"A particular stock or fund might look great purely based on its performance, but how do I really know what I'm investing in, and does it align with my values?"

This is a question Pearler investors have increasingly been asking us. We love to see this, because it shows that we're home to a community of switched on investors who want to understand the contents of their investments.

At Pearler, when it comes to investing, we believe in empowering our community through research and education. That is, being able to understanding the ins and outs of each of your investments (beyond their value) before deciding to put your money in them.

This approach feels particularly pertinent right now. In light of recent global conflicts and other events, many of the inquiries we've received have focused on the ethical policies of different stocks.

So, to help you better discern what you’re investing in, we’ve partnered with global investment manager, VanEck .

VanEck's insights into understanding your investments

More and more fund managers are offering funds with terms like 'sustainable’, ‘ ESG ’ and ‘responsible’ in their name. However, there is more to an investment than its title. Sometimes the emperor is wearing no clothes, and investors need to be able to look beyond the label to determine how much their chosen funds align to their beliefs and ethical standards.

There are three critical things investors can do to assess their ESG funds:

1 – Determine if your fund goes beyond simple exclusions.

2 – Measure your fund’s credentials using a free fund comparison tool.

3 – Assess your fund’s transparency.

1. Determine if your investment goes beyond simple exclusions

There are two ways your fund can incorporate environmental, social and governance (ESG) considerations in portfolios. The first involves ‘negative screens’ by excluding those investments in companies involved in such business activities as fossil fuels, weapons production, and tobacco.

These screens are quantitative. It is relatively easy to identify whether a company is involved in these activities from publicly available data such as annual reports. Companies owning or deriving income from these sources can be excluded from a portfolio. There are many portfolios that only exclude companies because of such activities.

We think ESG investing has to go further than just negative screens.

A second approach, considering environmental factors as a part of a thorough ESG evaluation, goes beyond quantitative data and includes qualitative analysis.

Many active fund managers incorporate this type of ESG scrutiny into their risk analysis. However, the challenge for many investors has been combining the inclusion of environmental leaders in their portfolio by identifying those companies that demonstrate a commitment to the environment. This can be done by targeting the ESG leaders in each industry.

It has been particularly hard for passive managers, who track indices, to include effective qualitative environmental research. But some passive managers go that extra step and do this. They do this in two ways:

1) they utilise the ESG research of their index provider to target ESG leaders, and

2) they have controls and checks in place, such as a committee, to verify that securities in the index satisfy the intended principles of the funds as well as alignment to the firm’s Responsible Investment Policy.

This sounds like a lot of work, but there are simple ways to do this. This information should be on the website of the fund. Check the fund’s documents and check the fund’s holdings. If you think your ESG fund has only a handful of companies less than if they didn’t have an ESG label, chances are they are doing the bare minimum. VanEck’s ESGI and GRNV, for example, go beyond simple exclusions, targeting ESG leaders and these funds have a Responsible Investment Oversight Committee (RIOC). ESGI only includes 140 companies, from a universe of 1,500; and GRNV, just 80, from a universe of over 200. Holdings of ESGI and GRNV, too, are fully transparent. You can check each of the companies in the fund on the respective webpage, and it’s updated daily.

You should be comfortable that your ESG fund does the same.

2. Measure your fund’s credentials using a free fund comparison tool

You need to be able to assess the environmental impact of so-called ESG funds. You should not just take our word for it, just as you should not accept the word of every other fund manager with an 'ESG' labelled fund. You need to check yourself. It is easy, and it is free.

Investors are now able to assess the environmental, social and governance metrics for all funds. MSCI has a fund comparison tool that can be found here: ESG fund ratings

MSCI’s tool aggregates all the holdings in a fund to give the fund an overall ESG rating. It also includes data on the weighted average carbon sales and ‘green’ vs ‘brown’ revenue. Now investors can verify for themselves if their fund manager is truly green or if they are just ‘greenwashing.’

3. Assess your fund’s transparency

We spoke about your funds' transparency in 1) above, but reporting all the holdings daily, should be a minimum for funds promoted as ESG.

Your ESG fund should also be transparent regarding the CO ₂ emissions of its portfolio and its corporate impact.

These should be readily available:

• For ESGI, it is available here: ESGI ESG and Carbon metrics & ESGI Sustainability Impact Report
• For GRNV, it is available here: GRNV ESG and Carbon metrics & GRNV Sustainability Impact Report

If your ESG manager is not providing this, you need to ask why.

In addition to this level of transparency, you should be able to access your fund manager’s:

• proxy voting record to determine if they are practicing what they preach; and its
• stewardship report to ensure that your fund manager is engaging the management of companies they invest to be better corporate citizens.

We have these policies and reports available at the bottom of our Responsible Investing page.

Once you have followed the three steps above about your ESG fund, and you are comfortable with the answers you get, you may have found an investment appropriate to your values and ethics.

You now have a robust framework to assess your ESG fund.

Looking for more ways to investigate your investments?

Beyond assessing your funds as per VanEck's suggestions, here are some ideas from us at Pearler.

• Reach out to a financial adviser. If you need support understanding your investments, or with making a financial decision, never hesitate to reach out to a licensed financial adviser. They can provide tailored advice for your preferences and help you navigate your investments.
• Chat to a fund manager. Not sure exactly what a particular fund holds? Don’t be afraid to talk to the fund manager directly. You can ask all kinds of important questions, including what their overall investing philosophy is and what their advantage is compared to other similar funds. Also find out how they’re planning to invest in the coming 12 months and, if it's important to you, how strongly ESG is incorporated into their investing strategy.
• Stay on top of the headlines. Staying up-to-date with the news will ensure you’re informed of broader influences that impact the stock market, like global events, the environment, politics, economics and more. It can also keep you abreast of things like ethical violations, workplace issues and other matters that may happen within the companies you invest in.
• Build your own portfolio. Whilst not something we advocate for, given the complexity and challenges in achieving diversification and scale for many everyday investors, if you find that the options for screened investment options or actively managed portfolios are not suited to your needs, it is possible to curate your own portfolio.
• Read, read and read some more. Pearler’s blog is a great resource for understanding many different aspects of your investment journey, including first-time investing , ethical investing , superannuation and working toward financial independence . There are also several excellent resources specifically around researching your investments . Beyond Pearler, there's also an endless sea of financial news resources as well as impact organisations such as Investors Against Slavery and Trafficking and Investors Against Genocide, that further may inform your journey

We hope this resource gives you the tools you need to confidently understand your investments. And if you ever find yourself in doubt, always consider reaching out to a registered financial adviser .

Happy investing (and learning),

Jamie Hannah & Nick Nicolaides

Any views expressed are opinions of the author at the time of writing and is not a recommendation to act.

VanEck Investments Limited (ACN 146 596 116 AFSL 416755) (VanEck) is the issuer and responsible entity of all VanEck exchange traded funds (Funds) listed on the ASX. This is general advice only and does not take into account any person’s financial objectives, situation or needs. The product disclosure statement (PDS) and the target market determination (TMD) for all Funds are available at vaneck.com.au . You should consider whether or not an investment in any Fund is appropriate for you. Investments in a Fund involve risks associated with financial markets. These risks vary depending on a Fund’s investment objective. Refer to the applicable PDS and TMD for more details on risks.Investment returns and capital are not guaranteed.