projects in mind.

We like to have as much visibility as possible of their use of proceeds.

Many companies are advanced in the sense that they release annual reports that explain how the proceeds have been used for the specific year. Of course, those have already been set at issuance, but this provides us with the transparency of how these proceeds have actually been used.

One interesting discussion we had recently with the company where we own the Fibria green bond; Fibria is now owned by Suzano papel, the largest pulp and paper company in Latin America. which is an area that is quite challenging. Also, from an environmental perspective, you need to follow really strong and very high level standards. One aspect that the company has been trying to push forward is sustainable forestry. Some of the proceeds of these bonds, for example, are being used to purchase wood that is certified from sustainable forestry. We had some questions around that because we were wondering, how it was contributing to the overall company sustainability, which we think is relatively high and they have some good plans ahead. But they the answers we got were quite interesting. That was because it was talking about how purchasing sustainable forestry wood was also incentivising the supply chain to move in

WealthDFM.com

M&G INVESTMENTS

that direction. Again, it shows how it is so interesting to talk to companies to try and understand more about how ESG is perceived and more in general, how they think about this sustainability strategy and how they can also influence the rest of the industry by doing so.

WEALTH DFM: DO YOU INVEST IN FUNDS OR DO THE FUNDS JUST INVEST DIRECTLY? MM: The majority are direct holdings. We typically invest in single equities, corporate bonds, sovereign bonds, bonds issued by supra-national bodies like development banks. This enables us to have very clear visibility of what we are investing in and some very clear standards in terms of, for example, exclusions.

There are a number of exclusions that we follow.

We won’t invest in companies that are, for example, in breach of the United Nations Global Compact

We won’t invest in companies that are, for example, in breach of the United Nations Global Compact Principles

WealthDFM.com

June 2021 | WealthDFM

Principles. We wouldn’t invest in companies that operate in certain sectors or services, and we require a certain level of standard from a governance and ESG perspective.

Going direct gives us the opportunity to be very granular on this. It also gives us the opportunity to vote at every AGM of the companies that we own in the portfolio. So we can really be active investors and when we feel there is a need for engaging with those companies, we can go directly to them.

There's also been a benefit from a cost perspective, of course, because going direct is more cost efficient than owning a collective instrument like a fund or an ETF. However the key reason why we do it is really about giving us the granularity, the ability to get direct exposure to certain themes, certain areas of the market, while having a full visibility of what it is that we're investing in.

WEALTH DFM: AND FINALLY, SUSTAINABLE INVESTING IS CLEARLY SOMETHING WHICH YOU FEEL VERY STRONGLY ABOUT. WHAT EXCITES YOU MOST ABOUT IT? MM: It’s very interesting how the focus on ESG and sustainability has grown in the last three years, since

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WealthDFM | June 2021

M&G INVESTMENTS

we first launched our first sustainable multi asset strategy. It has been quite surprising to some extent to see the relevance and importance with which this topic has been taken up by the market.

I think there has been an initial approach that has been very much about trying to highlight what the risks are about ESG, what the risks are about not investing sustainably. To me, what is particularly appealing today is to consider what are the opportunities?

If we look more broadly at why are we talking about these issues, why are they relevant today, I think it's clear that we can see a very important transformation that's been taking place at the macro level. We can look at how countries are behaving, how our regulation is changing and even the most recent fiscal and monetary policies are pointing in the direction of transformation and becoming more sustainable.

So with this in mind, I think what will be very exciting from an investment standpoint going forward is really trying to capture some of the opportunities that this transformation will bring. Not all of them will be obvious. I don't think that by having a quick selection of high quality ESG companies, you're guaranteed to win.

around us and in what part of the market. Also what companies that we're looking at can benefit the most from this and can move faster and change better to be able to become more efficient and therefore deliver better returns for the clients as well. It's a very interesting challenge, and one which I believe has some excellent opportunities and prospects ahead.

The views expressed in this document should not be taken as a recommendation, advice or forecast.

When you're deciding how to invest, it's important to remember that the value of investments goes up and down. So how much your investments are worth will fluctuate over time, and you may get back less than the original amount you invested.

For financial advisers only. Not for onward distribution. No other persons should rely on any information contained within. This financial promotion is issued by M&G Securities Limited which is authorised and regulated by the Financial Conduct Authority in the UK and provides ISAs and other investment products. The company’s registered office is 10 Fenchurch Avenue, London EC3M 5AG. Registered in England and Wales. Registered Number 90776.

I think it is much more about trying to understand some of the broader themes that are happening

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Pictet-Nutrition is a compartment of the Luxembourg SICAV Pictet. The latest version of the fund’s prospectus, KIID (Key Investor Information Document), regulations, annual and semi-annual reports are available free of charge on assetmanagement.pictet or at the fund’s management company, Pictet Asset Management (Europe) S.A., 15, avenue J. F. Kennedy, L-1855 Luxembourg. Before making any investment decision, these documents must be read and potential investors are recommended to ascertain if this investment is suitable for them in light of their financial knowledge and experience, investment goals and financial situation, or to obtain specific advice from an industry professional. Any investment incurs risks, including the risk of capital loss. All risk factors are detailed in the prospectus. The information and data presented in this document are not to be considered as an offer or solicitation to buy, sell or subscribe to any securities or financial instruments or services.

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WealthDFM | June 2021

VALA CAPITAL

It’s all about measurement...right?

Mike Penrose, Chair of the Investment Committee for Vala Capital’s Sustainable Growth EIS makes a strong case for rethinking the way in which businesses are screened in terms of their ESG and impact credentials

T

here is an old business adage that ‘you treasure what you measure’, and with sustainability and ESG measurements, there are certainly no shortages of metrics and measurements out there to choose from.

Having your own proprietary set of ESG indicators has become de rigeur for many major investment firms.

This is partly because being perceived as being on the right side of the sustainability debate is now an absolute necessity, but also, and definitely more importantly, because the money trickling down through the system from the big investment firms and pension funds are now conditional upon it.

From the pressure coming from initiatives such as Task force on Climate-related Financial Disclosures (TCFD), to the now (in)famous letter written by Larry Fink at the beginning of the year, the ability to quantify the impact your investments have on the climate, the

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environment, and on society are now an expectation, and no longer an exception.

MEASURING SUSTAINABILITY Unfortunately, when it comes to measuring sustainability, nearly all the indices and methods of measurement out there tend to fall into one of two camps, neither of which we think really hits the mark.

Now forgive me for sounding a little obtuse, but surely ‘not actively being bad’ should not be an aspirational goal for most companies

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VALA CAPITAL

The first is the standard ESG negative screening systems used by many more conventional firms and intelligence indices. These effectively measure data that can be scraped or easily requested, and make sure that organisations have the policies and procedures in place to ensure they are not actively or intentionally causing harm.

Now forgive me for sounding a little obtuse, but surely ‘not actively being bad’ should not be an aspirational goal for most companies. In fact, given what we know today, it should probably be the minimum price of entry for doing business in the modern world.

GOOD – OR JUST NOT BEING BAD? Many companies today promote themselves as being good, using high ESG ratings on major index providers as evidence, when in truth they are just ‘not being bad’, and the only evidence they have to back up this claim are policies that attest to this, to the best of their knowledge, as long as you don’t look too far down the supply chain.

This is what led to the Boohoo scandal last year, where just prior to The Sunday Times expose on poor labour standards and below minimum wage compensation, the fast-fashion retailer was given an AA ESG rating by MSCI and had over 20 ESG and Ethical funds as investors.

