The OFI Green Future fund obtained an average score overall because they don’t make good use of the sustainability screening process they have created. It seems that a lot of efforts are allocated to rate and classify companies, yet when it comes to choosing the sustainable ones, the fund become more flexible and not as strict in their requirements. The grade could have been higher, but the disappointment lies in the fact that it is clear the fund management has the tools and the expertise to find profitable sustainable companies, but still doesn’t commit enough.
The OFI Green Future fund represents 79,05 MEUR. It invests in various geographic areas, such as North America, Europe, and the Asia Pacific, and most of its assets are invested in the US (54%), in France (9%), and in the UK (7%). The fund portfolio targets investments on the international equity markets in companies with mainly "eco-activities" in the following 8 sectors: energy, buildings, waste management and pollution control, industry, clean transport, information and communication technologies, agriculture and forestry, and adaptation to climate change. By restraining its investments to businesses engaged in sustainable sectors of activity, the fund demonstrates its commitment to finance the main actors of the sustainable transition. However, in their report, a figure presents the sectorial distribution of their investment, which covers about 20 different sectors such as « Travel and leisure », « Health », or « Technology ». There is no explicit link with the previously defined 8 categories. Looking at these incoherent data raises doubt about the organization of the fund’s portfolio.
To have a more concrete understanding of their assets, we will have a look at their top ten holdings. As of May 2021, it included International Paper (2.23%), Microsoft (2.11%), Aptiv (2.09%), Equinix (1.92%), Oracle (1.90%), Xylem (1.89%), Maxim Integrated Product (1,88%), Waste Management (1.84%), Analog Devices (1.79%) and Boston Properties (1.78%). Referring to the company’s ESG Risk Rating, I have calculated a pretty low score of 17,55, which means that on average companies in which the fund has invested are making some efforts to reduce their ESG risks. However, improvement is still possible.
First, reducing the average ESG risk rating would be a wanted improvement. Indeed 17,55 is low, but it could be even less. Besides, this number witnesses the fund’s tolerance for partially sustainable companies. Second, some companies have a medium ESG risk rating, such as International Paper (24,8) in the industry of paper and forestry, and Analog Devices (23,8) a group of semiconductors. Overall, it is a pleasing portfolio that has standings in different sectors participating in the ecological transition, but it would benefit from a more radical and comprehensive approach to sustainability.
The investment process of the OFI Green Future Fund balances the application of financial and extra-financial criteria to build a socially and environmentally responsible portfolio of assets. At first, the process excludes companies with economic activities that go against the effort of the energy and ecological transition, or companies with a controversial attitude. Controversy as criteria is an interesting idea, yet in their report, they fail to precisely define the term. The meaning put behind the word should be outlined because it would prevent subjective decisions. The second step of the screening process filters companies based on ESG criteria and categorizes them into 3 different groups. Categories I, II, and III are defined according to the weight of eco-activities in their turnover. Indeed, Type I are companies with more than 50% of their turnover in eco-activities, Type II between 10% and 50%, and Type III between 0 to 10%. In the report, the way that they evaluate and classify each company is precisely described. It is a technical and quite complicated method. I feel like the fund management puts a lot of effort into rating companies, but strangely distributes them in very broad and incoherent categories. For instance, Type II brings together average companies (between 30% and 50%) and poor companies (between 30% and 10%), when I believe it should be divided into two separate groups. The same critics could be made to the Type I category that mixes companies that strive to have 80% of their turnover with eco-activities and others that are less rigorous in their process. The last issue is rooted in the allocation of the fund’s money between these 3 groups of more or less sustainable companies. Investment respects the limits of a minimum of 20% of Type I and 25% maximum of Type III. The difference between 100% and the combined Type I and III allocations will be invested in Type II. The tolerance for companies that are lightly engaged in sustainability is disappointing. Lastly, investment opportunities are filtered according to financial and risk criteria. Overall, while the OFI Green Future fund exerts some efforts to exclude unsustainable companies, it doesn’t mean that it is « green ». Their rating strategy and their capacity to screen socially and environmentally responsible investment is good, yet the issue comes from their lack of exigence in allocating their money to companies that have a more comprehensive approach to the sustainable transition. The fund is labeled Greenfin, which is a French label created for financial institutions. Hence, my analysis of this fund investment strategy could be applied to any Greenfin labeled fund.
The OFI Green Future is managed by the French asset management firm OFI, which takes care of 71 other so-called sustainable funds. Stéphane Youmbi and Olivier Kerjan are in charge of the fund and, according to their report, aim to « participate in the evolution of international equity markets by investing in companies contributing, […] to the energy and ecological transition and the fight against climate change ». Looking at the previous section, we can easily understand if it is their true goal or their marketing strategy. I believe the problem finds its root in the lack of understanding of the stakes of sustainability and the commitment it implies. The fund’s management should demand more commitment to sustainability from the companies they invest in than they currently do. The managers have long-lasting careers in finance, but no particular previous experience in sustainable finance. It may explain why managers were more likely to treat the fund as any financial institution to which they added some sustainable aspects, rather than treating the fund as a tool to actively participate in the ecological transition. Even though the fund is far from being comprehensively sustainable, the seriousness of their transparency values is impressive and convinced me that there were honest in their sustainable approach.