Sustainable investing has faced a challenging period since 2021, following years of seemingly unstoppable growth. While investor capital has continued to flow into sustainable funds, the pace has significantly slowed compared to the boom years.
Providers of sustainable funds are not only competing with conventional counterparts but also facing intense rivalry within the sustainable investing space itself. A striking recent example occurred just before the end of the year when St. James’s Place, a major UK financial adviser and wealth manager, decided to change the manager of one of its funds. For years, the GBP 5.2 billion St. James’s Place Sustainable & Responsible Equity Fund had been managed by Impax, but from February 2025, that responsibility will be transferred to Schroders. This represents a significant loss of assets under management for Impax and a notable win for Schroders.
Morningstar’s fund analysts closely monitor the two strategies in question: Impax Global Equity Opportunities and Schroder ISF Global Sustainable Growth. Both funds sit within the Morningstar Global Large-Cap Growth Equity category. Based on qualitative assessments, there is little to separate them. Both funds hold Above Average ratings for the People, Process, and Parent Pillars. However, due to its higher costs, the Impax fund holds a Bronze Morningstar Medalist Rating, while Schroders’ fund is rated Silver.
People
The portfolio management teams at both Impax and Schroders are highly experienced, stable, and possess strong expertise in sustainable investing. Impax Global Equity Opportunities is managed by Kirsteen Morrison and David Winborne, who have led the strategy since its inception in 2015. They are supported by a team of over 35 portfolio managers and analysts responsible for all of Impax’s equity funds. This team combines seasoned investors with deep sustainable investing expertise alongside younger, talented analysts.
Schroder ISF Global Sustainable Growth is led by Charles Somers and Scott MacLennan. Somers brings decades of experience, while MacLennan, though less experienced, remains a strong investor. They rely on equity research conducted within Schroders’ central team of over 100 analysts. The best ideas from these analysts are filtered through a team of sector specialists, with final decisions made only after thorough discussion within the six-member Sustainable Growth Investor Group, which includes the portfolio managers themselves.
Process
Impax’s investment approach focuses on companies with competitive advantages that can benefit from the sustainability transition. To identify such companies, the managers employ their proprietary “Sustainability Lens”, which assesses both opportunities and risks related to ESG factors. The broader investment process follows a rigorous, structured 10-step framework used across Impax’s equity strategies. This process evaluates management quality, competitive advantages, business models, and ESG factors, with a disciplined focus on stock valuation.
Schroder ISF Global Sustainable Growth evolved in 2017 from its predecessor, Demographic Opportunities, which broadened its thematic focus to a sustainable approach. However, the investment process remained consistent, following a growth-at-a-reasonable-price (GARP) philosophy. The strategy leverages insights from Schroders’ global analyst team and sector specialists to identify companies with strong sustainability practices. It prioritises businesses with robust growth potential that the market underestimates while also allowing for occasional investments in cyclical companies when short-term opportunities arise.
Portfolio
Both strategies exhibit a growth-oriented bias, but in both cases, a consistently applied valuation discipline prevents the managers from investing in the fastest-growing and most expensive names. Schroders applies even stricter valuation criteria and has greater flexibility to invest in cyclical stocks, which often exhibit stronger value characteristics. Impax, on the other hand, tends to invest more in smaller companies and has lower exposure to giant caps.
The bottom-up stock selection process leads to significantly different sector allocations between the two strategies. The Impax fund has a relative preference for materials and, in particular, financials, whereas the Schroders portfolio is more heavily weighted towards communication services, consumer cyclicals, and, to a lesser extent, technology. There is also a notable difference in regional exposure, with the Schroders managers seeking more opportunities in Asia, particularly Japan, at the expense of their US equity allocation.
Performance
Schroder ISF Global Sustainable Growth has convincingly outperformed Impax Global Equity Opportunities in 2024 and over the past five years, though the difference is much narrower when measured over ten years. Schroders’ success over the past year was largely driven by strong stock selection. Positions in Booking Holdings, Inditex, and Lowe’s in the consumer cyclical sector, as well as Alphabet and Recruit in communication services, contributed positively.
Over a five-year period, successful stock selection also explains the return differential. Schroders has continued to perform well in the same sectors, with Amazon, Deckers Outdoor, and Tencent emerging as additional top performers. Moreover, its financial sector positions, including BBVA and DBS, contributed to higher returns, whereas Impax suffered from weaker stock picks such as Beazley and Hiscox, which negatively impacted performance.
Ronald van Genderen is a Senior Manager Research Analyst at Morningstar. Morningstar analyses and evaluates investment funds based on both quantitative and qualitative research. Morningstar is part of the Investment Officer expert panel.