Although the Gravis Clean Energy Income fund would score highly on environmental, social and governance practices, manager William Argent he won’t label his fund ‘ESG’. 
The £112.1m fund invests in wind and solar ‘clean energy’ production companies, the criteria for which is laid out in the fund’s responsible investment statement.
In this statement it declares that “attention will be given to the environmental performance of the selected investments. For an investment to be deemed suitable for the fund, it must demonstrate a commitment to environmental improvements, through policy, management systems or positive products.”
Alongside this, Argent (pictured) uses an independent company to verify and screen potential holdings, vetting them on a purely ESG basis to check if they are in line with his responsible investment statement.
And the fund also excludes any companies involved in armaments, alcohol, gambling, pornography, tobacco, coal or where power generation from coal is acceptable, and nuclear fuel – which are all classic ESG ‘sin stocks’.
So although the fund’s practices are what you’d expect from an ESG fund and the holdings would score highly on sustainable criteria, Argent said: “I don’t push it as an ESG fund”.
Consequently, the past eight months have seen a swarm of new ESG fund launches ultimately aimed at capitalising on investor’s demand for sustainability.
But Argent, who launched the Gravis Clean Energy Income fund back in 2017, hasn’t jumped to label his fund ESG now.
The manager said he is resistant to adding an official label because of the lack of definition within the sector and his own improper resources to be truly ESG.
He said: “If I ask someone ‘what is an ESG fund?’ I think that is yet to be answered.
“How do you measure it? Our strategy is not ESG [in that] we’re not specifically targeting companies which score highly on ESG; we just naturally buy companies which are certainly high on the ESG front because they’re, ultimately, targeting climate change.
“But we don’t want to say ‘we’re an ESG fund’ because like I said, I don’t think that’s been properly defined yet. I think it’s very early stages.”
This lack of definition surrounding ESG has been one of its main criticisms, as the line between what ESG and sustainability means to the individual and how much regulation can dictate what it is creates grey areas.
“I think there’s this sort of give and take between us saying ‘invest in us, this is what we’re investing in and this is what we’re committed to avoiding’ but equally we can’t state for everybody this is going to be considered an ESG fund,” Argent said.
The lack of regulation around what you can invest in and still call yourself ESG is part of the reason Argent said he is resisting the label.
He said: “I think it’s just so grey and early on. There’s no standardisation. I could launch an ESG fund and [hold] something like a mining company, but how on earth can they be considered ESG compliant?
“OK, they might score well on the G, but the E and the S is going to be difficult. But some funds out there will say ‘we’re ESG funds and we own miners, but we own the mines which perform best on an ESG scale’.”
Argent’s reasoning for not putting an ESG label on his Gravis Clean Energy Income fund goes beyond the debate around what being ESG truly entails. It’s also the fact that to do ESG properly – in his opinion – you need to have a dedicated analyst’s team, something he doesn’t have, or intend to have at Gravis.
“I think that an ESG labelled fund warrants quite a lot more resources than the traditional fund,” he explained.
“I think that if you launch a fund and specifically say that you’re ESG you’ve got to commit to that. You’ve got to have an incentive to demonstrate the underlying analysis of the companies you own.”
Not having this committed ESG resource may become an issue for managers jumping onto the ESG train now, Argent said: “I think that down the line it can potentially get some fund managers who’ve slapped that label on their fund caught out.”
Although he won’t call himself an ESG manager, Argent said that being invested in renewable energy production he isn’t blind to the fact that the fund will attract people focused on ESG.
To balance that, he “puts things in place [for investors] to make up their own mind” about whether or not his Gravis Clean Energy Income fund is right for their ESG portfolio, such as the responsible investment statement.
“You can be ESG without saying you’re ESG,” Argent said.
On the point that the fund will attract sustainable investment inflows, Argent clarified: “We launched this fund as an investment strategy in its own right, and you know we didn’t think ‘oh lets launch a fund that will target more ESG inclined investors.’ We launched it just as a reliable income infrastructure strategy in its own right.”
Gravis Clean Energy Income was launched as a global infrastructure strategy to compliment the Gravis UK Infrastructure Income fund, which Argent also manages.
When looking at what new fund to launch, Argent said that the initial plan had been to open a global infrastructure income fund but looking at the market there were already plenty of these.
He added: “It’s like, ‘OK, we’re not going to launch a global infrastructure income fund because there are already half a dozen out there’. But when we looked at global infrastructure what we see is a lot of attractive opportunities in the renewable energy space.
“So that’s really what then led us to it. Really we are a global infrastructure income fund – we’re just homing in on the particular segment of infrastructure.”
The Gravis Clean Energy Income fund has outperformed its IA Global peer group since launch, making 49.03 per cent total return versus the sector’s 19.97 per cent.
Performance of fund vs sector since launch
Source: FE Analytics
The fund has a 3.50 per cent yield and an ongoing charges figure (OCF) of 0.80 per cent.