Latest News

  • Home /
  • Latest News

How do we invest in the ESG themes range

28 June 2023
ESG Themes portfolios – how do they work?

The aim of the ESG Themes portfolios is to deliver financial returns while at the same time making a positive impact on the planet and society. Our ESG range invests some of your money in ‘themes’ that have specific goals to help contribute to a better world. 

These thematic investments sit within the equity part of the portfolios. They’re invested in ‘solution-focused’ businesses, i.e. businesses focused on developing solutions to solve either environmental issues or social problems. The ESG Themes portfolios use investments linked to the six different environmental and social areas, shown in the diagram below. 

Chart 1: The ESG Themes portfolios invest in six key themes that seek to make either an environmental or societal impact.

Source: M&G Positive Impact team

‘Environmental solutions’, for example, is about alternative energy and companies developing more energy-efficient components. Investing in the ‘circular economy’ theme is about reducing waste and recycling and reusing resources. Social purpose concentrates on better health, better working conditions and working towards greater social equality. 

Why do we invest in themes?

We believe investing in ‘solution-focused’ themes can not only contribute to a better world but also lead to strong investment performance. The reason being is that companies providing solutions to environmental and social problems will likely be rewarded by the global economy in the future. That’s why we look for parts of the market where companies are innovating and new industries are being created to help solve global challenges. 
Importantly, the themes we invest in are underpinned by long-term trends. Trends are large social, economic, political, environmental or technological transformations that generally unfold over decades, rather than months or years. We select themes to invest in based on how the companies involved can benefit from long-term change. People tend to underestimate the strength, duration and persistence of trends. As a result, the long-term growth of companies exposed to such trends is often underestimated.

Focusing on ‘growth’ areas

Within each theme, these companies are concentrated in specific areas. For example, the funds in the portfolios that target climate action will hold more companies that are involved in renewable energy technology. Conversely, the funds that target improved access to water will hold fewer companies within the renewable energy sector, but more in the utilities and industrials sectors. 

By combining six different themes in this way, we’re able to target a broader set of positive industries and, from an investment point of view, have a diversified portfolio where no single theme carries too much risk. 

2022 and 2021 serve as prime examples of this. The chart below shows the investment returns of five different funds that provided exposure to different equity themes in 2021 and 2022. These funds aren’t held in the ESG Themes portfolios but represent some of the themes these portfolios are exposed to. 

The bars’ height indicates the returns in 2021 and 2022. The factors influencing the stock market in 2021 were very different to those in 2022, which led to considerable differences in performance and shows how investing in several different themes can help to diversify the portfolios. 

Chart 2: A comparison of different thematic ETFs in 2021 and 2022 (% total return and in GBP)


Source: FactSet data. Note these funds are not held in the ESG Themes portfolios but are representative of some of the themes we invest in. Past performance isn’t a guide to future performance. 

Why do we invest in active funds?

All our investments in equity themes are in ‘active’ funds. These are funds that take a more hands-on approach to identify individual companies that can offer attractive investment opportunities. This contrasts with passive funds, which simply track a market index, such as the FTSE 100 Index. 

A lot of sustainable funds, including passive sustainable funds, simply exclude the companies who are creating problems for society and the planet. Our approach is to invest in funds that are also providing solutions and whose impact can be measured. 

Our investment team assesses the objectives of each fund and evaluates whether the contribution it’s making would have happened anyway. For example, the Robeco Gender Equalities fund aims to invest in companies that actively promote gender equality. The fund managers use a scoring system comprised of several factors, such as board diversity, workforce diversity, pay equity and employee well-being. The fund actively engages with companies it invests in with the aim of improving these scores. This is a good example of how investors can have a positive impact on society through their investments. 

Finally, simply providing exposure to a theme isn’t enough. Companies also need to be well managed and innovative. Determining which companies will succeed requires thorough analysis of their business models, company management and competitive advantages. By using active funds, this helps ensure that we own the right businesses within our themes. 

The ESG Themes range was launched last year and has just gained its one-year performance track record. The portfolios are an attractive option for those seeking long-term returns from their investments, while looking to contribute towards a healthier world. 

With investment, your capital is at risk and you may get less than you invested. Tax treatment depends on your individual circumstances and may change in the future. If you are unsure about investing you should speak with a financial adviser


8 July 2024

Triple Point – Join our CPD webinar: helping investors plan for big life events

1 July 2024

Intergenerational wealth planning for difficult times

24 June 2024

Liontrust Sustainable Investment: Annual Review 2023

19 June 2024

Investing in the energy transition

18 June 2024

Triple Point is partnering with ESG Accord to host a webinar: "A Practical Guide to SDR and Investment Labels for Advisers."

