Pros: This fund uses a thematic approach to collect water and waste themed companies into an actively managed portfolio. If you desire to invest money specifically into companies working towards SDG 6 then this could be a viable option for you.
Cons: This fund only invests in the water and waste sectors; it does not invest for impact. This is not a sustainable thematic strategy as claimed. Fidelity has no monitoring process for its ESG integration strategy and has a poor track record in sustainable funds.
Fidelity Sustainable Water and Waste does few things well and many things poorly. The non-binding ESG integration approach makes it hard to see if even the most controversial equities would be screened, as proven by the top holding in Veolia Environnement. Furthermore, the poor active ownerships activities are disappointing from such an influential financial institution putting Fidelity far behind the curve for creating positive impacts through their funds. The injection of “Sustainable” into the title is hopeful at best and blatant greenwashing at worst. This is simply a Water and Waste Fund.
Fidelity Sustainable Water & Waste Fund contains £1.67 billion in assets spread across 44 holdings as of January 2021. The fund focusses on the water and waste management sectors with a minimum of 70% of the fund’s net assets to be invested in securities that are deemed to maintain sustainable characteristics. The fund focusses on global mid-low cap firms which creates exposure to volatility in emerging markets. This results in a high risk rating of 6/7.
Top 10 Holdings: Company | Holding (%) | Industry | Sustainalytics ESG Score |
Veolia Environnment SA | 3.6 | Utilities | 30.42 (High risk) |
Evoqua Water Technologies Co | 3.5 | Industrials | No Data |
American Water Works Co | 3.5 | Utilities | 20.5 (Medium risk) |
Waste Management Inc | 3.3 | Industrials | 14.9 (Low risk) |
Entergris Inc | 3.3 | Information Technology | No Data |
Republic Services Inc | 3.2 | Industrials | 23.8 (Medium risk) |
Advanced Drain Systems Inc | 3.2 | Industrials | No Data |
Waste Connections Inc | 3.2 | Industrials | 24.1 (Medium risk) |
Suez | 3.0 | Utilities | 21.2 (Medium risk) |
Steris Plc | 2.9 | Healthcare | 31.5 (High risk) |
The top 10 holdings have an average weighted ESG score of 24, identifying a concerning medium ESG risk. The top holding in Veolia Environnement is extremely problematic from an Impact investing perspective as Veolia is a multinational corporation that has been involved in many controversies. These include past lawsuits from the Flint Water Crisis and an ongoing, potentially illegal takeover offer of Suez which would increase monopolisation concerns.
Further, we only see one ESG score in the low risk category which is Waste Management Inc. This is a waste hauling and recycling firm, which although has some positive impacts, cannot outweigh the high ESG scores of the other holdings. Overall I struggle to identify the positive impact that you would hope to achieve by investing in such a ‘sustainable’ fund. These firms are mostly suppliers of utilities or industrials which don’t have clear sustainability aspirations or innovations.
The fund describes itself as a Thematic ESG Fund yet fails to back this up in their holding selection process. The fund aims to have 70% of the fund invested in equities that “maintain sustainable characteristics” but there is no evidence behind this claim. ”Maintain” already implies a lack of ambition to find sustainability leaders which does not create the impact you would desire as an ethical investor. The managers also have complete freedom to invest outside of the geographical, sectoral or asset class regions giving them unrestrained portfolio construction. This is seen in the holdings in Steris Plc which is a medical device company which falls outside the theme of water and waste management.
This, alongside non-binding commitments to integrate ESG issues, is unacceptable for a fund claiming sustainability in the title. If they truly integrated ESG and used their quoted principled and norm-based negative screening, then Veolia would have identified as an inappropriate choice. All these issues contributed to a rating of 3/5 on sustainability by Morningstar and further confirms that if you desire to make a positive impact in the sustainable waste and water sectors then this is not the correct fund for you to invest in.
The fund is managed by Bertrand Lecourt and assisted by Saurabh Sharma. They have had careers specialising in utilities and equities respectively with neither having prior expertise in ESG or Impact Investing.
Fidelity International was established in 1969 and is a behemoth financial institution managing $8.3 trillion in total assets. They have a relatively high risk ESG score of 26.4 and have been identified as a laggard in proxy voting on ESG issues. Morningstar placed them in the lowest category level for ESG commitment with these obligations “on the fringe” of their investment process. This means that even if they invest in a sustainable company, they will not be using their influence to further any environmental impact. Fidelity also has no formal ESG integration monitoring process which explains their questionable stock selections and high weighted ESG risk scores. They are improving on these shortcomings having joined the PRI in 2017 and achieved a rating of A+, but remain far behind many other asset managers.