Wells Gibson remains a strong advocate of systematic, evidence-based investing as this continues to stand the test of time and remains a robust, well thought through proposition which investors can understand and stick with, even in challenging market conditions.
For some time now, we have been eager to complement our standard investment proposition with the development of an ESG investment proposition and an Impact investment proposition. These are described as follows:
ESG investing has an increased focus on environmental risks (E); social sustainability (S); and good governance (G); and
Impact investing helps drive solutions to global problems and provides a material effect on important positive outcomes with regards to social sustainability and environmental risks.
The focus of this article is the development of our ESG investment proposition, and a further article will follow with regards to the development of our Impact investment proposition.
The Spectrum of Capital is a helpful diagram which summarises the financial goals and impact goals of different investment approaches, and you will notice this places a broad-based, traditional investment approach at the left-hand side, and, philanthropy at the other side. Wells Gibson’s standard investment proposition would fall into the traditional column i.e. the left-hand side.
Thanks to, UK National Advisory Board On Impact Investing, 2017 & Impact Management Project, 2017
Our ESG Proposition
Wells Gibson has now created an investment proposition which has an increased focus on ESG factors and includes funds whereby the investment approach is deemed to fall into the Responsible & Sustainable columns within The Spectrum of Capital.
We have sought to address the issues that are most important to environmentally focused investors, without compromising on sound investment principles, or requiring investors to accept lower expected returns.
Although this proposition has an increased focus on ESG factors, we will not compromise on the structural integrity of our portfolios because this can expose an investor’s capital to unwanted and unnecessary risks. In other words, we are determined to apply our systematic, evidence-based philosophy to our ESG proposition.
We recognise there is no ideal single approach to ESG investing. A number of offerings are continuing to develop such as negative screening; positive screening; a focus on the environment only; and a combination of E, S and G etc.
Our ESG Portfolios
In order to create portfolios with an increased focus on ESG factors, we consulted with Albion Strategic Consulting which provides Wells Gibson with ongoing governance oversight and is a member of our investment committee.
Using Wells Gibson’s standard, traditional portfolios as a sound template, our approach initially is to replace the existing funds used to obtain global, developed market equity exposure, with two new funds which stand out as being worthy of inclusion and are from investment firms we are very familiar with and trust, Dimensional and Vanguard.
We believe the rules based ESG approach of these funds is a step in the right direction, without materially sacrificing capital market returns:
The Dimensional fund  claims to reduce greenhouse gas emissions intensity by over 60%, and nearly 99% of emissions from reserves due to the systematic ESG weighting methodology; and
The Vanguard fund  excludes companies that do not align with the UN’s Global Compact principles.
As with our standard, traditional portfolios, the ESG portfolios will also invest in global short-dated bonds; global commercial property; and global emerging markets, however as new products emerge, these will be scrutinised before any decision is made to include them in our ESG portfolios.
We asked Albion to run an analysis comparing Wells Gibson’s standard, traditional portfolios to Wells Gibson’s ESG portfolios and this revealed:
A minor increase in cost;
A minor increase in share concentration; and
A minor reduction in the expected return (attributable to the reduction in allocation to small and value companies).
Our conclusion is that Wells Gibson’s initial ESG investment offering provides a meaningful and worthwhile progression towards a full ESG portfolio and will be used when requested by clients.
We continue to develop our Impact investment proposition and as soon as we have a viable solution, we will let you know.
Please don’t hesitate to contact Wells Gibson if you have any questions and if this is an area you would like to discuss please get in touch.