The following questions may assist IFMs in determining whether the consideration of ESG factors plays a significant role in the funds’ investment process and therefore, whether the fund is an ESG Strategy Fund or an ESG Limited Consideration Fund:
- Are ESG factors routinely weighted heavily in the investment process of the fund? If so, it is more likely that the fund is an ESG Strategy Fund. If ESG factors are considered, but the weight attributed to those factors is relatively low and they are more secondary to other factors in the investment process, the fund is more likely to be an ESG Limited Consideration Fund.
- Are ESG factors likely to drive or impact an investment decision? If ESG factors are routinely a driving factor in investment decisions, the fund is more likely to be an ESG Strategy Fund. However, if ESG factors are generally considered to such a limited extent that ESG factors would rarely be driving factors behind an investment decision, the fund would more likely be an ESG Limited Consideration Fund.
- Are ESG factors always considered as part of the investment process? If a fund’s consideration of ESG factors is discretionary such that ESG factors may or may not be considered at any given time, the fund is more likely to be an ESG Limited Consideration Fund.
- What purpose does the consideration of ESG factors serve for the fund? If a fund considers ESG factors with the aim of trying to select issuers that possess certain types of positive ESG characteristics or attributes, is actively seeking to achieve a favourable ESG profile, or is aiming to achieve a specific ESG-related outcome, the fund is more likely to be an ESG Strategy Fund. In contrast, if ESG factors are solely being considered as one of many components in the fund’s broader risk assessment process, the fund is more likely to be an ESG Limited Consideration Fund.
The issue of whether a fund is an ESG Strategy Fund or an ESG Limited Consideration Fund most often arises in the context of funds that use an ESG integration strategy as part of their investment selection process. This is because there can be a significant range in the role, impact and weight that ESG factors may have when they are integrated alongside traditional financial factors into the investment process for different funds by different IFMs. However, this issue may also arise for funds that use other types of ESG strategies as part of their investment process.