This is an overall assessment based on individual criteria as shown below, but having a subjective element to allow for the failings of any pure numerical system. A three star rating is usually required for inclusion in the 3D portfolio. A four star rating indicates excellence in meeting the need of socially motivated investors (SMI). A five star rating is reserved for the very best funds that demonstrate a particularly high level of understanding of the needs of the SMI and the stock selection reflects this.
Specifically, the star rating translates as follows:
One Star funds are ones to avoid – funds that are so tiny they are in danger of being wound up; or funds containing stocks that totally undermine our confidence in the ethical integrity of the fund; or serial underperformers
Two Star funds may be worth considering, although they may have a poor financial track record, contain stocks that are likely to be of ethical concern or else have a low social impact.
Three star funds are far from average, constituting the top 30% of the sustainable investment universe for UK investors. They may well rate as best in their sector, have a high SRI capability, or a relatively high social impact, but will also have some weaknesses.
Four star funds are amongst the best 3D funds. They are likely to have a high social impact with limited ethical concerns. Thematic funds are well represented.
Five star funds are the real pioneers in the industry. They are required to demonstrate at least a fair financial performance, excellent transparency, a high social impact and a lack of exposure to ethically controversial companies.
Our 3D Rating is a quick way of identifying leaders and laggards amongst 3D funds
We look for an internal research capability to assess and communicate on complex ethical issues
Over the longer term, we would expect the performance of 3D investments to be in line with comparable indices
Each fund is examined on a stock by stock basis to identify any holdings that may cause ethical concerns to socially motivated investors. Typically these include pharmaceuticals (animal testing), fossil fuel companies (climate change), nuclear power, intensive farming, market abuse, banks (unscreened loans), mining, supermarkets, human rights and alcohol. It should be stressed that our analysis is based on a snap shot in time, but this gives a good indication of how the fund is managed. Although stocks may have been sold since the research was conducted, similar stocks may be purchased in the future and historical holdings with ethical issues mean that these ethical issues may be prevalent in the future.
The information in this website is aimed at UK Investment Professionals (i.e. regulated firms) only. Any persons who do not fall within the definition of Investment Professional should not use or rely on the information in this website and should seek professional advice regarding their investments.