How and why we score portfolios for social responsibility

James McManus


3 min read

We believe Nutmeg has always led the wealth management industry on transparency – from portfolio performance to costs and charges, we’ve always prided ourselves on making sure you understand your investments.

And with the launch of our new socially responsible investing (SRI) portfolios, we’re raising the bar for the industry again, by launching radically transparent scoring for all our portfolios, against a range of social responsibility-related criteria.

Why score portfolios?

We think that socially responsible investing is the future of the investment industry, which is why we’re one of a handful of UK wealth managers to become a signatory of the United Nations’ Principles for Responsible Investment1.

You also told us that investing can feel like a big unknown when it comes to understanding how compatible it is with your personal values, and we firmly believe that our customers deserve to know where their investment portfolios stand when it comes to environmental, social and governance (ESG) factors.

Existing approaches to socially responsible investing do little to qualify how they compare against traditional portfolios, instead relying on simple labels like ‘green’ or ‘ethical’. This means investors have little knowledge as to the true difference between portfolios, or what trade-offs have been made along the way.

That’s why we’re now scoring all Nutmeg portfolios against a range of ESG criteria, using industry leading insight to empower your investment decision-making.

The E, the S and the G

Investors typically focus their evaluation of social responsibility factors around the ‘ESG’ framework, named after the three key categories of criteria that investors consider important when making such an assessment.

Environmental-social-and-governance-ESGEnvironmental – includes topics such as pollution, deforestation, waste of resources, water stress, climate change

Social – includes topics such as working conditions, health and safety, community engagement, diversity and child labour

Governance – includes topics such as bribery, corruption, executive pay, leadership diversity, data security, tax strategy

We’ve worked with MSCI, a global leader in social responsibility research, to give you deeper insight into your investment portfolios, by calculating a range of scores against key criteria for environmental, social and governance factors.

From a wide selection of indicators, we’ve chosen 10 data points that cover topics such as carbon emissions, data security and diversity of company boards, but they’ll also let you know how your portfolio stands on a broad basis against the three key ESG categories. Find out more about the individual scores in our whitepaper.

What’s fair to compare?

We’ve scored all our existing portfolios in the exact same way. But it’s important for you to know that our existing portfolios can’t be directly compared with the new ones. This is because putting the ESG principles at the heart of our design process can mean that we use a more limited range of asset types. To compare one of our fully managed or fixed allocation portfolios with an SRI one may mean you’re not comparing apples with apples. You can find out more about this in our whitepaper, too.

Since that kind of comparison won’t give you a meaningful way to decide if they’re right for you, we’ve compared the scores of our socially responsible portfolios against a range of 10 equivalent ‘non-SRI portfolios’ instead. These portfolios have the exact same asset mix at each risk level, but without consideration of ESG principles, so you can compare the scores on a true like-for-like basis.

Once you invest at least one pot using the socially responsible investment style, you’ll be able to see how our SRI portfolios compare to those not employing ESG principles. Look for the “% better” figure in each scoring card.

This is just the beginning

We truly believe our approach to socially responsible investing offers our customers the best possible access to portfolios that consider ESG criteria, while still ensuring you remain on track to your investment goals. But by no means do we consider this to be a complete and final solution to the problem we set out to fix.

We believe social responsibility-focused strategies are the future of the investment management industry and we’ll continue to expand our approach. In our view, the portfolio of choice in the future will be one where ESG characteristics are considered alongside traditional investment metrics.

We hope this will start a bigger conversation with you about how your money is invested, and that the transparency we offer helps you better understand your investments

As always, we really value your feedback. So, if you have any thoughts on our approach to socially responsible investing, and the new portfolio scoring we offer, we want to hear it. Send us an email at support@nutmeg.com, and we’ll get in contact with you.

Risk warning

As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest.

Sources

  1. Based on the list of PRI signatories as at end of October 2018.
James McManus

James McManus

A self-confessed ETF geek, James is head of ETF research at Nutmeg. He joined in 2015 from Coutts & Co, where he was an associate director in the investment office. James holds a Bsc (Hons) in International Business from Nottingham Business School.


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