Now I have no doubt that Boohoo probably had all the right policies in place. The problem was there was a gap between policy and practice, which is not picked up by negative screening. And because there are no consistent, and more importantly auditable standards available as to what makes a business ‘good’, companies can pretty much declare that policies exist, and unless they get caught out in the way BooHoo did on labour practices, and Volkswagen did on emissions,

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June 2021 | WealthDFM

then having a binder full of ethical policies can pretty much guarantee you a high ESG score with many major measurement providers.

At the moment this approach values what is easy to measure, it doesn’t measure what we all value.

A ‘GOLD STANDARD’ BADGE? The other ESG camp that exists is one that is both incredibly worthy and rather elitist or, dare I say, cultish. Born from worthy conversations amongst the already rich and successful in Davos and at events that surround the circus that is the UN General Assembly, there are ways of getting a ‘gold standard’ badge that proves you are indeed a good company.

The problem is that to get these stamps of approval, you must spend tens of thousands of pounds, and take years collecting extremely detailed and academically focussed data. There is no doubt that this approach is highly effective at evidencing that a company is ‘good’, the problem is that it is accessible only to an elite few who were arguably already on a path to being sustainable from their outset. It is more of a form of validation for the very best (who can afford it) than an incentivised journey that is accessible to all who have the right intentions.

These badges of honour are beyond the price range and capacity of the majority of small to medium-sized enterprises, who might have the intention of being not just ‘not bad’, but to do the maximum they can within the confines of their industry and business model.

A NEW PARADIGM If, however, everyone was incentivised to do what they can, with what they have, and ensured that a quantifiable

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WealthDFM | June 2021

VALA CAPITAL

and measurable sense of purpose, as well as profit, was built into their business model from the very outset, then the scale of change that is achievable would inevitably aggregate to create the type of economy we need to see if we are to truly address the social, environmental and climate challenges we know we all face.

Democratising sustainability must be the next investment catalyst if as investors we are truly serious about creating meaningful change and reaching the 2030 Global Goals.

It shouldn’t be about an elite few feeling worthy, and the rest trying to prove they are just ‘not bad’. It should be a democratised, affordable, and accessible process that is available to all, from the largest multinationals to the smallest start-ups. And it can be if a few simple conditions are met.

The first is that we agree on a common set of indicators that measure intent and purpose in the early stages of a business, followed by outcomes as they scale. We all know how important a company’s culture can be and trying to change that once scale has been achieved is incredibly tricky. It is far better to ensure that the intent to make the right decisions and implement the right practices is established from the outset, than get a team of very expensive ‘experts’ to come in once business practices have been established to tell you how they can be improved or, worse, undone.

The second is that the practices that are measured are based on ease of application and not academic rigour.

The classic example for us is the question in one goldstandard certification scheme that asks if you “know the carbon footprint of the food served in your canteen or

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to your clients or employees”. As opposed to checking and measuring if the company is taking the simple steps of ‘Local and Seasonal Sourcing’ and reducing the quantity but increasing the quality of the high carbon foods such as red meat that it serves.

Particularly for small companies, we think helping them develop sustainable practices is far more important than imposing unduly burdensome measurements and processes.

Lastly, investors, particularly early-stage investors should make easy and applicable sustainability indicators not only a part of how they decide on which investments to make, but part of how they measure performance over the investment period, from seed to Series A, through to exit. If every VC and PE firm made participation in a programme that allowed even the smallest firms to set out with the right intent, and measure their progress as they scale, the net end-result would be enormous, and we would reach that anticipated sustainability tipping point far quicker than is currently predicted.

Democratising sustainability must be the next investment catalyst if as investors we are truly serious about creating meaningful change and reaching the 2030 Global Goals. As the current dichotomy of near meaningless negative screening versus worthy but unobtainable certification is just not working.

ABOUT MIKE PENROSE Mike is the co-founder of leading sustainability consulting firm, The Sustainability Group, and is Chair of the Investment Committee for Vala Capital’s Sustainable Growth EIS. He was an adviser on the development of the UN’s 17 Sustainable Development Goals and formerly the Executive Director at UNICEF UK.

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PICTET ASSET MANAGEMENT

June 2021 | WealthDFM

Better for you, better for the planet –

food after Covid Covid-19 has disrupted the food’s sector’s supply chains and is set to change consumer eating habits for good says Mayssa Al Midani, CIIA, Senior Investment Manager of the Pictet-Nutrition fund

S

pending an entire day in the fresh air and sunshine, having the freedom to roam in outdoor space of some 108 square feet, and being able to feast on delicious wildflowers in open pastures untouched by pesticides or herbicides. This is the leisurely daily routine that the “girls” – or hens – at Texas-based food company Vital Farms enjoy in return for producing their highly prized eggs. It's a scene you'd expect to come across in a small organic farm, the sort run by a family committed to ethical

The food industry now has to cater to the needs of a more demanding customer base - one that cares less about convenience and more about the nutritional and ethical aspects of what it buys and eats

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production. Vital Farms certainly started out that way.

But it is now going big. So big in fact that, last year, the ethical food company secured a valuation of USD1.3 billion in one of the sector's most-anticipated initial public offerings.

The food industry will soon be full of companies like Vital.

That's because the firm's success owes much to some powerful trends unleashed by Covid-19. Two stand out. First, food producers are having to re-configure their supply chains after the pandemic disrupted global trade. It's an environment where complex international sourcing and distribution networks are under pressure and under scrutiny.

Second, the food industry now has to cater to the needs of a more demanding customer base - one that cares less about convenience and more about the nutritional and ethical aspects of what it buys and eats.

In a few years, the food industry could look very different, according to members of the Nutrition Strategy Advisory Board. It might consist almost

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WealthDFM | June 2021

PICTET ASSET MANAGEMENT

entirely of companies that possess only the strongest social and environmental credentials.

COVID: SHAKEN AND STIRRED The pandemic has unleashed turmoil across a wide range of industries. Food suffered more than most.

Lockdowns and border closures disrupted the distribution of agricultural products and also led to severe labour shortages at food processing facilities.

At the same time, Covid-19 triggered a change in consumer behaviour.

the US for example, more than 80 beef and pork packing plants in the US reported virus outbreaks between April and June 2020. By mid-May, meat production fell 40 per cent below 2019 levels.3 But keeping facilities safe and virus free isn't the industry's only problem. The pandemic also brought into relief the health and environmental costs associated with meat consumption and production.

Studies have shown a strong link between obesity and Covid.4 At the same time, consumers have been reminded of meat's outsized environmental footprint. Livestock farming is responsible for 15 per cent of greenhouse gas emissions and accounts for some 29 per cent of the world’s freshwater use.5 It is for these reasons that Pictet Asset Management’s Advisory Board members expect meat consumption to fall and healthier alternative meats and plant-based diets to become more popular.

Alternative meat producers such as Beyond Meat and Impossible Food have already raised hundreds of millions of dollars in funding in recent years. Their expansion has also seen them seal agreements with major supermarkets and fast food chains to sell their high-margin products. To our Advisory Board members, this represents only one aspect of the meat revolution.

A survey by consultancy Accenture conducted during the pandemic found that consumers increasingly prioritised health and sustainability when deciding what to buy.1 In the UK alone, sales of ethical food and drink are forecast to rise by 17 per cent to GBP9.6 billion by 2023, having already grown more than 40 per cent in the five years to 2018.2 In response, the food industry is investing heavily in a wide range of high-tech solutions. Many of which are geared to strengthening supply chains, raising production standards and reducing food waste.

