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Sustainable Impact Report 2020
www.heartwoodgroup.co.uk 1
Sustainable Impact Report 2020
www.heartwoodgroup.co.uk 32
Contents
Introduction 4
Avoiding unsustainable sectors 5
Incentivising better behaviour 6
Solving problems 8
Oversight 10
Looking ahead 11
Contacts 11
3
www.heartwoodgroup.co.uk 54
Avoiding unsustainable sectors
What is the screening process? Investments are excluded if more than 5%* or $500m of their revenue is generated from these sectors
Why have a screening process?
Not part of a Sustainable Future
Exclusions
Tobacco Defence and Weapons
Gambling AlcoholAdult
entertainmentFinancial Risks:
RegulatoryLitigation
Supply ChainReputational
IntroductionHeartwood manages four Sustainable investment funds: The fund managers have three goals:
Inflation beating returns
Incentivising better corporate and government behaviour
Helping to solve problems, aligned with the United Nations Sustainable Development Goals
This, our first impact report, illustrates:
How we are achieving goals 2 and 3
Why our investors should be proud of the positive change their investments are driving
Source: Heartwood
Defensive Sustainable
Cautious Sustainable
Balanced Sustainable
Growth Sustainable
Expe
cted
retu
rn
Risk appetiteLower risk Higher risk
Equities Bonds Alternatives (e.g. Commodities, Property, Hedge Funds) Cash
Sustainable investing is evolving, attitudes are changing and data is improving – so will our funds – thank you for being part of the sustainable investment journey.
Source: tobaccofreeportfolios.org Tobacco: Reviewing the growing financial risks report Nov-2018
Case study: tobacco
Single greatest preventable cause
of death in the world today
Almost no cigarette can
be guaranteed to be free from child labour
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*Zero tolerance for poducers of tobacco and15% for sales.
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Incentivising better behaviour
Heartwood Balanced Sustainable Fund (as at 23 June 2020) Including pending positions
ESG Integration 1.
What are they?Exchange traded funds with investments that offer:
Broad market exposure
Screened out ‘sin sectors’: alcohol, tobacco, defence, gambling, adult entertainment
Investments in the best performers in each remaining sector, according to environmental, social and governance (“ESG”) metrics
How do they help? By providing capital to the best performers in each sector these funds are incentivising companies to improve their behaviour
Reducing carbon footprint
Socially Responsible ETFs
ESG Integration 2.
What does this fund do? Invests in sustainable businesses in Asia, with a preference for frontier markets
Focuses on companies with strong waste management, contribution to social good and carbon efficiency
How does it help? By providing finance to frontier market companies
By avoiding sin stocks, and those that have poor ESG characteristics
Alquity Asia Fund
Emerging Market Government Bonds
What are they? Debt issued by less economically advanced nations
Excluding authoritarian state are excluded (China, Saudi Arabia etc.)
Investing more in countries with high environmental, social and governance (“ESG”) scores, less in the poor performers
How do they help? By providing capital to the better performing countries
we are incentivising countries to improve their ESG impact
Characteristics emphasised:
Emerging market sustainability ranking
Source: Alquity. Portfolio overview as of 31 March 2020
Holdings meeting each KPI standard - % of companiesGhg emission
Water usage
Waste data
