Weighting for good, globally

● Old Mutual’s two environmental, social and governance (ESG) global indextracking funds are designed to deliver returns in line with the MSCI world developed markets and the MSCI emerging markets indices, making it easy for investors to opt for the index investment that can bring about change.

The ESG indices maintain the exposure to the same countries and market sectors that you enjoy in the MSCI indices, but with a higher concentration of shares with the best ESG scores, says Frank Sibiya, index portfolio manager at Old Mutual’s index-tracking business, Customised Solutions.

The funds are offered to South African investors as rand-denominated feeder funds that feed into funds managed by Customised Solutions in Ireland.

Sibiya and Jon Duncan, head of responsible investment at Old Mutual, say the ESG indices screen out shares that have been repeat offenders against responsible investment norms — typically those involved in human rights, labour, pollution, data privacy or governance issues. Steinhoff and Facebook, for example, were excluded from the indices.

The shares with the best ESG scores on the most relevant measures in each sector in each country are given higher weightings than they have in the parent index, to omit those with lower scores.

Duncan says MSCI does not have an ESG index for SA but Old Mutual has developed its own for an institutional client. It plans to adapt this index to reduce exposure to companies with high carbon footprints, and open it to individual investors.

Old Mutual Wealth’s discretionary investment manager, Tailored Fund Portfolios, which devises portfolios for financial advisers, also has a global range with ESG overlays that include green bonds — fixed interest instruments that fund projects with environmental benefits.