It is perhaps in the meat industry where the pandemicinduced transformation is particularly acute.

Slaughterhouses and meat-processing plants found themselves in the frontline of the Covid battle after cluster of virus cases emerged in facilities worldwide. In

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INTERNET OF FOOD THINGS Another is increased automation. Compared to other parts of the food industry, meat production is very labour intensive. This became a vulnerability during the virus outbreak as plants struggled to remain operational with severely depleted workforces. Many producers now see technology as means to improve their resilience.

The same is true for industries beyond meat. Greater use of automated systems would not only ensure food security and quality, however. It brings the added benefit of more efficient resource use. According to our Advisory Board, the production lines of the future will be built on sensor networks, the Internet of Things

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PICTET ASSET MANAGEMENT

and blockchain technology. Other points in the supply chain are also set to make greater use of technology, particularly logistics and distribution.

The public health crisis has also trained a spotlight on food hygiene standards. Unsettled by the rapid spread of the virus, consumers have understandably become concerned at the possibility of food being a transmitter of disease. Technology can help assuage such fears, our Advisory Board members say. The food industry is home to a growing number of specialist companies developing advanced food testing and diagnostics services. Our advisors expect food producers to invest more heavily in sustainable grocery packaging that has antibacterial properties, and make greater use plastic alternatives or other innovative technologies such as QR codes.

Interestingly, these products not only improve food safety and reduce the risk of contamination, they are also good for the environment as they can help reduce waste.

Waste is one of the food industry's biggest problems.

Europe alone wastes an eye-watering 20 per cent of all produced food, worth some EUR143 billion a year.6

TASTE OF THE FUTURE Faced with a growing world population and climate change, the food industry was already under severe strain even before Covid-19 struck. Looking ahead however, the pandemic could help revitalise it. If food producers and distributors move quickly to deploy advanced technology and innovation to meet growing consumer appetite for food that is healthier and more sustainable, the industry will be fit to meet the demands of the 21st century.

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June 2021 | WealthDFM

THE PICTET-NUTRITION FUND: INVESTING IN THE FUTURE OF FOOD •

The Pictet-Nutrition fund directs capital to companies which improve sustainability, access, and quality of food necessary for health and growth. The fund invests across the entire food chain, from farm to fork.

•

Long-term growth potential: both governments and consumers are demanding higher quality food and improved diets.

Therefore, companies enabling better nutrition should benefit from growth.

•

Responsible and sustainable approach: companies that provide solutions to increase output with minimal resource use and waste (i.e. lower environmental impact) will be crucial in the shift toward a more sustainable food system.

•

A diverse and resilient opportunity set: across several sectors and geographies with different characteristics; supported by strong long-term secular growth tailwinds.

[1] Accenture COVID-19 Consumer Research, conducted March 19–25 and April 2–6, 2020 [2] Includes organic, Fairtrade, Rainforest Alliance and Marine Stewardship Council (MSC) certified product. https://www.mintel. com/press-centre/food-and-drink/eating-with-a-conscienceethical-food-and-drink-sales-hit-8-2-billion-in-2018 [3] COVID-19 Disruptions in the US Meat Supply Chain, Federal Reserve Bank of Kansas City [4] Popkin, BM, Du, S, Green, WD, et al. Individuals with obesity and COVID‐19: A global perspective on the epidemiology and biological relationships. Obesity Reviews. 2020; 21:e13128. https://doi.org/10.1111/ obr.13128 [5] UN Food and Agriculture Organization [6] European Commission This marketing material is issued by Pictet Asset Management (Europe) S.A. The value and income of any of the securities or financial instruments may fall as well as rise and, as a consequence, investors may receive back less than originally invested. Only the latest version of the fund’s prospectus, KIID (Key Investor Information Document), regulations, annual and semi-annual reports may be relied upon as the basis for investment decisions. These documents are available on assetmanagement.pictet or at Pictet Asset Management (Europe) S.A., 15, avenue J. F. Kennedy, L-1855 Luxembourg.

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WealthDFM | June 2021

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FIVE REASONS TO CHOOSE INDEXING FOR SUSTAINABLE INVESTING Capital at risk. This information should not be relied upon as investment advice, or a recommendation regarding any products or strategies. The environmental, social and governance (“ESG”) considerations discussed herein may affect an investment team’s decision to invest in certain companies or industries from time to time. Results may differ from portfolios that do not apply similar ESG considerations to their investment process.

Here are the five reasons why we believe sustainable indexing gives investors the clarity they need to build more sustainable portfolios.

1

Sustainable indexing can help provide a consistent approach across a portfolio.

As investors transition to sustainable investing, an indexing approach may help to ensure that sustainability is expressed in a consistent way across the entire portfolio. Indices are inherently rules-based, so the screens and ESG integration they deploy are repeatable, regardless of asset class or exposure.

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2

Indexing puts you in control of what type of sustainable investor you want to be.

Sustainable investing is not one size fits all, and means different things to different investors. The broad range of indices available and the transparency they offer allow you to pick the approach that’s appropriate for your portfolio.

Ways to align investment goals with iShares sustainable strategies

Screened

Funds that seek to track indices that eliminate exposure to certain business areas.

ESG Broad

Funds with an explicit ESG objective, which may include a targeted quantifiable ESG outcome.

ESG Thematic

Focus on a particular Environmental, Social, or Governance theme.

Impact

Seek to generate a measurable sustainable outcome, alongside a financial return.

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3

Sustainable indexing drives industry standardisation, promotes disclosure and can help motivate better corporate behavior.

We believe that indexing is bringing clarity to the sustainable investing space by providing transparency and accelerating the adoption of new market standards. This is one of many reasons why we believe investors will choose to put USD $1 trillion into sustainable index assets in the next decade.

Past and predicted growth of sustainable index assets (2009 - 2029) ETF

Risk: Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy. *Source: BlackRock with Q1 2020 data from Bloomberg and Morningstar as of May 7, 2020. Over 90% of sustainable indices outperformed their parent benchmark during this period of heightened market uncertainty and drawdown.

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$550bn*

Index fund asset managers with active investment stewardship seek to drive long-term change.

$220bn $44bn $15bn

2014

During last year’s market dislocation, a majority of sustainable indices exhibited resilience relative to broad market benchmarks.* We believe that this is because sustainable indices are generally comprised of companies with higher profitability and lower levels of leverage than the broader market.

$1,200bn*

INDEX MF

2009

4

Sustainable indices have shown resilience in difficult times.

2019

2024

2029

* Projected growth. BlackRock projection, April 2020, based on Morningstar data as of March 2020.

Subject to change. The figures are for illustrative purposes only and there is no guarantee the projections will come to pass.

Indexing amplifies the impact of company engagements because index investors typically take a long-term view. Those who are sustainability-minded can exercise influence with companies through engagements across environmental, social and governance topics.

