Investment News & Views

Green Path Fund Selection Criteria

Green Path portfolios use well-regarded ethical mutual funds and exchange traded funds (ETFs), giving you a balance of shares, bonds and some thematic investments, such as gender equality. The fund providers we use are UBS, Vanguard, Legal and General, First State Stewart Investors, Blackrock iShares, Somerset, Royal London, Kames and PIMCO.

They have been selected for their exemplary governance and ethical stance, and each employ rigorous screening processes to ensure appropriate ethical credentials for the relevant funds.

All of the ethical fund providers we use are signatories of the Principles of Responsible Investing (PRI), the world’s leading proponent of responsible investing. The PRI is an independent body acting in the long-term interests of its signatories, of the financial markets and economies in which they operate, and ultimately of the environment and society as a whole.

More information:

Actively managed portfolio service dedicated to sustainable growth through the use of environmental, social and governance (ESG) investment values

Fund providers will typically use one or both of the following types of screening:

Negative screening: aiming to exclude companies involved in activities that are at odds with ethical and socially responsible values. This typically means ‘sin stocks’ such as gambling, tobacco, adult entertainment and weapons, although many funds screen other activities such as involvement in coal mining.

Positive screening: actively seeking and investing in companies that demonstrate excellent environmental, social and governance (ESG) practices. Fund providers will employ a scoring system to each company, rating it against a set of predefined criteria, such as energy efficiency, equality agenda and the quality of its corporate governance, looking at, for example, whether it has been fined in the past for regulatory violations. These all add up to an ESG rating, which determines whether a company should be considered for investment.

We also utilise the Morningstar Sustainability Rating to assess the environmental, social and governance (ESG) risks of a fund or ETF. The Morningstar Sustainability Rating is a measure of the financially material ESG risks in a portfolio relative to a portfolio’s peer group. The rating is an historical holdings-based calculation using the company-level ESG Risk Rating from Sustainalytics, a leading provider of ESG research. It is calculated for managed products and indexes globally using Morningstar’s portfolio holdings database.

The Morningstar Sustainability Rating is created using a three-step process. First, a Portfolio Sustainability Score is calculated for every portfolio reported within the trailing 12 months. Second, these scores are used to calculate a portfolio’s Morningstar Historical Portfolio Sustainability Score. Third, a Morningstar Sustainability Rating is assigned for a portfolio based on its Morningstar Historical Portfolio Sustainability Score relative to its Morningstar Global Category. This rating is made up of up to 5 globes as follows:

Morningstar Sustainability Rating Methodology

All of the funds/ETFs we use in Green Path portfolios have a Morningstar Sustainability rating of 3 globes or higher. Note that a small number of funds/ETFs utilised in Green Path portfolios are currently unrated by Morningstar because for a fund to receive sustainability data, the fund needs Sustainalytics ESG research on at least 67% of assets. This problem mainly applies to new green bond funds that do not yet have enough sustainability data but are clearly highly sustainable investments. This is an evolving area that we monitor on a regular basis.

More information on the Morningstar Sustainability rating methodology can be found here:

  • Monday, February 17, 2020

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Professor Mike Buckle

Investment Officer

Mike chairs Crossing Point’s Investment Management Committee and holds the CII Certificate in Discretionary Investment Management.