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How to approach reviews: the task that defines firms

Connections Magazine Q2 2023

Introducing ebi

Jonathan Griffiths
CFA Investment Product Manager - ebi

ebiWe are a discretionary fund manager, built around the principles of a sustainable, factor-driven, and evidence-based approach to portfolio management.

As early advocates of sustainable investing, we observed a lack of low-cost, passive, and systematic ESG investment solutions in the model portfolio marketplace. We made it our mission to address this, and over the years have collaborated with leading sustainable investment managers to introduce cutting-edge investment solutions that embody our core ethos of factor-based investing while operating with sustainable investing at their heart.

How has ebi evolved over the years?

In 2019 we launched our flagship Earth model portfolio range – our suite of ESG-screened, globally diversified, factor-based portfolios. At the time of launch, the set of suitable low-cost sustainable mutual funds available in the market was quite limited. While we were happy to launch the portfolios with ESG screening in place across just under half of the equity funds in the range, we hoped to be able to push this further. Through strong relationships with fund managers, we were able to seed the launch and re-domiciling of several sustainable equity funds in 2021, which led to ESG screening being put in place across all equity funds in the Earth range.

In Autumn 2022, we were able to make the same move for the fixed income funds in the range, through co-launching two sustainable global bond funds with Northern Trust (Global Bond ESG Climate Index Fund and Global 1-5 Years Bond ESG Climate Index Fund). These are the first in the market to integrate both the Sustainability Accounting Standards Board and the Task Force on Climate-Related Financial Disclosures within corporate bonds, while also providing a framework for ESG integration within government bonds.

As such, we’re pleased to be in the situation today where every fund in the Earth range implements ESG screening, with all underlying fund managers adopting exclusions covering a range of areas including fossil fuel participation, and carbon intensity.

Tell us more about your factor-based approach, and how it adds value

Our flagship Earth portfolio range is grounded in a factor-based approach. Factor investing is an investment approach that involves targeting quantifiable characteristics or “factors” that provide return-premiums to the wider market.

To be worthy of exposure, a factor must be:

  • Persistent – it works across long periods of time;
  • Pervasive – it works across countries, regions, sectors, and asset classes;
  • Robust – it works for various definitions, and outperforms by a meaningful amount of return;
  • Investable – it works not just on paper, but also after considering implementation issues like trading costs;
  • Intuitive – there are logical risk-based or behavioural-based explanations for its premium and why it should continue to exist.

For example, the Earth portfolio range seeks exposure to Momentum, Minimum Volatility, Quality, Size and Value factors. Shining a light on one of these, the Quality factor – this suggests a premium is provided by stocks that have higher profitability and resilience compared to the wider market. There are a number of potential explanations for this, including from the world of behavioural finance, which suggests that investors may find it psychologically preferable to back the revival of unprofitable firms than to expect the continued strength of profitable firms, leading to an under-pricing of highly profitable firms.

We believe that through harvesting factor premiums over the long term, such as those provided by the Quality factor, we’re able to add value in comparison to a pure market-based approach.

What other steps do you take in order to advance ESG issues?

ebi influence our underlying managers on ESG issues, where appropriate. For example, we engaged with Global Systematic Investors, one of our underlying fund managers, to increase the carbon reduction in their Global Sustainable Focused Value fund 10% to 50% versus the fund’s benchmark. This fund itself was launched following engagement from ebi in relation to our need for a deep-value ESG-aware global equity solution.

We have also recently launched our Core ESG portfolios; these are designed for investors seeking broad market exposure, with embedded ESG screening in place, leading to reduced carbon exposure compared to the wider market.

How do you support advisers in the sustainable investing space?

ebi seeks to support clients on their sustainable investing journey, and help them see the bigger picture in relation to ESG and sustainability issues. This includes the cases where clients may have the perception that incorporating ESG issues into the investment process may have a negative impact on returns, or involve higher fees. For example our flagship Earth 60 portfolio has an OCF of 0.22% and a DFM fee of 0.12%, which we believe is highly competitive in the marketplace.

We provide a range of ESG insights and tools on our website, to help clients deepen their knowledge of social and responsible investing. One example is our emissions calculator, which clients can use to see the relative carbon emissions of our Earth range compared to a range of global indices and other ebi portfolio ranges.

We also provide “InSight” reports to clients, which assess our portfolios against selected peers and global benchmarks, including analysing ESG data. This includes, for example, comparisons in terms of Fossil Fuel Involvement, Carbon Involvement, and ESG Product Involvement (based on Morningstar Direct, Sustainalytics, and MSCI data).

Alongside this, we host and facilitate regular sustainability webinars and roundtable discussions, acting as a key bridge between the advisory space and sustainable investment managers (including at our ‘ebi live’ events). These cover a wide range of actionable ESG topics, with many of the webinars being delivered by ESG thought leader Samuel Adams (a consultant for ebi).

Looking to the future – what plans do you have over the next 12 months?

Working with a leading European asset manager, we are in the final stages of developing our SRI portfolio range – a suite of low-cost SRI market tracker portfolios, made up of mutual fund building blocks. This is designed for investors seeking a solution with enhanced sustainable, ethical, and responsible characteristics, and we’re excited to share that the equity portion of the portfolio will invest entirely in funds tracking Paris-aligned benchmarks.

Finally, ebi are proud to announce that we have been awarded B-Corp Certification. ebi has joined a global community of likeminded businesses contributing to a more inclusive, equitable, and sustainable economy. The certification is the culmination of two years of hard work in fulfilling the rigorous requirements in making ebi a business of purpose. We are looking forward to demonstrating our continued focus on social and environmental performance at a company level.

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01922 472 226