Investing in Funds with a Positive Impact
Today’s investment companies and their funds have a purpose beyond the increase of capital. The idea of corporate purpose ties together concepts like social responsibility and protection of the natural world. As the spotlight on ESG grows brighter, how can institutional investors - and the consumers they ultimately represent - be sure that their capital is being put to use in a way which only has a positive impact?
As the risks of global warming become more acute, the focus on sustainability has surged. Companies and regulators have become concerned not only with what can be done to lessen these risks but that any sustainability risks and impacts are properly measured and accounted for. Sustainability risks can include environmental, social or governance events.
While there are a number of ways to measure sustainability, European funds can now seek a particular form of categorisation as an Article 9 Fund. An Article 9 Fund - sometimes known as a “dark green” fund - is a fund which has a sustainable investment objective. This mandate can include investments to displace carbon emissions. As such, investments in energy additionality - creating renewable energy supply, to take fossil fuels off the grid - are a perfect fit for Article 9 requirements, as is the case with the L&G NTR Clean Power Fund, launched in 2023. In addition, the asset technology in this fund is fully EU Taxonomy aligned and unambiguously green.
Investor demand for these funds, which are quickly becoming known as the blue chips of environmental impact investing, is increasing rapidly. The obligations are rigorous and require extensive screening and due diligence processes. Article 9 funds must demonstrate that on top of the core purpose - in NTR’s case, climate mitigation - their investments and activities do no significant harm across five other environmental objectives, ranging from pollution prevention to biodiversity. In practice, this creates demanding processes which delivers clear information on topics such as carbon footprint and any adverse impacts on biodiversity, water or waste.
The third criteria is that the fund has to have good governance practices and social safeguards. As with the environmental criteria, this requires funds to actively implement and report on sustainable social features such as diversity, safety performance, supplier code of conduct, anticorruption measures etc.
With so many sustainable finance strategies to choose from, it can be difficult for investors to separate out the strategies which are the most reliable. An advantage of Article 9 is that the high level of disclosure ensures that capital is sustainably invested for the long haul. Not only does this benefit the environment and society, it also lays a solid foundation for long term capital appreciation.
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