6 Funds for Impact-Minded ESG Investors

Earth Week 2023: We found sustainability-themed funds with strong Medalist Ratings

Kate Lin 21.04.2023
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It’s impossible to understate the severity of the current climate and resource crisis facing the world. 

Each year, we consume 1.6 planets’ worth of earth’s resources. That means, we are depleting natural resources faster than nature can replenish them. Moreover, the International Energy Agency estimates that annual investments in clean energy and infrastructure will need to more than triple by 2030 to around US$ 4 trillion, in order to set the world on a 1.5°C path.

Commitments and pledges are growing but they still fall short of what is needed to avert the worst effects of these overwhelming problems.

April 22 is the 53rd annual global Earth Day, a reminder for all individuals and corporations alike to transform words and promises into money and action.

Finding Thematic Products

Morningstar’s tools can help investors screen the funds best aligned to values. 

We screened for all funds for sale in Singapore to find sustainability-themed investments that focus on one or more Morningstar Sustainable Attributes: Climate Action, Healthy Ecosystems, or Resource Security.

The screener yields six funds that have Morningstar Analyst Ratings or medalist analyst or Morningstar Quantitative Ratings.

Among the 94 asset managers in the opportunity set, Impax by BNP Paribas Asset Management earns a Morningstar ESG Commitment Level of Leader, while Blackrock and JP Morgan earn a Basic rating.

Clean Energy Play

BNP Paribas Climate Impact earns a Silver analyst rating. The fund has US$3.3 billion in assets.

In this fund, according to our analyst Ronald van Genderen, portfolio candidates must derive at least 50% of their sales from activities such as energy efficiency, water infrastructure, and pollution control. He adds: “Attractive prospects are then vetted in a detailed and structured 10-step process in which the team looks at, among other things, management quality, regulations, and risks.”

The portfolio of this strategy distinguishes itself from peers in the sector equity ecology Morningstar Category through its allocation toward mid- and small caps, van Genderen notes. For example, more than 57% of the portfolio is composed of stocks with a market capitalization below EUR 10 billion, including companies as German metals recycler Befesa and Hong Kong’s soy milk maker Vitasoy International Holdings, which have market values of even below EUR 2 billion.

Decarbonization, greenhouse gas emissions, climate change adaptation and mitigation, and climate solutions are some other sub-themes that climate action funds would pursue.

Invest to Secure Our Resources

Other than climate change, planet Earth feels the pain from another overwhelming problem: resource depletion following decades of accelerated urbanization and a rapidly growing population. This gives rise to initiatives and investment strategies to drive better natural resources, food, and waste management to ensure all living things can benefit from them now and in the future, sustainably.

Resource conservation is only one of the numerous ways to secure future resources. Themes sprawl from building on a circular economy to promoting better food and other waste management and recycling.

Despite being a thematic fund, BGF Circular Economy Fund buys into a great number of household names and index heavyweights. Microsoft, L’Oreal, and Nestle are among the top 10 holdings. The largest is, however, U.S. waste disposal company Republic Services.

The opportunity set for this fund is narrowed down to companies that recognises the circular economy concept, which is centered around the importance of a sustainable economic system and works to eradicate unsustainable behaviors, such as the “make-use-throw away” approach of consumption.

Healthy Ecosystems

Overconsumption of the Earth’s resources is also wreaking havoc on biodiversity.

The world cannot be sustainable without ecologically sound environments on land, air, and water for living things other than humans.

For instance, putting money into pollution reduction and remediation activities can positively impact the environment. Biodiversity, deforestation, life under water, natural ecosystems, planetary boundaries, planetary health, and sustainable agriculture are some of the focuses healthy ecosystems funds have.

Bronze-rated BNP Paribas Global Environment Classic Capitalisation is an example.

The BNP Paribas strategy is concentrated, with only 47 stocks in its portfolio at the end of March. “Portfolio candidates must derive at least 20% of their business from what the team thinks are environmental activities, such as energy efficiency, water infrastructure, and pollution control,” according to van Genderen. He says, “The portfolio managers hunt for growth companies but are also valuation-conscious and will avoid stocks they deem overvalued. The strategy has built a solid track record since its U.S. equivalent’s inception in 2008.”

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About Author

Kate Lin

Kate Lin  is an Editor for Morningstar Asia, and is based in Hong Kong

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