Fund Research Methodology

Research on policies 

EIRIS contacted the fund managers or relevant social responsibility staff members of some 90 green, ethical and Shariah funds to request that they complete a questionnaire asking for details of their fund’s investment policy. The main questions asked of each fund were: 

  • Does it apply positive screens to its investment process?
  • Does it apply negative screens to its investment process?
  • Does it exercise its voting rights at investee company meetings?
  • Does it engage with companies to improve their ESG performance?
  • What is its divestment policy for companies that fail to meet its standards?
  • Is research to ensure that stocks meet its ethical investment policy conducted in-house or by external agencies?

Information supplied by funds in answer to these questions was then distilled into profiles.

EIRIS also gathered financial data for each fund, including the size of the fund, its top ten holdings and sector weightings. 

Research on portfolios 

Each fund was asked to submit a full portfolio of all its holdings so that EIRIS could run an analysis to produce a ‘snapshot’ of how the fund invests under four specific headings (positive business focus, environment, engagement and corporate social responsibility) and to produce a tick table (Portfolio Snapshot) indicating a fund’s investment approach against a number of ‘negative’ screens. 

The purpose of the EIRIS fund ratings is to measure funds against common benchmarks so that, in conjunction with the fund profiles, individual investors and their advisers can compare funds and find the most suitable ethical fund for them. 

For each fund, we analyse all companies in the portfolio which are in the EIRIS global universe. EIRIS researches nearly 3,000 companies from the UK, continental Europe, North America (the US and Canada) and the Asia-Pacific region (Australia, New Zealand, Japan, Singapore and Hong Kong). These include all companies on the FTSE All World Developed Index. In most cases this gives complete or near complete coverage of the ethical funds’ portfolios. 

The FTSE All World Developed Index is the index against which we benchmark all funds. The UK ethical funds are spread across various IMA sectors, with a variety of style, average market cap size and geographical weightings. We looked at producing a tailored benchmark for each individual fund to reflect these differences but came to the conclusion that from the investors’ point of view it was preferable to use the same benchmark for all funds. 

Areas examined in portfolio analysis 

Positive Business Focus

This captures the extent to which a fund invests in companies providing positive products and services (e.g. pollution control, environmental technology, health, renewable energy, sustainable transport)

Corporate Social Responsibility

This captures the extent to which funds have invested in CSR leader companies (those companies which have adopted policies and systems to manage the environment, human rights, equal opportunities and global labour/supply chains). 

Environment

This captures the extent to which a fund invests in companies with good environmental policy, management systems, reporting and performance. Also captures the extent to which the fund invests in companies providing environmentally positive products and services.

Engagement

This captures the extent to which the fund, and the investment institution which manages the fund, engages with companies to improve their policies and practices. 

Tick Tables (Portfolio Snapshot)

These sum up a fund’s investment behaviour in the following areas: alcohol, animal testing, gambling, genetic engineering, intensive farming, military involvement, nuclear power, pornography and tobacco. This looks specifically at how a fund screens in each area, e.g. whether it screens out all companies involved in the sale or production of alcohol or those business in this area is greater than 33%.