To learn more about investing in sustainable ETFs, visit iShares.com/uk

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy. Until 31 December 2020, issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL, Tel: + 44 (0)20 7743 3000. Registered in England and Wales No. 02020394. For your protection, telephone calls are usually recorded. Please refer to the Financial Conduct Authority website for a list of authorised activities conducted by BlackRock. From 1 January 2021, in the event the United Kingdom and the European Union do not enter into an arrangement which permits United Kingdom firms to offer and provide financial services into the European Economic Area, the issuer of this material is: (i) BlackRock Investment Management (UK) Limited for all outside of the European Economic Area; and (ii) BlackRock B.V. (Netherlands) for all in the European Economic Area. BlackRock (Netherlands) B.V. is authorised and regulated by the Netherlands Authority for the Financial Markets. Registered office: Amstelplein 1, 1096 HA, Amsterdam, Tel: 020 – 549 5200, Tel: 31-20-549-5200. Trade Register No. 17068311. For your protection, telephone calls are usually recorded. © 2021 BlackRock, Inc. All Rights Reserved. 1614361

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MKTGM0421E/S-1614361-1/1

INVESCO

WealthDFM | June 2021

The power of

clean energy A Wealth DFM interview with Dr. Chris Mellor CFA, Head of EMEA ETF Equity & Commodity Product Management at Invesco

WEALTH DFM: CHRIS, COULD YOU START BY EXPLAINING HOW INVESCO APPROACHES ESG

WEALTH DFM: HOW ARE INVESTORS APPROACHING ESG WITHIN THE ETF SPACE?

CHRIS MELLOR: Invesco has a very long history of

CHRIS MELLOR: When you look at ESG

responsible investing. Some of our investment teams started running the first sustainable mandates back in the 1980s. That’s almost 40 years of history. We take a serious approach to this, as you expect from a large investment manager like ourselves with a significant ESG team of specialists, as well as a clear proxy voting and engagement programme.

Invesco is a $1.4TN asset manager with around about a quarter of our assets passively managed in both exchange traded funds (ETFs) and index portfolios. The engagement policy and the proxy voting policy applies to those passive portfolios just as it does to actively managed portfolios.

In this respect, you could say that you get the best of both worlds with Invesco. A client’s portfolio may be invested in passively managed ETFs, for example, that part of the business that I work in. However, we're benefiting from the broader reach of the Invesco analyst teams for engagement and assessment that come with being part of a larger asset management business.

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developments in ETFs, it is the strongest growing area of the ETF market. Recently it has seen in excess of $40BN of net new assets, which makes up around about half of all EMEA ETF flows this year.

If we look back to last year, about 40% percent of all new inflows into ETFs in Europe went into ESG. And where we are today is around about $150 billion of assets under management, which makes up around about 10% of the total assets in the European domiciled ETF space.

To put that into context by looking at the scale of growth, that's up from only about 4% of ETF assets at the end of 2019. It’s been incredible growth.

In terms of the growth in ESG ETFs there's a wide range of investment options. The number of ESG ETFs has risen from less than 100 only a couple of years ago to 250 or more today. If we look at the development process, the earliest ESG ETFs were very much dark green, very specifically focussed SRI-type of ETF. They had very broad exclusions based on ethical grounds, as well as

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INVESCO

excluding stocks or selecting stocks with very tight parameters based on ESG scoring or ESG performance.

When we look at the market today, that is evolving.

Today, less than half of all ESG ETF assets are actually in those darker green strategies. The growth is happening not only in dark green, but also in the lighter green ESG approaches. An example of this is the Invesco World ESG Universal Screened ETF range that we've launched over the last few years, which has been designed as a core beta replacement strategy.

They apply key ESG exclusions on an ethical basis and they also weight towards the stocks with better ESG credentials. They're not excluding nearly as much of the starting universe. The result of this is a meaningful improvement in the ESG scores but also a meaningful reduction in important areas such as carbon intensity.

At the same time, with much lower tracking overseas, the standard on non EU benchmarks than you'd get with the sort of darker green approach, we've certainly seen a lot of appetite for that sort of investment from newer investors in the space.

The other area is that much more recently, we've seen a significant number of launches in the more climate conscious ETFs. This includes both specific thematic ESG products, like the clean energy, but also things like the broader Paris-aligned benchmark products, which we could describe as the next step in ESG. They still give broad market exposure, but are selecting stocks based on their commitments to reducing carbon emissions in order to meet the Paris-aligned goals of zero carbon emissions by 2050.

WEALTH DFM: CAN YOU TELL US MORE ABOUT CLEAN ENERGY AS AN AREA WITHIN ESG? CHRIS MELLOR: It is a fascinating area. Clean energy is at the forefront of the fight against climate change. We've seen a lot of headlines recently in terms

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June 2021 | WealthDFM

of government commitments on climate activity and driving decarbonisation. There was the recent virtual summit led by the US that saw a number of countries, including the U.K., coming out and tightening up their emissions reduction targets and committing to greater investment to meet those emissions reduction targets.

Perhaps we should just clarify the scale of reductions we're talking about in order to meet the Paris aligned expectations of limiting global warming to only one and a half degrees, you're talking about halving emissions relative to the starting reference dates by 2030.That's becoming a much closer target to achieve. Then there’s moving to net zero by 2050. The key thing here is that technology is going to be the key to solving that climate conundrum.

When people think about clean energy, the first thing most people would think about is renewables, like wind, solar, hydroelectric, geothermal, those kind of power sources. And obviously, those are a key part of the solution. But there are other parts of the technological equation that are required to meet those climate reduction or climate improvement goals, such as efficient energy transfer and storage. Indeed, much of the focus is on generating, storing and using energy from renewable sources but also reducing the amount that we waste in terms of energy losses as part of the system is also equally important.

WEALTH DFM: WITH CLEAN ENERGY, HOW CAN INVESTORS GET EXPOSURE TO THIS AS AN ASSET CLASS WITHIN THE INVESTMENT SPECTRUM? WHAT ARE THE WAYS TO DO THAT? CHRIS MELLOR: There are a number of different approaches to this but most of them boil down to finding and identifying stocks that offer significant exposure to the clean energy space. There were nuances between the different approaches out there.

The approach that we've taken at Invesco with the ETF

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INVESCO

WealthDFM | June 2021

WEALTH DFM: WHAT HAS THE PERFORMANCE FROM AN INVESTMENT PERSPECTIVE BEEN LIKE OVER THE LAST FEW YEARS?

It’s that very often some of the largest investors in clean energy may also be some of the largest polluters today that we launched this year is to track or to aim to track the original global clean energy index. It’s an index launched by a company called Wilder Hill who are the sponsor of the index we're tracking. This index is designed to identify stocks that offer the best exposure not only to the renewable portion of the energy sector that we're talking about, but also to those other key technologies like energy transfer, energy storage, improvements in efficiency etc.

As an investor, another key thing to focus on is understanding how meaningful the exposure is to these themes. There is a risk that if you end up with too many large utilities with not enough exposure to clean energy, you're perhaps not doing the job you're looking to do in terms of getting that exposure. The approach that Wilder Hill take in index construction is only to include selected stocks that have meaningful exposure to those themes whilst also at the same time minimising exposure to fossil fuels. So there is still a conundrum, a difficulty here. It’s that very often some of the largest investors in clean energy may also be some of the largest polluters today. The key for the Global Energy Innovation Index that we're tracking is to avoid those traps and to make sure that we’re getting much more of a pure play exposure to the clean energy theme.

CHRIS MELLOR: As ever, the caveat is past performance isn't a great guide, but it is an interesting illustration. So if we look at the very sort of short term picture, last year, 2020, we saw very strong outperformance. The index that we're tracking was up almost 150% over 2020, compared to just slightly north of 15% for the broader equity market index.

