Far from all healthcare funds deliver measurable social impact alongside a financial return, finds MSCI, as JPM AM and Credit Suisse partner on nutrition.
Only 47 healthcare funds globally exhibit greater than 50% alignment with the UN’s Sustainable Development Goal 3 – ensuring healthy lives and promoting well-being for all at all ages – according to a report from data, analytics and research services provider MSCI. The funds comprise just 0.51% of all healthcare funds (1,088 exchange-traded funds and 8,140 mutual funds) and 15% of the total assets in healthcare funds in coverage as of May 15, 2021 (US$ 400 billion).
SDGs are increasingly used to drive capital investment toward a sustainable future through channels such as impact investing. While interest in healthcare funds increased during 2020, with net inflows of around US$50 billion (up 23% from 2019), “not all healthcare-focused funds are impact funds that aim to deliver a measurable social impact alongside a financial return,” said the firm.
MSCI’s study focused on funds in the healthcare and allied industries, including pharmaceuticals, biotechnology and medical innovation. The study aimed to assess the degree of fund alignment with SDG 3 (based on revenues from conventional pollution control, low toxicity and volatile organic compounds products, major disease treatment, contraceptives, and sanitation) and gauge the investable opportunity for healthcare fund investors aiming to achieve impact. The firm also explored the ESG attributes and drivers of high SDG 3 alignment in the most aligned funds.
Around 53% of all healthcare funds were domiciled in Europe, with Asian and North American funds comprising a further 39%. The top 20 largest global funds held over US$200 billion, however, none exhibited a net SDG 3 alignment of more than 50%, said the report.
ESG integration in healthcare funds was rare; only five SDG 3-aligned funds (those with greater than 50% alignment with SDG 3) explicitly stated the adoption of ESG criteria in investment policies. All five were mutual funds. Correlation between SDG 3 alignment and MSCI ESG Ratings was low across the universe of healthcare funds.
The report also studied the top 30 holdings among the SDG 3-aligned fund, finding that those most favoured were US-domiciled biotechnology companies. Companies among the top 30 holdings of SDG 3-aligned funds with high SDG 3 alignment and low average holding weight and frequency may hold potential for impact investors, said MSCI.
Nutrition-focused investment strategy launched
SDG 3 is a driver of a partnership between Credit Suisse and JP Morgan Asset & Wealth Management to develop an investment strategy that will target companies addressing the ties between nutrition, health, biodiversity and climate.
The two companies said nutrition was one of the world’s biggest health and environmental challenges, with almost 700 million people undernourished, while at the same time 1.8 billion people globally are overweight or obese. “Our food systems are already responsible for 20% of global greenhouse gas emissions and account for more than 90% of the world’s freshwater consumption,” said the companies in a statement. “We cannot feed the planet without functioning ecosystems and a healthy environment.”
Michael Strobaek Global Chief Investment Officer, Credit Suisse, said the partnership would “tackle underinvestment in this important topic”.
Writing in Credit Suisse’s report, ‘The global food system: Identifying sustainable solutions’, Strobaek said the food industry would be increasingly scrutinised by investors, consumers and regulators, pushing it to focus more on sustainable food.
Developments in digital agriculture, such as vertical farming and circular-based solutions to address food waste and loss, will play an important role in addressing food loss and waste, he wrote. “I am convinced that investors play a significant role in catalysing these likely trends.”