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Henderson Global turns away from ‘best in class’

November 2004

One of the world’s leading SRI fund management companies is to place less reliance on the ‘best in class’ investment approach and instead put more money into sustainable companies regardless of their sector.

UK-based Henderson Global Investors, which manages £1.13billion ($2.04bn) in SRI portfolios, says its more radical approach will concentrate on companies making a real effort to be sustainable rather than those that are the best of a poor bunch.

An in-house review of SRI policies has concluded that Henderson should invest more in companies offering ‘sustainability solutions’ – those in ‘industries of the future’ whose products and services are ‘driven by sustainability pressures’. These are typically in sectors such as clean energy, environmental management, public transport and healthcare.

However, Henderson says it will also look for ‘new themes and companies that are positively contributing to a sustainable economy’, in social housing and regeneration, for example. It has started with the oil sector, ‘where we’ve decided to avoid investments in oil exploration and production companies for retail SRI funds’.

Henderson’s move could ruffle a few feathers. Best in class is popular with SRI fund managers and forms the basis of the Dow Jones Sustainability Index (DJSI).

Nick Robins, Henderson’s head of SRI, told EP: ‘Best in class has its limitations. It came to us in the late 1990s and was a useful methodology for applying SRI in more mainstream sectors, as well as a way of encouraging companies to formalize their CSR programmes. But in sectors such as oil, there are fundamental sustainability gaps in terms of the product and its contribution to climate change, so taking the best is not good enough.’

Robins added that in financial terms, the new approach would have marginally outperformed Morgan Stanley Capital International equity benchmark indices over one, three and five years, based on modelling that used in part those ‘industries of the future’ in which Henderson already invests. It would be possible to retain a balanced portfolio, with stakes in large companies as well as in others not necessarily identified by best in class. ‘These are not mega cap, but still substantial,’ he said.

Examples it has identified for investment are Centrotec (Germany), a specialist in energy saving systems, and Morgan Sindall’s affordable housing division Lovell (UK).

The DJSI said: ‘Henderson’s approach is valid for a category of investor, but a majority of sustainability-driven investors do not want to deviate too much from the mainstream portfolios.’

Best in class is most widely used in continental Europe. In France, it accounts for 92 per cent by value of the €3.7bn ($4.6bn, £2.5bn) under SRI management for institutional investors, and 77 of the 119 retail SRI funds there use the strategy, says Novethic.



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