Style Name: Responsible Ownership

Investment options where share ownership is used as a  means to encourage more responsible business practices – mainly through dialogue and voting

Brief description of Style:

Responsible Ownership is a ‘corporate level’ strategy, not a ‘fund specific’ strategy.  Fund managers with Responsible Ownership strategies work with the companies they invest in to encourage better environmental, social and governance practices – when change is believed to be in the best interest of (all) longer term investors.

Activity of this kind (particularly voting) has increased significantly in recent years – following the introduction of the FRC Stewardship Code  (adopted by the FCA for all UK fund managers in December 2010).

The Fund EcoMarket ‘Responsible Ownership’ entries list fund manages that carry out significant ‘engagement’, ‘stewardship’ or ‘active share ownership’ activity across all (or almost all) of their funds or portfolios.

Work of this kind is carried out with the intention of improving longer term investment performance.  This activity may or may not be actively promoted to investors.

Where ‘Responsible Ownership’ listings are shown on Fund EcoMarket work of this kind is carried out across all (or almost all) of the investment funds (or portfolios) managed by a fund management company – not only for screened or thematic funds.

SRI approach applied:

Fund managers use investment ownership rights to encourage higher environmental, social and governance (ESG) standards. Engagement activity is business case based. Fund managers only encourage companies to change when they believe it is in their own best interest as investors. Fund managers tend to focus on companies that they have major holdings in, where there are significant business risks or opportunities.

Responsible ownership activity may take the form of face to face meetings with senior company management, voting shares at AGMs and EGMs and shareholder resolutions.

Responsible ownership mainly applies to equity investments (shares) but can also apply to other asset classes such as property and bonds – however these require different methods as investor ‘rights’ vary.

SRI issues covered:

Examples include encouraging better management of major environmental, social and governance related risks and opportunities. This can include environmental issues – such as the use of resources and climate change, key social issues – such as employee relations and relationships with suppliers and significant governance issues – such as executive remuneration, board structure and the avoidance of bribery and corruption.

Impact on investment strategy:

Applied as a standalone strategy ‘Responsible Ownership ’ has no direct impact on where a fund can invest.

Activity does however help fund managers to make better informed longer term investment decisions.  This is because research and activity of this kind provides useful information relating to business challenges and opportunities.   The way in which fund mangers use such information when making investment decisions varies.

Exceptions to this rule:

Funds covered by strategies of this kind do not typically avoid or select companies as a result of their responsible ownership strategy, however there is an emerging trend towards fund managers avoiding specific sectors because their research indicates they are undesirable. The avoidance of manufacturers of cluster munitions or tobacco companies are examples of this as the companies involved in such areas are either deemed as too risky or unlikely to ever respond to shareholder pressure to shift their core business strategies.

Who is this Style most likely to appeal to?

Responsible ownership (and stewardship / engagement) options are ideal for investors who want to encourage companies to improve their environmental, social or governance standards.

Some investors will want to support managers of screened and themed funds that also have responsible ownership strategies.  Other investors will be happy to invest in ‘conventional’ funds where this is applied as an overlay.

Variation across Style segment

Responsible ownership strategies and the assets they cover, vary significantly – as does the level of ‘integration’ with financial analysis and decision making.

Different investment organisations commit different levels of resource. Some fund managers employ significant in house specialist ‘responsible investment’ teams (eg 10+ analysts) and may lead sophisticated engagement or stewardship programmes.  Other fund managers only tend to collaborate in industry wide initiatives and outsource research. (Others are a mixture of both.)

Different strategies suit different people and of course (all other factors being equal) all activity of this kind is valuable as it adds to the critical mass of asset owners encouraging better business practices that are intended to enhance longer term investment returns.

Fund EcoMarket enables you to differentiate between providers with the help of the Corporate Activity filter.

Associated Styles

Responsible Ownership is significantly different from other SRI Styles as it is a corporate level strategy not a fund strategy. It relates to how investments are treated once they are held in a fund or portfolio, not the stock section process.

Responsible engagement activity (voting, dialogue, shareholder engagement) often forms part of the management strategy of screened and themed funds (as well as to other assets held by the managers of such funds.  Investors may like to consider fund managers that combine both strategies.

Associated Jargon

‘Activism’, ‘investor dialogue’, ‘stewardship’, ‘active ownership’, ‘responsible investment’. This area is also sometimes referred to as an ‘overlay’ strategy as it is ‘in addition to’ other investment strategies.

Providers:

Offered by a number of fund providers. The most active tend to be those with additional SRI investment solutions on offer to clients.