Principles for sustainability rating of investment funds

Abstract

During the last decade, the idea of sustainable investments hit the market. Investors both private and institutional started to supplement financial considerations with social and ecological ones. Meanwhile the supply of mutual funds in the 'green' investment sector increased enormously. Currently in Europe about 300 mutual funds are available that are managed according to sustainability and social responsibility. Potential investors face the difficulty of keeping track of the various funds and choosing among them based on a reliable comparative assessment. This paper outlines the basic principles and methods on which such a comparative sustainability rating is based. The method was designed to be analogous to rating of the funds financially. The sustainability rating is based on assessment of the research processes in the fund management as well as investigation of the fund portfolio in terms of composition and sustainability performance. It should support investors in their investment choices by offering them a third party view.

Ethical requirement and financial interest: a literature review on socially responsible investing

“…This category contributes 30 % to the final TSI score-the remaining 70 % are distributed equally among the stakeholder group scores. Koellner et al (2005) also support the need for nonfinancial performance measures. They see, however, several obstacles in creating such a comprehensive rating.…”

“…Finally, certain information is crucial for a serious rating framework, but might not be accessible in practice. Generally speaking, there is a lack of sustainability reporting (Koellner et al 2005). Once a social rating approach is agreed upon, an interesting research question is whether SRI vehicles are really more SR than their conventional counterparts.…”

Fossil Fuel Divestment Strategies: Financial and Carbon-Related Consequences

“…Though some studies on the carbon intensity of mutual investment funds have been conducted based on industry analyses (Koellner, Suh, Weber, Moser, & Scholz, 2007;Koellner, Weber, Fenchel, & Scholz, 2004), studies about carbon footprints (Wackernagel et al, 1999) of divestments strategies are sparse because former divestment strategies, for instance addressing the tobacco industry or the South African Apartheid regime, rather addressed social than environmental issues. Furthermore, Ritchie & Dowlatabadi (2015), for instance, suggest that divestment conducted by institutional investors does only have a small effect on the carbon footprint of their portfolios.…”

Performance of Malaysian Islamic Unit Trusts Based on Consistency of Ranking

“…However ranking is not the only basis in making investment decision whereas the funds ability also needs to be evaluated and the level of risk that is able to be accepted. According to Koellner et al (2005), the outcomes of an assessment of a fund's sustainability performance depend very much on the time perspective chosen.…”