Reduction environmental impact
Training programme
Staff turnover
H&S policy
Equal opportunity
Greater gender equality
“Lost Time Injury” rates
Board independence
Management remuneration
Whistleblower policy
51%
56%
17%
29%
95%
68%
90%
90%
7%
45%
88%
98%
12%
Transparency democratic values
Environment
Population, health standards and wealth distribution
EducationEconomy
Source: MSCI
Carbon footprint per $1m investment
MSCI World MSCI World Socially Responsible
140
120
100
80
60
40
20
0
tCO
2e/$
m
119
68
-51
1st quartileH2
2020
1 Singapore 71
2 South Korea 71
3 Czech Republic 70
4 Uruguay 70
5 Costa Rica 69
6 Chile 68
7 Poland 68
8 Israel 68
9 Croatia 68
10 Hungary 65
11 Argentina 65
12 Malaysia 65
13 Albania 64
14 Dominican Republic 64
15 Macedonia 64
16 Romania 63
17 Peru 63
18 Georgia 62
19 Panama 62
2nd and 3rd quartileH2
2020
20 Barbados 62
21 Colombia 62
22 Mexico 62
23 Ecuador 62
24 Bulgaria 61
25 Seychelles 61
26 Montenegro 61
27 Indonesia 61
28 Mongolia 61
29 Brazil 60
30 Armenia 60
31 Tunisia 60
32 Sri Lanka 59
33 Jamaica 58
34 Serbia 58
35 Bahamas 57
36 Thailand 57
37 Paraguay 57
38 Suriname 57
39 Bolivia 56
2nd and 3rd quartileH2
2020
40 Philippines 56
41 Turkey 56
42 Ghana 55
43 Jordan 55
44 Morocco 55
45 India 54
46 Kenya 54
47 Ukraine 54
48 Belize 54
49 El Salvador 53
50 South Africa 53
51 Botswana 53
52 Guatemala 52
53 Malawi 52
54 Lebanon 52
4th quartileH2
2020
55 Côte d’Ivoire 52
56 Maldives 50
57 Bangladesh 50
58 Honduras 50
59 Trinidad and Tobago 50
60 Zambia 49
61 Senegal 49
62 Namibia 47
63 Tanzania 46
64 Uganda 45
65 Benin 45
66 Pakistan 44
67 Mozambique 42
68 Nigeria 41
69 Papua New Guinea 40
70 Taiwan -99
71 Aruba -99
ExcludedH2
2020
1 United Arab Emirates 65
2 Belarus 61
3 China 61
4 Qatar 58
5 Oman 58
6 Kazakhstan 58
7 Saudi Arabia 57
8 Russia 57
9 Vietnam 55
10 Azerbaijan 54
11 Rwanda 54
12 Bahrain 52
13 Egypt 48
14 Angola 46
15 Venezuela 42
16 Cameroon 41
17 Ethiopia 41
18 Gabon 40
19 Iraq 37
20 Congo 35Source: DPAM, April 2020
Name Weight
Bonds 20.6%
Government - Conventional 4.2%
1.75% UK Treasury 2037 2.5%
1.5% UK Treasury Stock 2026 1.7%
Government - Index Linked 2.9%
0.125% Treasury I-L Stock 2029 1.6%
0.125% Treasury I-L Stock 2036 1.2%
Corporate - Investment Grade 5.3%
Muzinich Sustainable Credit Fund 2.9%
Allianz Green Bond Fund 2.4%
Corporate - High Yield 2.6%
M&G Global High Yield ESG Bond Fund 2.7%
Emerging Markets 2.7%
Dpam Emerging Markets Sustainable Bond Fund 2.7%
Government (Not base currency) 2.8%
0.10% Japan Government Bond 2022 2.8%
Property 9.4%
United Kingdom 9.4%
Civitas Social Housing 2.8%
Renewables Infrastructure Group 2.7%
Target Healthcare REIT 2.2%
Nextenergy Solar Fund 1.7%
Hedge Funds 3.3%
Credit 2.6%
Biopharma Credit Plc 2.6%
Gl obal Macro 0.7%
Universa Bspp Fund Series 14 Oct19 1.4%
Cash 3.1%
GBP 3.1%
Name Weight
Equity 63.6%
United Kingdom 20.9%
UBS MSCI UK Socially Responsible ETF 7.8%
Liontrust UK Ethical Fund 4.6%
F&C Responsible UK Income Fund 4.5%
91 UK Sustainable Equity Fund 4.0%
Global 17.2%
Baillie Gifford Positive Change Fund 5.7%
UBS MSCI World Socially Responsible ETF 4.5%
Robecosam Smart Materials Fund 3.8%
Natixis Thematics Water Fund 2.4%
Arix Bioscience Plc 0.9%
North America 11.1%
UBS MSCI USA Socially Responsible ETF 6.3%
iShares MSCI USA Socially Responsible ETF 4.8%
Japan 2.7%
UBS MSCI Japan Socially Responsible ETF 2.7%
Europe Ex-UK 3.5%
UBS MSCI Europe Socially Responsible ETF 1.9%
ASI Europe Ethical Fund 1.6%
Emerging Markets 8.2%
Alquity Asia Fund 3.0%
iShares MSCI Emerging Markets Socially Responsible ETF 2.9%
F&C BMO Responsible Emerging Markets Fund 2.2%
ESG Integration 3.