However, it has been followed by a correction more recently. From the start of this year, performance is down almost 25%. So, you could say, it’s been a very big up and a pretty sharp down. The Covid pandemic has focused attention on some of the key questions that we're asking about the world around us. It’s focused attention on ESG and climate change. I think there was probably a degree of excess and exuberance in the 2020 performance. And the correction this year probably helps to improve the long term outlook for an investor in the space.

Again, if we look over the very long term, the index that we're tracking has performed, broadly speaking, in line with the global equity market. However, within that, there have been some periods of significant outperformance, as there was last year, but also some periods of prolonged underperformance as well. The two key bouts of outperformance, were, last year, but also if you wind the clock back to the late noughties prior to the financial crisis period, we again saw a boost of demand for clean energy solutions.

DISCRETE PERFORMANCE APR '20 - APR '19 - APR '18 - APR '17 - APR '16 - DEC '19 - DEC '17 APR '21

APR '20

APR '19

APR '18

APR '17

DEC '20

DEC '20

WILDERHILL NEW ENERGY GLOBAL INNOVATION INDEX USD NET TR

129.29%

9.85%

-1.85%

14.51%

4.97%

144.16% 173.52%

MSCI WORLD NET TOTAL RETURN USD INDEX

45.33%

-4.00%

6.48%

13.22%

14.65%

15.90%

35.08%

Past performance (actual or simulated) is not a guide to future returns. Source: Bloomberg, Invesco.

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INVESCO

June 2021 | WealthDFM

The difference between now and then is that the demand and the growth of interest in clean energy then was driven very much by a degree of policy diktat. There were significant subsidies of the clean energy space and governments pushing to try to drive the growth in things like solar, wind etc., despite the fact that they were much more expensive than other more carbon intensive energy solutions.

the largest investment in solar panel and solar use is in China and a lot of the providers in that solar space are based in China. A globally invested index or globally invested portfolio is definitely the way to go here. There are a number of products out there that offer perhaps a more US bias, but our approach is to offer that global exposure because the opportunities exist in markets across the world.

The difference this time is that over the last decade or so, the price of solar and of wind energy production has fallen dramatically. We're in a position today where solar arrays being built are the cheapest form of energy available, cheaper than any other new build carbon intensive solution. So we're not talking about subsidy anymore. We're talking about a real economic justification for these technologies to be deployed.

To find out more visit www.invesco.com/uk/en/esg/etf.html

Over the last decade or so, the price of solar and of wind energy production has fallen dramatically And when you couple that with, the strong push from governments and the requirement for significant investments in clean technology in order to reach our climate goals, you're not talking about a multiyear growth story for clean energy. It's actually a multi-decade secular theme that you're talking about.

So perhaps the ups and downs of the short term performance will pale into insignificance versus that longer term story..

WEALTH DFM: FINALLY, ARE THE MARKET LEADERS IN THE CLEAN ENERGY SPACE CONCENTRATED IN A PARTICULAR AREA OF THE WORLD OR ARE THEY FAIRLY WELL SPREAD GEOGRAPHICALLY? CHRIS MELLOR: In terms of companies, it's actually a pretty broad global spread. If you think about the development of the clean energy story, if we take solar, for example, the first solar panel was happening in places like Japan with an expansion to places like Germany and then to other developed markets. Now,

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Investment risks The value of investments, and any income from them, will fluctuate. This may partly be the result of changes in exchange rates. Investors may not get back the full amount invested.

Investments into the clean energy sector are considerably exposed to investment trends focused on environmental factors and may have sensitivities towards ESG related government regulations and tax implications.

Important Information This interview contains information that is for discussion purposes only, and is intended only for professional investors in the UK. This interview is marketing material and is not intended as a recommendation to buy or sell any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/ investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication.

Where individuals or the business have expressed opinions, they are based on current market conditions, they may differ from those of other investment professionals and are subject to change without notice.

Invesco Investment Management Limited, Central Quay, Riverside IV, Sir John Rogerson’s Quay, Dublin 2, Ireland.

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M&G INVESTMENTS

WealthDFM | June 2021

A multi asset approach to

ESG integration M&G Investments’ Maria Municchi and Marie-Benedicte Senou highlight how ESG integration can become more complex when combining asset allocation and investment decisions in multi asset strategies

SIGNIFICANT GROWTH OF ESG INTEGRATED STRATEGIES Over the course of only a few years, economic, social and governance (ESG) integration has become a mainstream feature of investment funds. Together with regulatory requirements, the availability of ESG-relevant data and clients’ demands have driven a shift towards the inclusion of financially material ESG parameters across many investment strategies.

UNPRI signatories by AUM, 2006-2020

At the same time, broad standards of ESG integration approaches have been identified, especially for equity and corporate bond investing. However, when it comes to combining top-down and bottom-up investment decisions, as well as assessing a variety of asset classes within the same strategy, such as in multi asset strategies, ESG integration can become more complex.

The broad set of investment decisions found in multi asset strategies have a variety of ESG integration implications: •

Strategic and tactical asset allocation decisions: ESG factors can be financially material to asset allocation decisions, but the time horizon over which they are relevant may vary.

•

Top-down and bottom-up investment decisions: ESG factors can be financially material across asset classes both at the aggregate and the single stock level, but the way this is assessed may vary.

Source: UNPRI

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M&G INVESTMENTS

The broad set of investment decisions found in multi asset strategies have a variety of ESG integration implications: A VIEW FROM THE TOP ON ESG FACTORS As multi asset investors, our aim is to allocate capital across asset classes according to their risk and return characteristics, while considering the current macroeconomic trends. Economic activity, demographics, monetary and fiscal policies are some of the key determinants of the macroeconomic background we operate in. However, ESG factors also have an important role to play; these can alter economic beliefs and shape the risk and return characteristics of the investments we make. Therefore, when assessing the asset classes we invest in, we believe it is important to incorporate the different levels of ESG risks and opportunities that characterise them.

June 2021 | WealthDFM

Today, we observe how the current economic and social environment is being increasingly impacted by sustainability trends (climate change risk and mitigation being one aspect of it), making ESG factors ever more relevant.

ESG INTEGRATION WITHIN THE INVESTMENT PROCESS ESG integration needs to be ‘explicit and systematic’ and therefore embedded within the investment process.

ESG factors remain relevant throughout the four-step investment process – from the asset allocation, to the portfolio construction, the implementation phase and overall portfolio analysis.

Asset Allocation: We consider financially material ESG factors alongside other investment criteria at the asset class level. For example, when investing in emerging market sovereigns we take into account the fact that ESG risk might be higher than developed market sovereigns. This, together with other investment criteria, might lead to higher volatility but also higher expected return.

Real yield vs ESG score of asset classes

Source: M&G Multi Asset, ESG score is the MSCI ESG adjusted ESG score. Real yield is defined as an inverted p/e ratio, using forward consensus data. The above data is a hypothetical representation for illustrative purposes only and is not representative of any M&G product or strategy.

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WealthDFM | June 2021

M&G INVESTMENTS

Source: M&G

ESG integration needs to be ‘explicit and systematic’ and therefore embedded within the investment process

Implementation: When implementing our asset allocation views we include ESG factors alongside other investment criteria. Interestingly, as the availability of ESG integrated indexes and relative instruments (ETFs) is growing this should enable us to implement our views via ESG integrated collective or derivative instruments in the future.

Portfolio construction: When constructing our portfolios we aim to assess and manage specific financially material ESG risks. For example we would observe the overall ESG score of the portfolios as well as identify areas of the portfolio with particularly high ESG risks.