17 June 2024

Latest PruFund monthly investment updates

13 June 2024

Defaqto MPS Comparator: the UK's only accurate MPS performance tool

12 June 2024

Hear about Triple Point Venture VCT - 18th June 2024

6 June 2024

The Nucleus Retirement Confidence Index

24 May 2024

Join us for our Breakfast Briefing with Foresight! June 4th at 9:30am

17 May 2024

Looking forward with optimism

8 May 2024

The retirement income advice red paper

8 May 2024

Liontrust Views: Why smaller can be beautiful for US equities

7 May 2024

CPD Horizon Series: Tax planning for life’s key events

18 April 2024

Liontrust: Opportunities from secular growth trends

15 April 2024

Defaqto Roadshow - The challenges and opportunities of pursuing Income

11 April 2024

Liontrust: US small caps are overlooked and undervalued

4 April 2024

Q1 2024 Rebalance – we think the backdrop is good for stocks

21 March 2024

25 years of ISAs: a quarter of a century of tax-efficient savings and investing

4 March 2024

Stepping out of cash needn’t be daunting

26 February 2024

Managing lifetime wealth – trends in the UK retirement advice industry

23 February 2024

Empowering advice for women in finance

14 February 2024

Tech Matters is here!

5 February 2024

Defaqto upcoming event – Engage webinar 22nd February

1 February 2024

The gender divide in retirement confidence

30 January 2024

SDGs in focus: climate and nature

26 January 2024

Tax year end prep. We’re here to help.

8 December 2023

2023: Another momentous year for markets

8 December 2023

2024 investment outlook

7 December 2023

The 2023 Nucleus UK Retirement Confidence Index

4 December 2023

Paradigm's brand new Technology hub is here

4 December 2023

New service for advisers - Do you have UK clients with overseas assets/liabilities?

30 November 2023

Defaqto Upcoming events - Engage virtual

28 November 2023

Deepbridge Celebrate 2023 Growth Investor Awards Success

22 November 2023

5 reasons why EIS deployment timescales are so important

21 November 2023

November 2023 Asset Allocation Changes: Bonds looking better

20 November 2023

Blackfinch portfolio company Tended named ‘one of the best inventions of 2023’ by Time Magazine

10 November 2023

Value tracker: Where are the cheapest/most expensive stock markets?

9 November 2023

The Asia opportunity – looking for smarter growth

3 November 2023

The big headlines of quarter 3 2023

1 November 2023

Just launched: Octopus Titan VCT

24 October 2023

Understanding Portfolio Management

17 October 2023

It is fair to say that 2023 to date has been a slow year across the Venture Capital (VC) sector

11 October 2023

VCT’s evolving client profile: take another look at your client bank

6 October 2023

Death Benefits

5 October 2023

intelliflo - Building stronger client relationships through technology

4 October 2023

Puma Investments opens £50m fundraise for Puma VCT 13

3 October 2023

Family wealth planning - connected through you

29 September 2023

How well do you know your clients? (Survey + Amazon voucher offer)

25 September 2023

NOW OPEN – Octopus AIM VCTs are open to new investment

14 September 2023

Defaqto ‘Asset allocation – stick or twist’ roadshow

1 September 2023

New maternity law – are you ready?

17 August 2023

Artificial Intelligence: Jobs created or jobs destroyed?

10 August 2023

The big headlines of the second quarter 2023

7 August 2023

Cashflow modelling integral to the advice process

2 August 2023

Asian and emerging markets

28 July 2023

Investment Intelligence Seminars

25 July 2023

Embrace technology to focus on the value of advice

25 July 2023

Emerging-market debt: a potential source of protection and diversification?

21 July 2023

2023 Mid-year Investment Outlook

18 July 2023

25 years of the £2 coin - worth half its value to UK consumers since circulation

5 July 2023

Product and Platform Switching and The Consumer Duty

28 June 2023

How do we invest in the ESG themes range

16 June 2023

eAdviser Index proves the transformative power of technology

8 June 2023

10 tips for the countdown to Consumer Duty

1 June 2023

The easiest financial product to promote

31 May 2023

Invesco's flexible approach for navigating market uncertainty

15 May 2023

Our platform, your way

26 April 2023

Defaqto Spring Roadshow

24 April 2023

Adding value for your clients – Cash flow planning

21 April 2023

PruFund Growth and PruFund Cautious Client Facing Reports

19 April 2023

Puma VCT 13 hits £50 million fundraising target

17 April 2023

Book your free office lunch today

13 April 2023

What next for Open Banking?

22 March 2023

The future of adviser technology

14 March 2023

Property Insight: Commercial Real Estate is always late!

28 February 2023

Technology and the advice journey

23 February 2023

Get ready for tax year end

21 February 2023

Capability, low-cost and choice -retirement planning made easier

3 February 2023

Tax Year End Prep – PRU are here to help

1 February 2023

NOW OPEN – Octopus Ventures Knowledge Intensive EIS Fund

18 January 2023

Listed infrastructure… to the rescue

17 January 2023

Defaqto Engage – CIC Compare