The US government’s high defence budget has caused it to fall foul of Greenbank’s sustainability screens, while only two of the ‘Magnificent Seven’ technology stocks – Microsoft and NVIDIA – made it through the firm’s stringent negative and positive screening process.
Microsoft has a strong sustainability story, with a target to be carbon negative by 2030, said Will McIntosh-Whyte, who manages the Rathbone Greenbank Multi-Asset Portfolios. Furthermore, it plans to remove enough carbon by 2050 to account for its historic emissions.
“It is meeting increased demand for IT infrastructure with more environmentally friendly and energy efficient solutions and it is quite innovative, so it has been trialling having one of its data centres underwater to help with cooling. And it is very good in terms of benefits and employee development programmes,” he said.
When the Rathbone Greenbank Multi-Asset Portfolios were launched in March 2021, NVIDIA was not eligible for inclusion because it derived a large part of its revenues from cryptocurrency mining and gaming.
NVIDIA’s business model has changed since then and it now focusses on advanced chip design, which aligns more naturally with two of Rathbone Greenbank’s eight sustainable investment themes: innovation and infrastructure, and decent work.
If McIntosh-Whyte and co-manager David Coombs want to invest directly in a stock, they have to recommend it to their colleagues at Greenbank (the ethical, sustainable and impact investment team of Rathbones Group) for further analysis and screening. McIntosh-Whyte put Alphabet forward but it failed Greenbank’s tests.
Alphabet has historically had issues with sexual harassment, allegations of discrimination and other employment issues, he explained. In particular, there was severe controversy over allegations of hiring discrimination concerning software engineers in California and Washington. Rathbones also has concerns about digital rights and the responsible management of content.
Alphabet was reluctant to engage with Rathbones when approached to discuss its concerns, which was a red flag.
Rathbones’ core multi-asset funds invest in Amazon and Apple but McIntosh-Whyte decided against including them in the sustainable range because they have not always been at the forefront of positive employee relations.
With Meta, he said it would be difficult to argue how Facebook’s parent company could align to Greenbank’s sustainable investment themes or to the UN Sustainable Development Goals.
“Tesla is slightly different because obviously, from a product perspective, you can see how it might align with sustainability given it is very focused on electric vehicles,” he noted. “We’ve actually always been a bit wary of Tesla from a governance perspective and also from a business model perspective. It’s just not one that we particularly want to own.”
The firm also shies away from US Treasuries. Instead, he has bought dollar-denominated debt issued by supranational institutions such as the European Investment Bank, which behaves in a similar way to US Treasuries. Dollar-denominated 10-year supranational bonds are paying yields north of 4.5%, he said.
Governments must pass three out of four metrics to enable Rathbones’ sustainable funds to buy their bonds: corruption, civil and political liberties, environmental performance and defence spending. The three-year global average defence spend is 2% of GDP, so countries spending more than that are ruled out.
Not only is the US defence budget too high but it also scores poorly on environmental metrics, although its green credentials are improving under the current administration, he added.
The UK passed these tests with flying colours and scored well on the environment as it pushes for a net-zero economy.