Five funds to help protect your portfolio from climate risks

Recent destruction in Los Angeles, where over 10,000 structures were reduced to ash in “apocalyptic” wildfires, serve as a grim reminder of the economic toll of climate disasters. With damages estimated at $135-$150 billion — nearly 4% of California’s annual GDP* — entire neighbourhoods have been erased, tens of thousands displaced, and the insurance industry pushed further into crisis.

But climate-created destruction isn’t the only risk to your investments. One of the biggest threats comes from efforts to prevent such disasters: stranded assets. These assets, such as those tied to fossil fuel extraction, quickly transform from valuable holdings into costly liabilities in a net-zero carbon world.

As awareness of climate action grows, more funds are weaving environmental protection into their investment processes, not only to safeguard the planet but also to protect investors’ wealth.

Many of our Elite Rated funds go beyond just considering sustainability, they make it a core priority. Here, we explore five that are leading the charge in helping investors build portfolios that can weather both climate disasters and the economic transitions they trigger.

CCLA Better World Global Equity

Launched in 2022, this fund emphasises quality businesses that align with the company’s responsible investing philosophy. Unlike funds which narrowly focus on “sustainability winners,” this fund takes a broader view, targeting companies with stable, persistent growth at attractive valuations.

Managed with a focus on long-term value creation, it combines capital growth and income while promoting real-world change. This approach has delivered strong returns with lower volatility compared to peers and makes an ideal candidate for investors seeking ethical and global exposure.

Janus Henderson UK Responsible Income

This fund combines a well-defined ESG approach with a proven equity income strategy, making it an attractive option for investors seeking sustainable yield. Managed by Andrew Jones, a seasoned expert in equity income, the fund balances growth and income while maintaining a strong commitment to responsible investing.

The manager avoids chasing high yields, focusing instead on investments that offer both sustainability and strong long-term potential. This balanced strategy makes it a core option for investors looking to prioritise ethical practices alongside consistent income generation.

Stewart Investors Asia Pacific Leaders

Investors looking to diversify further might consider this fund which focuses on investing in 30-60 high-quality businesses across the Asia Pacific region, excluding Japan. These companies are chosen for their potential to deliver strong financial returns while contributing to the sustainable development of the countries in which they operate. Managed by David Gait and Sashi Reddy, the fund emphasises stewardship, prioritising companies that respect minority shareholders and avoid harmful activities like fossil fuels and nuclear energy.

The fund has a proven track record of delivering impressive risk-adjusted returns over the long term, even in markets often dominated by state-owned enterprises. As of June 2024, all 37 companies in the fund were contributing to at least one human development pillar, with 70% supporting climate change solutions**.

Ninety One Global Environment

This strategy is a concentrated, high-conviction portfolio of companies the investment team believe are the real leaders of decarbonisation across a range of industries. These companies sit across a wide range of sectors, market capitalisations and geographies, but with much higher growth rates than average.

Decarbonisation is a complex and emerging structural growth area. Through an allocation to this strategy, investors can diversify and correct for the underexposure to decarbonisation and at the same time gain exposure to those leading companies with significant potential to benefit from the multi-decade process of transitioning to a low carbon economy.

Liontrust Sustainable Future Monthly Income Bond

Our final option is from the world of sustainable fixed income and provides investors with monthly income and potential capital growth by primarily investing in corporate bonds, with some allocation to government bonds. The fund is managed by experienced co-managers Kenny Watson, Aitken Ross, and Jack Willis, who apply a highly analytical and flexible approach. This includes adjusting between shorter and longer-dated bonds to respond to changes in interest rates, enhancing its adaptability in varying market conditions.

With a strong track record of delivering attractive yields, the fund appeals to income-focused investors seeking sustainability. The team believes the current spreads in the market offer sufficient compensation for risk, with all-in yields hovering around 5.5%, highlighting “investment-grade credit offering an attractive return profile given our outlook for both the asset class and the broader economy.”

*Source: Seeking Alpha, 10 January 2025

**Source: Stewart Investors, fund level reporting to 30 June 2024