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Solving problemsWhat are they?
Bonds which are used to finance new or existing projects to have positive environmental or climate effects
What and why? 17 United Nations goals to achieve a better and more sustainable future for all
Aim to be achieved by 2030
How? If we can find an investment that helps achieves a goal, does not compromise on financial performance and fits in with the rest of our portfolios, we’ll go for it
What are they?Companies producing:
More efficient materials
Circular systems such as recycling technology
Enabling technologies for electric vehicles
How do they help? Reduce carbon emissions
Remove waste
Amount of CO2eemissions avoided
The amount of materials recycled materials
The amount of waste avoided
65,336tonnes of CO2e avoid
6,296 tonnes of materials recycled
19,154 tonnes of landfill waste avoided
Equal to 45,900 cars taken off the road for 1 year*
Equal to the annual materials recycled of more than 29,900 people**
Equal to the annual waste generated of more than 39,300 people***
Source: RobecoSAM* 2017 average CO2 emissions EU 118.5 g/km; 2015 annual distance driven by car EU 12,009 km; in t CO2 eq; 1.423 (source: www.eea .europa.eu; www.odyssee mure.eu)** 2014 Recycling rate EU 43.6% 487kg *43.6%= 0.21 tonnes waste recycled per capita (source: www.ec.europa.eu/eurostat)*** 2017 EU: 487 kg=0.487 tonnes waste generated per capita; in tonnes; 0.487 (source: www.ec.europa.eu/
The graphic displays the resulting impact of the Smart Materials Fund across the 3 impact metrics. The total investment is associated with the following ownership adjusted impact over a 1 year period. Holdings as at June 30, 2018, assuming that stable proportion of the companies are held. Market value of the holding is normalized by the company’s e nte rprise value. Based on production numbers from the latest reporting (FY 2017).
Smart Materials
Impact metrics
CO2e
UK Care Homes
Green Bonds
Positive impact 2.
Source: AllianzRenewable
energyOther Green
buildingsEnergy efficiency
Clean transportation
Water management
Wastemanagement
42%
14% 14% 13%8% 6%
3%
Type of projects financed by the fund
1
2
4
Number of properties by geographic region
Source: Target Healthcare Reit Plc Quarterly Investment Report, April 2020
73 Properties
5,073 Beds
27Tenants
£38.9mContracted rent
£613.4mProperty value
How do they help? Speed up energy transition
Reduce carbon emissions
€1m invested equates to 1437 tons of CO2 avoided
Heartwood Balanced Sustainable Fund (as at 23 June 2020) Including pending positions
What are they? 73 properties, 5,073 beds
All modern, purpose-built, above average specification
How do they help? Provide housing for the elderly. Lack of capacity in the UK, which Target Healthcare are helping to fill
Positive impact 3.
