Pie Funds will apply an environmental, social and governance (ESG) overlay across all its funds following the launch of a new ‘climate friendly’ product last week.
Mike Taylor, Pie chief, said the “realistic” ESG policy – developed internally and with input from global research firm, Sustainalytics – would “allow us to invest sustainably for each of our funds without tripping over ourselves all the time”.
Taylor said Pie also has the “usual exclusions” for its funds that rule out holdings in controversial weapons manufacturers and tobacco, for example.
While the policy is not yet formally in place for all products, he said an early review suggested Pie would not have to sell down any securities currently held in its suite of now 10 funds under the ESG framework.
Pie launched its 10th product – the Climate Friendly Fund (CFF) – last week to tap into burgeoning demand for carbon-lite investments but also as the manager’s first foray into the global large-cap arena.
The CFF will hold about 50 global stocks, mostly sourced from the universe of companies occupying the MSCI All Country World Index (ACWI) Low Carbon Leaders.
“Lots of financial advisers see us as a small-cap specialist and they may only want to allocate a little to that sector,” Taylor said. “This is an all-cap fund that may open us up to more interest from advisers.”
According to MSCI, the ACWI Low Carbon Leaders index includes “large and mid-cap stocks across 23 Developed Markets (DM) and 23 Emerging Markets (EM) countries”.
“By excluding companies with the highest carbon emissions intensity and the largest owners of carbon reserves per dollar of market capitalization, the index aims to achieve at least 50% reduction in its carbon footprint,” the MSCI says.
“… The methodology excludes the top 20% of companies based on carbon emissions intensity, with a maximum of 30% by weight from any sector. It also excludes the largest owners of reserves per dollar of market capitalization, representing 50% of the reserves in the parent index.”
MSCI’s carbon-lite index holds about 500 fewer stocks than its reference ACWI equities benchmark but aims to minimise tracking error.
Low carbon investment products have garnered some interest in NZ both at the wholesale and retail level. For instance, last year Russell Investments released its own low-carbon strategy to Australasian institutional investors while Pathfinder recently offloaded most fossil fuel stocks from the firm’s global equity fund.
And in Australia last week, State Street updated its roughly A$230 million, 18-month old, ESG-themed index fund to track a new low-carbon benchmark.
The retooled institutional investment vehicle would follow the “MSCI World ex Australia Select ESG Low Carbon Integrated Index (the Index) which is biased against companies most highly exposed to carbon price changes”, according to a State Street statement.
Taylor said the CFF was partly prompted by requests from its current clientbase, who collectively have about $750 million invested with Pie.
The CFF product disclosure statement says CFF fees start at a base rate of 1.25 per cent per annum with performance fees expected to add an extra 48 basis points on average each year.
Pie charges a performance fee of 5 per cent of returns above the previous ‘high water mark’, which resets each six months with no ‘hurdle rate’.
“This means that there is no minimum return (other than the High Water Mark) that must be achieved before a performance-based fee applies,” the PDS says.
The new Pie fund is managed by former Milford Asset Management analyst, Victoria Harris, who also sits on the company’s newly-established, gender-equal ESG policy board.