5 key scores to help financial planners rate and rank funds on the impact spectrum

February 11, 2021 5:47 pm Published by Leave your thoughts

5 key scores to help financial planners 
rate and rank funds on the impact spectrum 


Written by Gavin Francis

So, what’s the score? 

The big challenge many financial planners are wrestling with right now is:- 

What data can be relied upon to enable us to make informed decisions when constructing model portfolios for clients who want their investments to match their values? 

Advisers tell us: “We don’t just want to complete a tick-box exercise”. 
In my opinion ESG data is going to become a commodity.

With the deluge of complicated ESG data metrics and noise from some commentators criticising data vendors over the low correlation of their ratings and inconsistent methodologies, the investment community are questioning how to effectively compare funds. Consequently, financial planners tell us they don’t need access to more data, but rather the fundamental and informed insights quality data provides.

The key to enable informed decision making is applying a consistent methodology across a comprehensive and defined universe of funds. The resultant data then needs to be contextualised and standardised so advisers can confidently and reliably compare funds on a level. 

Advisers tell us: “Ordinarily we wouldn’t have the time to do the research in this area ourselves”. 
We continue to work to offer you the most insightful, informative analysis providing you with the practical understanding needed to explain the difference that a client is making with their investment portfolios.

Worthstone launched its new rating methodology on the 1st January 2021, having invested significant resource into this initiative. This is the culmination of an 18-month research project on the latest developments in impact and sustainable investing analysis and reporting.

The new Worthstone ratings methodology provides advisers with access to: 

  • Consistent analysis on an expanded coverage of rated funds across the impact spectrum (extended to c.320 funds, offering an unrivalled, comprehensive range of funds reviewed). 
  • Worthstone Impact Profiles (WIPs) for every fund on our Impact Portal, providing downloadable, independent impact audit reports for over 300 funds. 
  • Greater insights into a fund’s composition, risks and management through new features such as a Carbon Risk score and Active Agent Asset Manager practices/policies assessment or ranking analysis. 
  • Continual Frequent updating of data, with quarterly reviews of new fund entrants and dynamic ratings across the entire universe.    

We provide an independent Worthstone rating
The purpose of this rating is to help advisers rank the funds that can be trusted to intentionally generate the highest levels of positive impact, relative to their peers. This is a dynamic rating and is the weighted average of four scores. 

The objective is to codify the net positive impact of each fund by weighing up the following:  

  1. the positive impact of underlying assets within the fund (capital contribution)
  2. the asset manager’s added value (investor contribution) i.e. does the asset management firm ‘walk the talk’ – how closely their strategy supports and contributes to the positive impact of the companies in which they invest
  3. the underlying holdings connection to harmful products or practices (negative impact) – a rigorous process of evaluation
  4. the underlying holdings management of the operational impact through robust Environmental, Social and Governance (ESG) practices.

In addition, we have included the Carbon Risk score. 

So, what are the five key scores?

  1. Positive Impact
    This score aims to highlight the progress a fund is making towards generating more intentional positive impact. Investing with intentionality focuses on holding investments in companies contributing towards solutions that are meeting some of the world’s greatest challenges. These challenges can be related to the United Nations Sustainable Development Goals (SDGs). 
  2. Active Agent
    It is more important to know and understand the asset manager and trust their process as the holdings change. We have extended our analysis so that we now also assess the investor contribution i.e. the impact and sustainable performance of the asset management firm. We assess their commitment and performance to ESG and the impact markets beyond that of their individual fund/s as well as how they influence sustainable practices through their stewardship (e.g. voting and engagement). We assess c.110 asset managers (representing all c.320 funds) across 40 metrics using quantitative and qualitative analysis. 
  3. Avoidance of Harm
    We have developed proprietary comprehensive frameworks, drawing on advisory from an external academic, in order to analyse the presence of controversies within a fund’s portfolio and highlight any exposure to harmful sectors and products. 
  4. ESG
    This score focuses on operational impact measuring the Environmental, Social and Governance (ESG) practices and opportunities associated with the fund’s underlying holdings, providing insight into the companies’ resilience to long-term, financially-material ESG risks.  
  5. Carbon Risk
    For financial advisers it is important to consider the carbon risk to a client’s portfolio. As the current market is not pricing in carbon, significant systematic risk channels are emergent. Within impact investing, it is inherent to think that the carbon scoring would be similar across the board. However, often carbon-efficient portfolios exhibit unintended sector and factor biases so carbon risk scoring can be a useful tool to assess overall portfolio risk. 

Most financial planners agree that consistency and comparability of data across funds is essential. We have developed benchmarks for each of the five scores that will illustrate a fund’s relative performance not only against the traditional market but also provide peer benchmarking against the entire impact and sustainable spectrum.

All of this is designed to help you articulate the difference that your client is making with their investment portfolios. We’ve developed visualisation tools so you can show your clients how using funds in the universe will channel a growing proportion of their wealth towards assets that are contribute to solutions meeting some of the world’s greatest challenges as defined by the UN Sustainable Development Goals (SDGs). 

Independent analysis of environmental and social impact of investments and helping financial planners eloquently communicate this to their clients is all we do. Our analysis is not supported by asset managers, not licensed for them to use the ratings or limited to any pay to play service; it is paid for by subscriptions from financial planning firms. 

We continue to progress and offer advisers market leading insights, utilising the experience across our Worthstone Collegiate network and our 10 years of active leadership in the sector.

If you are a financial planner and your firm construct their own portfolios why not take a closer look at what we offer?

Book a demo of our Impact Portal here today – you need to act now – to show interested clients your business is ready to embrace an approach of growing importance to many investors. 

Gavin Francis
Founder and Director

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