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Responsible investment terms: what is thematic investment?



When deciding to invest responsibly, it might be difficult to identify the areas of sustainable investment that are most suitable to your needs. Thematic investment can be useful in helping you decide what issues you should consider when investing.

The European Sustainable Investment Forum’s (Eurosif) 2012 European SRI Study defines sustainability-themed investment as “investment in themes or assets linked to the development of sustainability. Thematic funds focus on specific or multiple issues related to ESG.

Sustainability themed investments inherently contribute to addressing social or environmental challenges such as climate change, eco-efficiency and health.”

Meanwhile, Worldwide Investor says thematic investment is about “identifying global economic trends, driven by politics, culture, demographics or a combination of all three.”

It adds, “The ‘core drivers’ behind most thematic investment funds are population growth, rising wealth in the developing world, natural resource scarcity, energy security and climate change.”

Thematic investment is about knowing “a lot about a little”, and not knowing a little about all available companies, as fund managers are generally required to do.

This kind of investment focuses especially on environmental themes, but can also cover social issues, for example those related to population growth or social health.

Thematic investors need a good understanding of their particular area of responsible investment, whether it’s energy efficiency, environment and water management or renewable energy, in order to better address the issue.

The Eurosif study highlights that thematic investment in Europe has risen from €25m in 2009 to €48m in 2011, despite the economic crisis. Particular growth was witnessed in the Netherlands.

An example of an ethical fund that focuses on thematic investment is the WHEB Sustainability Fund, which only invests in companies that provide solutions to some of the most urgent sustainability challenges.

In a thematic investing update from June 2012, Newton Investment Management wrote, “At present, the world is going through a series of significant transitions, and our themes have evolved to reflect these.

As well as less debt, we believe we are moving towards a world characterised by a more balanced global economy, a higher cost of energy, an older population and a greater degree of connectivity.”

Whether investors decide to choose environment-related themes or social ones, opting for a thematic approach is crucial in identifying positive areas that need investment, to help move the world onto a more sustainable footing.

Further reading:

The growth, drivers and choice behind ethical investment

$13.6tn invested sustainably worldwide, says study

Sustainable investment flourishes amongst European high net-worth individuals

What kind of investor are you?

The Guide to Sustainable Investment 2013