The new fund, provided by BankInvest, the Danish asset manager which runs €2.5bn in emerging markets assets, is based on the holdings of BankInvest’s existing emerging markets fund but reweights the portfolio according to ethical, rather than purely financial, screening criteria. The fund has been launched with €35m in assets provided by pension funds including the Finnish and Norwegian churches and the Swedish blue-collar union LO.

It was Anders Bladh, managing director of Intervalor, which distributes and markets BankInvest’s products in the rest of Scandinavia, who identified the need for the fund.

While many institutions were interested in the emerging markets as an asset class, he said, many were shy of committing themselves to the sector because of the risks involved. He said: “Nobody wants to sponsor a company involved in child labour or which is causing environmental damage.”

BankInvest employs a two-stage screening process that uses outsourced expertise from the Swedish socially responsible investment (SRI) adviser Ethix and the US firm Innovest. Starting with the portfolio of the company’s existing emerging markets process, the screen first excludes companies in egregious violation of UN or International Labour Organisation core conventions. The fund also excludes companies that derive more than a certain proportion of their turnover from controversial businesses, including alcohol, tobacco, armaments and pornography.

The next stage sees each company being awarded a score based both on a company’s human rights, governance, environmental and employment standards and on signs of improvement or deterioration in those standards. The portfolio is then weighted according to these scorings, with the worst performers being excluded entirely.

It is this positive scoring system that sets the fund apart, Mr Bladh believes. He argued that this carrot and stick approach could prove more effective in the emerging than in the developed markets. He said: “Companies in the western world are awash with cash – but emerging markets companies are dependent on financiers and they will listen to what they say.”

TE

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