Green Light For The Foord International Fund

Sustainable income streams have always been fundamental to Foord’s long-term investment philosophy. Portfolio managers bring an acute awareness of environmental, social and governance (ESG) factors to the stock selection process when buying stocks for the long term. Foord global funds director Paul Cluer writes that Foord has now formalised an enhanced sustainable investment programme for the Foord International Fund.

Foord's flagship global multi-asset fund is the Foord International Fund. Launched in March 1997, the fund aims to achieve meaningful inflation-beating US dollar returns over the long term from a conservative but actively managed portfolio of mostly developed — but also emerging — market investments that reflect Foord's prevailing best investment view for cautious investors.

The Foord International Fund is domiciled in Luxembourg, the world’s largest cross-border fund distribution market. Luxembourg has established itself as a global hub for investment funds, attracting fund promoters and managers from around the world due to its progressive regulatory environment, political stability and leading financial infrastructure. 

Luxembourg’s regulatory arsenal includes EU-wide standards on the marketing of products that promote sustainable investment characteristics or that explicitly have sustainable investment objectives. These regulations are known as the Sustainable Finance Disclosure Regulation, or SFDR. SFDR provides for three categories of funds that engage in some form of sustainable investment practice, referred to as Article 6, 8 and 9 funds — bizarrely skipping a categorisation in Article 7 of the SFDR regulation.

Foord has always integrated sustainable investment practices into its investment process, but otherwise made no specific commitments. It has until now been categorised as an Article 6 fund. Article 8 funds, sometimes referred to as ‘light green’ funds, promote environmental or social characteristics but do not have sustainable investment as their main purpose. The ‘dark green’ funds are categorised in Article 9 and have sustainable investment as their main objective.

Given Foord’s long-term ‘buy-and-hold’ investment philosophy, sustainable investing has been in our DNA. The fund managers have always applied a forward-looking investment approach that seeks to preserve investor capital and safely compound long-term, inflation-beating US dollar returns. As part of its rigorous bottom-up, fundamental research into companies, the fund managers have also considered ESG factors that could materially impact the valuation or financial performance of its investments.

Uplifting the fund’s classification from Article 6 to Article 8 did not require a change of process or philosophy. Rather, we needed only to tweak our process by formally applying exclusion criteria to investments that do not meet qualifying ESG peer-group scores or norms-based requirements. The uplift reflects Foord’s commitment to integrating ESG factors into its investment process, as well as promoting environmental and social characteristics for the benefit of its investors and society at large. 

In this regard, the fund now excludes the lowest scoring 25% of issuers within the peer group, based on the methodology provided by Bloomberg ESG Score. In addition, Foord also applies screening and exclusion against international norms violations, such as the UN Global Compact, which covers human rights, labour standards, environmental harm, corruption and unethical practices, controversial weapons and international sanctions.

It was no surprise that that the fund’s current portfolio holdings easily met these enhanced requirements. This will be of comfort to long-term investors in the fund. Moving forward, we will now monitor the ESG risk scores of the fund’s investments and engage with company management on ESG issues to encourage positive change — activities we were already doing informally. Claiming Article 8 compliance for the fund does bring with it added reporting requirements, which we will attend to in due course in the requisite forums. 

We chose to pilot the Article 8 uplift for Foord International Fund only, given its less complex portfolio of share investments. Foord’s other Luxembourg-domiciled funds — Foord Global Equity Fund (Luxembourg) and Foord Asia ex-Japan Fund — will for now remain Article 6 products. However, we expect to uplift them once we have successfully completed the sustainable investment reporting cycles for Foord International Fund. Again, we would expect that almost all the investments would meet the enhanced ESG requirements we would set for the funds under Article 8.