But he says data points relating to the social impact of corporate activity – the S – remain scant, and he says as understanding grows around how to measure this impact, this will lead to the creation of funds that focus on that area, increasing the range of choices for investors.
Among the data points he is looking at in this area are customer and employee satisfaction surveys and staff retention rates in businesses, as he feels this helps him to understand whether potential investee companies are compliant with the social S component of ESG investing.
He says funds that are more focused on a particular theme will become popular in the coming years as “people can understand individual themes very well, there is much less jargon, and clients like that”.
Clive Emery, sustainable multi-asset investor at Invesco, says such thematic funds have been launching in recent years, indicating the evolution is already happening.
He says that when reporting on the ESG criteria of his fund, he reports on 280 line items for each company in which his fund is invested. All of that becomes one fund price the client sees, which shows the scale of the data that is available.
He adds: "I think the evolution that is occurring is driven by client understanding rising. A few decades ago, a fund could be ESG and still have up to 30 per cent in coal. Now it has to be less than 10 per cent in coal. And my view is that the energy transition is important. It is going to require large fossil fuel producers to transition.
"For that reason I don’t think funds that just exclude companies are appropriate for what comes next. I think positive change funds are the next generation of opportunities, but it is important that people who do want to invest in a fund that excludes some categories have the choice to do that.
"That is part of the evolution that is happening. But it is the same evolution that happened in other asset classes.”
Holmes says clients are “becoming more demanding as their level of knowledge increases, and themes such as healthcare are becoming more important. That’s why I think some of the products around now, which just talk about integrating ESG principles into what they do, they won’t be sufficient for the next generation of clients.