Name Weight
Bonds 20.6%
Government - Conventional 4.2%
1.75% UK Treasury 2037 2.5%
1.5% UK Treasury Stock 2026 1.7%
Government - Index Linked 2.9%
0.125% Treasury I-L Stock 2029 1.6%
0.125% Treasury I-L Stock 2036 1.2%
Corporate - Investment Grade 5.3%
Muzinich Sustainable Credit Fund 2.9%
Allianz Green Bond Fund 2.4%
Corporate - High Yield 2.6%
M&G Global High Yield ESG Bond Fund 2.7%
Emerging Markets 2.7%
Dpam Emerging Markets Sustainable Bond Fund 2.7%
Government (Not base currency) 2.8%
0.10% Japan Government Bond 2022 2.8%
Property 9.4%
United Kingdom 9.4%
Civitas Social Housing 2.8%
Renewables Infrastructure Group 2.7%
Target Healthcare REIT 2.2%
Nextenergy Solar Fund 1.7%
Cash 3.1%
GBP 3.1%
Name Weight
Equity 63.6%
United Kingdom 20.9%
UBS MSCI UK Socially Responsible ETF 7.8%
Liontrust UK Ethical Fund 4.6%
F&C Responsible UK Income Fund 4.5%
91 UK Sustainable Equity Fund 4.0%
Global 17.2%
Baillie Gifford Positive Change Fund 5.7%
UBS MSCI World Socially Responsible ETF 4.5%
Robecosam Smart Materials Fund 3.8%
Natixis Thematics Water Fund 2.4%
Arix Bioscience Plc 0.9%
North America 11.1%
UBS MSCI USA Socially Responsible ETF 6.3%
iShares MSCI USA Socially Responsible ETF 4.8%
Japan 2.7%
UBS MSCI Japan Socially Responsible ETF 2.7%
Europe Ex-UK 3.5%
UBS MSCI Europe Socially Responsible ETF 1.9%
ASI Europe Ethical Fund 1.6%
Emerging Markets 8.2%
Alquity Asia Fund 3.0%
iShares MSCI Emerging Markets Socially Responsible ETF 2.9%
F&C BMO Responsible Emerging Markets Fund 2.2%
Hedge Funds 3.3%
Credit 2.6%
Biopharma Credit Plc 2.6%
Gl obal Macro 0.7%
Universa Bspp Fund Series 14 Oct19 1.4%
Positive impact 1.
www.heartwoodgroup.co.uk 1110
Oversight Looking ahead
Looking ahead / reasons to be optimistic:
Better disclosure from companies
Comparability between companies
Increased alignment with Paris climate goals (including scope 3 carbon emissions)
Conclusions
There is no ‘perfect’ in sustainable investing, but we think it is better to engage with the tricky issues than ignore them.
We are successfully achieving our mission statement
We look forward to reporting on more progress in 2020
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Sustainable Investment Policy
Reviewed annually, with external oversight
Purposeful and pragmatic
Available here: www.heartwoodgroup.co.uk/media/2745/the-heartwood-sustainable-investment-policy.pdf
Sustainable Committee
Meets quarterly
Ensures policy and portfolios are fit for purpose
Debates the grey areas of sustainable investingTo find out more please get in touch:
London OfficeNo.1 KingswayLondonWC2B 6AN
Tel: 020 7045 2600
www.heartwoodgroup.co.uk/our-multi-asset-solutions/sustainable
Matthew TomsCo-manager of Sustainable strategies
Benjamin MatthewsCo-manager of Sustainable strategies
Contacts
www.heartwoodgroup.co.uk
“I’m delighted to join the Heartwood Sustainability Committee, to oversee and work with the portfolio managers and to be a part of Heartwood’s sustainable investing journey.” Andrea Marmolejo, External Committee Member, Founder Blue Topaz Capital
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Portfolios may include individual investments in structured products, foreign currencies and funds (including funds not regulated by the FCA) which may individually have a relatively high risk profile. The portfolios may specifically include hedge funds, property funds, private equity funds and other funds which may have limited liquidity. Changes in exchange rates between currencies can cause investments of income to go down or up. The value of any investment and the income from it is not guaranteed and can fall as well as rise, so that you may not get back the amount originally invested. Past performance is not a reliable indicator of future results.
Heartwood Investment Management (Heartwood) is a trading name of Heartwood Wealth Management Ltd, which is authorised and regulated by the Financial Conduct Authority (FCA) in the conduct of investment business, and is a wholly-owned subsidiary of Handelsbanken plc.
This document has been prepared by Heartwood Investment Management for clients and/or potential clients who may have an interest in their services. Nothing in this communication constitutes advice to undertake a transaction and professional advice should be taken before investing. Any observations are Heartwood’s commentary on markets and its own investment strategy. This material is not investment research and the content should not be treated as an offer or invitation to buy or sell securities.
For Heartwood Multi Asset Funds: The Authorised Corporate Director is Link Fund Solutions Limited. The Registrar is Link Fund Administrators Limited. The Investment Manager is Heartwood Wealth Management Limited.
Registered Head Office: No.1 Kingsway, London, WC2B 6AN. Registered in England Number: 4132340 Part of the Handelsbanken Group.