Multi asset portfolio breakdown by asset classes and ESG score

Source: M&G

Source: M&G Multi Asset, MSCI ESG adjusted score (0 to 10)

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Portfolio analysis: We aim to identify and monitor ESG risks and opportunities at the overall portfolio level. For example, a number of our funds invest in renewable energy infrastructure, which can be a

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M&G INVESTMENTS

June 2021 | WealthDFM

ESG characteristics of sample US equities

Source: MSCI

reliable source of income. We also aim to identify opportunities for active ownership and engagement on climate and diversity related issues.

AN EVOLUTIONARY APPROACH Integrating ESG within our investment approach enables us to capture risks and opportunities that are linked to environmental, social and governance factors. However, we do not see this as a ‘revolution’ for our established investment strategy but rather an ‘evolution’. As the macroeconomic background continue to change, the availability of ESG data and our ability to analyse and integrate it across the investment process should enable us to make better investment decisions.

M&G does not offer investment advice or make recommendations regarding investments. Opinions are subject to change without notice. Reference in this document to individual companies is included solely for the purpose of illustration and should not be construed as a recommendation to buy or sell the same.

For financial advisers only. Not for onward distribution. No other persons should rely on any information contained within. This financial promotion is issued by M&G Securities Limited which is authorised and regulated by the Financial Conduct Authority in the UK and provides ISAs and other investment products. The company’s registered office is 10 Fenchurch Avenue, London EC3M 5AG. Registered in England and Wales. Registered Number 90776.

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ABOUT MARIA MUNICCHI Maria Municchi is fund manager on several of M&G’s Multi Asset Sustainable Investment strategies. Maria has been part of the Multi Asset fund management team since January 2017, having initially joined M&G in 2009 as an investment specialist to the Multi Asset and Convertibles teams. Before M&G, Maria worked at Barings and UBS Asset Management. She has an MSc in international management and finance, is a CFA charterholder, and has successfully completed the University of Cambridge Institute of Sustainability Leadership programme in Business Sustainability Management.

ABOUT MARIE-BENEDICTE SENOU Marie-Benedicte Senou is an Investment Solutions Director. She is responsible for M&G’s efforts to deliver outcome oriented strategies, client specific mandates and flexible investment partnerships. Marie joined M&G in 2020. Prior to this, she spent over 12 years at State Street Global Advisors as a Senior Multi-Asset Investment Manager and a Principal, where she was responsible for managing strategic, tactical allocations, as well as overlay and hedging investment strategies. Before that, Marie spent 4 years at HSBC and Société Générale in various investment roles . Marie earned a Master in International Economics from the University Paris IX Dauphine. She also holds two Post-graduate diplomas in Finance and Economics awarded from the University Paris IX Dauphine and Science-Po Paris. Marie is a member of the CFA Institute and the CFA Society of the UK.

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WealthDFM | June 2021

THE AIC

Full steam ahead for renewable energy infrastructure AIC’s Annabel Brodie-Smith reminds us that closed-ended investment companies are no strangers to ESG, impact investing and renewable energy infrastructure

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limate change issues will justly remain at the top of government, professional and personal agendas for the foreseeable future. Recent developments have included UK Prime Minister Boris Johnson agreeing to legislation targeting the reduction of UK emissions by 78% before 2035, and the launch of yet another catchy ESG acronym: GFANZ, or the Glasgow Financial Alliance for Net Zero.

GFANZ sees Mark Carney, UN Special Envoy on Climate Action and former Bank of England governor, pull together over 160 financial firms responsible for around $70 trillion of assets. Their mission is simple: to accelerate the transition to net zero by 2050. Carney also happens to be one of the prime minister’s advisers for the COP26 summit in Glasgow in November, an event looming large in the climate change calendar.

A GROWING APPETITE Such political and regulatory developments add fresh impetus to the ever-growing appetite for ESG and impact investing strategies and vehicles. In the closed-ended investment company world, the pace of change seems to have accelerated in recent weeks. We’ve just seen Acorn Income, in the UK Equity and Bond sector, propose a change of objective to pursue a sustainable global equity income strategy, which would see it switch manager

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from Premier Miton to BMO. Just days before that announcement, RM Secured Direct Lending revealed that it was changing its name to RM Social and Environmental Infrastructure, to reflect its refreshed investment focus on assets with positive social and environmental impact which now make up 28% of its portfolio (expected to rise to over 50% by the end of 2021). And a week before that, Liontrust announced its intention to launch an ESGfocused investment company with a mandate to invest in less liquid companies. Managed by Peter Michaelis, Simon Clements and Chris Foster, the company is targeting a fundraise of £150 million at IPO.

NUMBERS ON THE RISE But investment companies have been doing impact investing for years, even if they didn’t always call it that.

The first renewable energy infrastructure investment company, Greencoat UK Wind, was launched back in 2013 and there are now 17 companies in the AIC’s Renewable Energy Infrastructure sector with assets of £11.4 billion. This sector has proven a popular hunting ground for climate-conscious investors as well as those in search of sustainable and attractive dividends.

Fundraising within the sector during 2020 reached over £1.8bn, more than double that of the Property – UK Commercial sector which came in second, according to data from Morningstar and the AIC.

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THE AIC

June 2021 | WealthDFM

There has been considerable appetite for IPOs. Out of the eight investment companies to come to market last year, three were in the Renewable Energy Infrastructure sector. The figures become even more impressive if you take into account that all this corporate activity took place during a global pandemic. It seems momentum has continued into 2021 and we have already seen a launch in

Unlike their open-ended counterparts, investment companies don’t have to distribute all of the income they receive every year. In fact they can save up to 15% in a revenue reserve to use when times are tough.

A recent estimate from Link Group reported that investment companies had £1.6bn in reserves heading into the pandemic, of which £700m had been used to support dividends by the end of March this year.

Out of the eight investment companies to come to market last year, three were in the Renewable Energy Infrastructure sector

Investment companies in the Renewable Energy Infrastructure sector have proved that they can offer attractive, protected and sustainable income, whilst supporting renewable, carbon neutral energy production.

They will play their part in achieving net zero and we can expect more fundraising and launches in future.

the Renewable Energy Infrastructure sector this year, VH Global Sustainable Energy Opportunities, raising £243m in February. More evidence of continued demand could be seen via US Solar Fund’s oversubscribed fundraise earlier this month, which raised $132 million of fresh capital. The initial target was $105 million.

DON’T FORGET THE DIVI Popularity has been driven in part by low interest rates, which have driven investors to seek out attractive, stable and sometimes subsidised income streams from sources such as solar, wind and even anaerobic digestion. But has investor appetite and investment in the sector been rewarded? The short answer is yes.

When dividends were decimated last year as companies struggled with coronavirus, the Renewable Energy Infrastructure sector’s constituents more than held their own. Remarkably, every investment company in the sector maintained or increased its dividend.

THE CLOSED-ENDED INVESTMENT COMPANY ADVANTAGE Elsewhere in the industry, investment companies paid and protected dividends throughout the pandemic, facilitated by their structural income advantages.

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ABOUT ANNABEL BRODIE-SMITH Annabel Brodie-Smith is Communications Director at the Association of Investment Companies (AIC). Her role is varied but chiefly focuses on explaining the uses and features of investment companies to the media, opinion formers, advisers and private investors. She also communicates the AIC’s work and current initiatives to key audiences and oversees the AIC’s training and information programme for advisers and wealth managers.

This aims to increase awareness and understanding of investment companies through seminars, conferences and online training.

