Access a wide choice of funds including ESG funds for clients through Retirement Account.
ESG stands for Environmental, Social and Governance and can mean different things to different people. For example, this investing approach may be suitable for clients concerned about where and how their money is invested and who:
want to invest based on their values or moral concerns.
believe both financial and non-financial factors can impact on investment performance.
want their investments to generate a positive social or environmental impact, as well as a financial return.
The value of an investment can go down as well as up so your clients might get back less than they put in.
ESG investing approach
More and more asset managers are adopting an ESG approach. They’ll look to select funds and investment solutions which are clear about incorporating ESG and may be labelled with terms such as ‘socially responsible’, ‘SRI’, ‘sustainable’, ‘ethical’ or ‘impact’ investing.
Our ESG range on Retirement Account includes funds that can be classed as ‘Ethical’, ‘Sustainable’ or ‘Impact’, which are not exactly the same as pure ESG funds.
Ethical investing - This generally means prioritising the ‘moral’ return over the ‘financial’ return. To make sure a fund meets the ethical criteria there are exclusions:
Norms-Based Exclusions: investments based on some form of generally accepted international standards e.g. arms dealing
Investor-driven subjective screening for specific issues e.g. tobacco, coal, gambling.
Sustainable investing – this approach looks to take advantage of sustainability challenges such as water scarcity, whilst also factoring in risk and return considerations.
Impact investing – this type of investing generates a measurable social or environmental return, alongside a financial return.
Environmental - considers a firm’s carbon footprint or environmental challenges such as water usage, climate change or deforestation
Social - is focused on issues such as working conditions like child labour, impact on local communities and workforce diversity
Governance - concerns how a company is managed and includes issues such as executive pay, diversity, political activities, anti-bribery and corruption policies.
There are different categories of ESG which combine both financial and non-financial factors:
1. ESG Screen Ratings
Selecting investments that rank highest on ESG criteria within their respective sector or specialism.
An example could be a fund manager choosing companies with the lowest carbon footprint within the chemicals sector.
Includes shareholder voting and interaction with company management on ESG issues, with a view to advising on and influencing ESG practices and disclosures.
An example could be a fund manager attempting to influence the remuneration policy of a company and potentially voting against the pay awards given to executives.
Seeking an in-depth understanding of how ESG factors are likely to affect the expected risk and return characteristics of a potential investment opportunity.
An example could be a fund manager seeking to factor in the impact of climate change on a specific company’s financial prospects.
To learn more about ESG investing listen to Ben Constable-Maxwell, Head of Sustainable and Impact Investing at M&G Investments.
What is ESG, who is it for and what’s the driver?
Listen to Ben Constable-Maxwell, Head of Sustainable and Impact Investing with M&G Investments, as he discusses ESG and who it is for, its different strategies, drivers and ESG investing in practice.
We’ve selected these funds because they meet ESG preferences when screened against the Investment Association universe of funds. We’ve also checked the funds’ prospectus to confirm their ESG mandates and used performance, cost and fund size as additional filters.
The range provides access to single and multi-asset funds, active and passive, plus different ESG investment styles. The fund managers are all subject to our Retirement Account governance.
List of funds available
Please note that these funds have been selected based on Prudential's criteria and may not reflect the criteria of the underlying asset managers.