AllianceBernstein has launched the AB Global ESG Improvers Portfolio, a fund that aims to use engagement to transition the companies it invests in to become more sustainable.
The bottom-up Article 8 fund looks to purchase 30 to 40 stocks with attractive fundamentals and improving environmental, social and governance potential.
It will base these decisions on high-cashflow-based internal rates of return that are either not recognised by the market for driving positive change, or that have strong ESG credentials which are trading at a discount.
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Jeremy Taylor, portfolio manager AB Global ESG Improvers Portfolio, said: "We believe we can deliver notable investment returns by investing in underappreciated companies that are also driving material ESG improvement."
The strategy has been running as a segregated account for over two years before being launched.
The managers aim to pick winners from two areas which they say traditional ESG approaches have tended to bypass.
These are so-called ‘neglected enablers': overlooked businesses supplying vital components that underpin wider ESG gains, and ‘unrecognised improvers': businesses where their ESG profile is underappreciated.
Taylor added: "Currently, we find that sectors such as materials, utilities and industrials contain a significant number of stocks where market perceptions are yet to catch up with significant ESG improvements.
"Progress in these industries will be key to the world meeting substantial ESG challenges such as decarbonisation."
Alignment with one of these ESG opportunities, combined with an attractive valuation, is required for inclusion in our portfolio.
Stocks will become sell candidates as fundamental research conclusions change and/or the ESG conclusions change.
This could mean they improve and the ESG credentials of the company become fully reflected in the ESG rating and stock price, or the ESG behaviour of the company deteriorates.