After obtaining a B.A in Geography from LSE/King’s College, and an M.A from Syracuse University in New York, Annabel went on to obtain a postgraduate diploma in public and media relations from the University of Wales. Prior to joining the AIC Annabel worked at Hill & Knowlton, the PR Agency, where her work included working on the winning Athens 2004 Olympic bid, before joining the AIC in November 1997.

Annabel is passionate about financial education and diversity in financial services. She is an ambassador for Women on Boards and The Diversity Project. Previously, Annabel was a board member of pfeg (the Personal Finance Education Group) which has now been renamed Young Money.

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WealthDFM | June 2021

INVESCO

Clean energy is the key to the

world’s climate challenge Dr Chris Mellor, CFA, Head of EMEA Equity and Commodity ETF Product Management, Invesco

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he last couple of years have seen an increased focus on ESG, particularly the urgency of tackling environmental challenges.

Climate issues have progressed from polite conversation to genuine, tangible actions and the establishment of long-term plans by major economies across the globe.

Developments over the next decade are likely to happen quickly and be significant, offering investors a wide range of long-term growth opportunities.

Anyone who remembers the “clean energy boom” in the years leading up to the global financial crisis may question what’s different now. Short answer: a lot!

In the past few years, we have borne witness to an unprecedented combination of political, economic and financial factors that, together, has thrust clean energy to the forefront of ESG agendas. In the fight against climate change, reducing emissions from the energy

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sector, which accounts for nearly three-quarters of greenhouse gas emissions, has become mission critical.

In the past few years, we have borne witness to an unprecedented combination of political, economic and financial factors that, together, has thrust clean energy to the forefront of ESG agendas ECONOMICALLY SPEAKING, IT MAKES SENSE Major advances in the field of clean energy has been one of the most significant industrial developments of the past decade. These are energy sources that are naturally

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June 2021 | WealthDFM

replenished and produce renewable energy such as wind and solar power. A game changer for this industry has been a profound improvement in economics. Once considered expensive to produce, 56% of additional renewable power in 2019 achieved a lower electricity cost than the cheapest new coal plant1. New solar and wind installations reached record levels in the US last year, despite limited federal support.

There is an unprecedented consensus among the vast majority of countries, including the most polluting, China and the US, which account for 28% and 15% of emissions, respectively2. They are all working on action plans that they will present in November at COP26, plans that will translate the commitments made in 2015 at COP21 in Paris to limit global warming by 2050.

The days when governments could only encourage the adoption of clean energy through heavy subsidies seem to be over. Solar energy is a case in point, with the cost of solar energy falling by 82% between 2010 and 20191. According to the International Agency for Renewable Energies (IRENA), over the long term, renewable energy like solar and wind will become even cheaper than oil, natural gas, and coal thermal power well before 2040.

AGGRESSIVE TARGETS AND INCREASED SPENDING

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The European Union has led the way with its Green Deal launched at the end of 2019, which has made carbon neutrality by 2050 a priority, with an intermediate target of reducing CO2 emissions by 55% from 2030 (compared to the 40% initially planned). This target implies a 40%

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WealthDFM | June 2021

INVESCO

increase in the share of clean energy in the European energy mix (compared to 32% initially).

China, for its part, is aiming for carbon neutrality by 2060, an objective included in the 14th five-year plan (2021-25) which was presented on 5 March and provides for an 18% reduction in carbon intensity as well as a growth in the share of non-fossil fuels in the energy mix from 16% in 2020 to around 20% in 2025.

As for the US, which rejoined the Paris Agreement on 20 January 2021, it has committed to having a 100% clean energy and zero CO2 emission economy by 2050 at the latest, with an intermediate target of decarbonising all energy production plants by 2035. Symbolic of this shift in US policy were the halting of the Keystone XL pipeline extension to bring crude oil from North Dakota and the cancellation of the Alaskan Arctic drilling project.

COMPELLING OPPORTUNITIES FOR INVESTORS This growth in clean energy will require substantial investment and innovation both from governments and the private sector, opening up compelling opportunities for investors. According to the IRENA, cumulative investment in the energy system between 2015 and 2050 will need to increase around 30%, from $93 trillion according to current and planned policies, to $120 trillion to meet globally agreed targets.

Under its Green Deal, the EU will need to invest €350 billion more annually between 2021-2030 than it did between 2011-2020. This is an increase of around €90 billion per annum compared to the investments needed to achieve current 2030 climate and energy targets. A lot of investment will go into technologies and companies that contribute to at least one of six pre-defined environmental objectives as defined by the EU.

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Investors attracted to the clean energy theme have an increasingly wide choice of funds and ETFs to invest in, including highly concentrated approaches in terms of either number of stocks or a specific part of the clean energy space, such as solar or wind energy companies.

For investors who prefer a broader strategy that captures a more diversified set of opportunities, it is important to understand whether the fund or ETF they are considering is able to adapt effectively to the changing landscape.

INVESTING FOR NOW AND THE WAY BEYOND An example of the latter category – a broadly diversified approach – is our Invesco Global Clean Energy UCITS ETF digital.invesco.com/l/481331/2021-05-11/w91d2, which we launched in March this year. The ETF tracks the WilderHill New Energy Global Innovation Index, following the performance of companies focused on the generation and use of cleaner energy, energy conservation, efficiency and the advancement of renewable energy. This was the world's first index to provide diversified exposure to the clean energy theme.

The index, and therefore our ETF, currently has more than 120 stocks, comprising a mix of large, medium and smaller companies, with just over 30% in North America and around 44% in Europe. The thematic exposure is also broad, with each company focussing on one of seven

Solar and wind might be the better-known clean energy sources, but others are becoming increasingly viable from economic and efficiency perspectives

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INVESCO

clean energy sectors. And by equally weighting each of those companies, the largest names don’t dominate and each of the constituents can provide a meaningful contribution to overall returns.

FOOTNOTES

Solar and wind might be the better-known clean energy sources, but others are becoming increasingly viable from economic and efficiency perspectives. The list includes biofuels and biomass, thermal, hydro, wave and tidal generated power. Green hydrogen will also become an important part of the global solution, especially in shipping and other long-haul industries.

share-co2-emissions

Generating clean energy is just half of the story. You also need to be able to store that energy effectively and, to do that, we need improvements in battery technology.

Beyond that, there are companies focussed on improving the use of energy through conservation and efficiency solutions. Others may evolve over time, and investors need an approach that can effectively gain exposure to these opportunities as they arise.

CONCLUSION Climate policy around the world is driving an accelerating shift to clean energy with very ambitious targets. Over the past year, we’ve seen unprecedented commitments from major economies to reach net-zero carbon over the next 30-40 years and interim targets to make sure they’re kept on track. Huge investment in clean energy technology will present opportunities. This is not just a story for the future, however; it’s happening now. Solar and wind power in particular have already made huge strides with economic improvements making them among the cheapest sources of energy. This is only the beginning – the tip of the iceberg – and today’s investors have an opportunity to capture long-term growth potential as part of their wider ESG strategy.

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June 2021 | WealthDFM

Source: IRENA, 2019.

1

Source: https://www.ucsusa.org/resources/each-countrys-

2

INVESTMENT RISKS The value of investments, and any income from them, will fluctuate. This may partly be the result of changes in exchange rates. Investors may not get back the full amount invested.

As this fund invests primarily in small-sized companies, investors should be prepared to accept a higher degree of risk than for an ETF with a broader investment mandate.

