Due Diligence

Detailed analysis

Due diligence involves rigorous analysis of the underlying portfolios, typically rechecking the underlying portfolios as for the short-listing and then doing additional analysis. This includes identifying any ethical issues, assessing financial track record, classifying each holding in the fund according to one of our ethical categories, assessing the capability of funds in managing social responsibility issues, considering the level of transparency, and understanding and summarising key risks.


Identification of ethical issues

We look at the complete portfolio listing to identify any potential ethical issues that may be of concern to investor, highlighting these where appropriate. These might include fossil fuels, controversial finance, animal testing, intensive agriculture, genetic modification, misleading marketing, military contracts, nuclear power, mining and human rights controversies.  This is of vital importance, since funds employ avoidance criteria, but investors may not be aware of what this allows.  And the proof is always in the pudding, or in this case, the actual investments made.

Financial track record

performanceOur focus is on the proven ability of the fund to deliver returns that are in line or better than the average for the sector. This means that we look for predictability, consistency and a level of returns that is within expectations for the sector over the longer term. In practical terms this means that we look at performance attribution, performance versus the index on a year by year basis, fund manager experience and fund strategy. The aim of all of this is to assess how confident we are in the fund to deliver expected returns in the future.  Consideration is given to both relative and absolute performance, since this absolute performance is the ultimate goal of the investor.

Ethical classification

We assess the overall social impact by calculating the proportion of the fund held in different types of stock in relation to their ethical characteristics. This involves screening each and every holding at a snapshot in time. Once we’ve classified each holding we can objectively identify the extent to which the fund makes a social or environmental impact and this level of research also gives us a much clearer picture of how the fund is being run.  We categorise holdings as follows:

Little Ethical Merit – Core activity confers no clear social or environmental benefits

Best of Class – Social and/or environmental practices are amongst the best in its sector

Game Changer – Key players in moving to a more sustainable world

Solutions Based – Core products and services are of direct social or environmental benefit

  • Little Ethical Merit

  •  Best of Sector

  • Game Changer

  • Solutions Based

  • Cash

SRI Management

We need to know how a fund is being managed in terms of strategy and the capability of the team behind the fund. We therefore spend time getting to understand the fund strategy and what makes it different from its competitors, and this also informs how confident we feel about the fund and its management. A clear and reasoned strategy backed up by evidence of its implementation is critical.


We look for an open and understandable process which is clearly communicated. In turn, we seek a very clear rationale and ongoing evidence of any engagement, decision making and the reasoning for specific investments.  Full disclosure of holdings is the very least we expect, with descriptions of all holdings being the standard we are looking for.  Overall, we seek documentary evidence of policies, so that there is no doubt about implementation.


Understanding the risks associated with a fund is vital to have a sufficient degree of confidence in the fund meeting expectations. To this end, we consider the make-up of the fund with regard to market capitalisation, diversification, currency, geography, and where appropriate, levels of borrowing, credit ratings and strength of contracts.

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