The value of equities and equity-related securities can be affected by a number of factors including the activities and results of the issuer and general and regional economic and market conditions. This may result in fluctuations in the value of the Fund.

Investments into the clean energy sector are considerably exposed to investment trends focused on environmental factors and may have sensitivities towards ESG related government regulations and tax implications.

IMPORTANT INFORMATION All investment decisions must be based only on the most up to date legal offering documents. The legal offering documents (fund and share class specific Key Investor Information Document (KIID), prospectus, annual & semi-annual reports, articles) are available free of charge on our website etf.invesco.com and from the issuers or relevant information agent.

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WealthDFM | June 2021

BLACKROCK

The Green Bond

Revolution Wealth DFM talks to Blackrock’s Cara Milton-Edwards about why green bonds are becoming increasingly popular as an investment vehicle in the ESG space

WEALTH DFM: IN YOUR ROLE AS A FIXED INCOME PRODUCT STRATEGIST COVERING SUSTAINABLE INVESTING, IN WHICH AREAS ARE YOU SEEING THE MOST INTEREST FROM CLIENTS AT THE MOMENT? CME: I'm in a very privileged position where I talk to many investors about the range of fixed income solutions at BlackRock that incorporate sustainable outcomes. Of those conversations, one of the most regularly touched upon topics is green bonds. This is both from the perspective of how much the market has grown, but also the increased investor demand that we see for this asset class.

In terms of the market growth, if we look back to 2015, this was a market that had just $225 billion dollars of outstanding debt. At the end of 2020, that had grown to over a trillion dollars. We've seen huge growth in the market. However, alongside the size of the market, we've also seen an increase in the diversity of issuers.

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I think that is really what has piqued investors’ interest.

Ultimately the conversations become about what role can green bonds play within my portfolio.

WEALTH DFM: WHAT ARE THE DEFINING PRINCIPLES OF A GREEN BOND? CME: In some ways it's easier to start by looking at

what a green bond isn’t.

A green bond isn't a bond issued by a green company.

A green bond is a financial instrument whose proceeds are exclusively applied to new or existing projects with environmental benefits. When a green bond comes to market through primary issuance, there are four characteristics that have become the market standard.

These are known as the Green Bond Principles.

These principles are: Use of proceeds: at initial issuance, understanding exactly what that green bond will be funding and ensuring that those projects fall

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June 2021 | WealthDFM

within what are known as the Green Bond Principles’ eligible categories.

The second is that there has been a process for project selection and that there are clear, environmental, sustainable objectives of those projects.

The third is on reporting. The expectation is that all green bonds will report on an annual basis on the projects funded. Also there should be metrics available as to the environmental benefits that result from projects funded.

Finally, proceeds from the bonds should be separate - they should be ring fenced from other assets on the balance sheet and verified by a third party or an auditor.

At Blackrock, we've been part of this Green Bond Principle executive committee since 2014. These have become the principles that have set the standard in the market, but they also shape the market for the future.

We've seen changes and we've seen them develop throughout time.

WEALTH DFM: SO WHY NOW FOR GREEN BONDS IN INVESTORS’ PORTFOLIOS? WHAT ARE THE BENEFITS WHICH THESE GREEN BONDS CAN OFFER? CME: We've come such a long way from 2007, when

the first green bond was issued by the European Investment Bank. With the market becoming much larger and with growth in the diversity of issuers too, that has really changed the role that green bonds can play within an investor's portfolio.

I see it from two perspectives: The first is from the perspective of the fixed income characteristics the green bonds can offer a portfolio. The second is from the perspective of the environmental characteristics.

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WealthDFM | June 2021

BLACKROCK

We've come such a long way from 2007, when the first green bond was issued by the European Investment Bank Firstly, from a fixed income perspective, two characteristics stand out. One - if we look at broad green bond market exposures. For example, the index that is tracked by our iShares Green Bond Index Fund is the Bloomberg, Barclays MSCI Global Green Bond Index. This offers investors an average credit quality of A+. That is an increase on the average credit quality that you might get compared to a non-green, broad aggregate index. The increase in credit quality comes from exposure to higher quality issuers such as multilateral development banks and governmentbacked agencies.

The second is from a performance perspective.

Sustainable indexed fixed income offers investors greater resilience during periods of risk off and that resilience is driven by fixed income factors.

We see some of those same characteristics in these broad green bond market exposures. For example, last year during periods of volatility, and over the course

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of 2020, the Bloomberg Barclays Global Green Bond Index outperformed the Bloomberg Barclays Global Aggregate Index.

This outperformance did not come from the fact that green bonds outperformed non- green bonds. On a bond by bond basis, we see green bonds perform in line with their non-green equivalents. Instead, that outperformance came from the sector differences in broad green bond exposures in comparison to those non-green universes.

From an environmental perspective, there are positive implications when an issuer comes to market with green bonds, for example, it could be indicative of an issuer looking to align themselves with net zero in the future. Many investors that we talk to are increasingly looking to incorporate climate risk considerations into their portfolios.

From that perspective, a green bond investment helps mitigate some of those climate risks. That can be achieved and seen through the impact reporting which is part of the Green Bond Principles that every green bond issue reports annually on environmental metrics from projects funded.

The difficulty for investors is how do I aggregate my overall impact when I'm holding multiple green bonds?

This is because green bonds will report on different

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June 2021 | WealthDFM

metrics, and they do not report at the same time or in the same way. At Blackrock, we've worked very hard to create a portfolio level impact report and were first in market to do this for the iShares Green Bond Index Fund. This allows investors to quantify the positive environmental metrics that come from an investment in green bonds.

The growth that we're seeing in the market and the increase in the diversity of issuers is giving investors huge confidence in the market

WEALTH DFM: TO CONCLUDE, WHAT WOULD YOU SAY ARE THE KEY TAKEAWAYS FOR THOSE WHO MIGHT BE LOOKING AT GREEN BONDS AS AN INVESTMENT VEHICLE?

and the positive environmental benefits is important.

That is achieved in iShares products, through the impact reporting. and provides transparency as to the role, from a sustainable perspective, this asset class could have within a portfolio.

CME: The growth that we're seeing in the market and

the increase in the diversity of issuers is giving investors huge confidence in the market. From our perspective, the role of indexing within the development of this market has been key in terms of providing investors with that transparency and standardisation.

That gives investors more confidence in terms of capturing that growth. But it has to go hand in hand with investment expertise in this asset class. BlackRock its own proprietary analysis applied to every green bond that comes to market.

Finally, if there is a role for green bonds within investor’s portfolios, being able to quantify the impact

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ABOUT CARA MILTON-EDWARDS, FIXED INCOME PRODUCT STRATEGIST, ISHARES EMEA Cara Milton-Edwards is a product strategist covering fixed income ETFs. Cara is part of the team responsible for supporting client engagement, creating thought leadership on fixed income markets and fixed income ETFs, and working to develop new fixed income ETF products.

She specialises in wealth and retail client conversations.

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FOR PROFESSIONAL CLIENTS AND QUALIFIED INVESTORS ONLY.

ORS ETHICAL INVESTING W CTIVE SUSTAINABLE FUND NTEGRATED REPORTING ES REEN BONDS INVESTING S TEWARDSHIP CLIMATE RISK CREENING ENVIRONMENTA OCIAL WITH GOVERNANCE TIMISED ESG INTEGRATION CHANGE CLARITY CARBON RINT ENVIRONMENTAL FAC iShares. Sustainable, simplified.

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