Sustainable, Responsible &/or ESG Policy:
The Stewart Investors investment team only invests in high-quality companies that are well positioned to both contribute to, and benefit from, sustainable development. This means that companies with material exposure to harmful or controversial products and services are naturally avoided. Investing in companies that fail to discharge their environmental stewardship and human rights responsibilities is also inconsistent with the team investment philosophy.
All harmful business activities are defined and publicly disclosed on our website. We have established a materiality threshold for harmful or controversial activities at 5% of revenues – 0% threshold for manufacture of tobacco products and controversial weapons. In exceptional circumstances, we may invest in companies where the exposure is above the 5% threshold. In these cases there will be full disclosure on the rationale for investment. The reasons might include indirect involvement, for example, providing safety products to the fossil fuel or defence industry. Exceptions may also relate to legacy activities which are being wound down. In these cases the analysts will engage with the company and encourage them to exit those activities. There is also a group-wide policy prohibiting investments that do not adhere to international conventions, including cluster munitions, land mine manufacturers, sanctioned and high-risk countries and tobacco manufacturers.
The investment team screens the portfolios quarterly using Sustainalytics to ensure that each company held continues to meet the global norms for best business practices and is not breaching the list of harmful or controversial products and services. Checks are also completed pre and post-trade using the order management system, these include breaches of the UN Human Rights Norms for Businesses and the UN Global Compact Principles. The team receives controversy reporting from RepRisk on all shortlisted and held companies. Where issues are flagged by these services, the analysts will investigate the controversy and, if genuine, will engage with the company to improve practices. If the engagement is unsuccessful the team will divest.
We aim to create positive environmental and social outcomes across a broad range of factors by avoiding companies that are directly involved in harmful and controversial products and services and investing in companies that contribute to, and benefit from, sustainable development. Companies are selected from the bottom-up and have exposure to a broad range of themes including climate action, renewable energy, energy, waste and water efficiency, health and wellbeing, financial inclusion, education and employment, fair wages, sanitation, diversity, equity and inclusion.
Stewardship, engagement and voting, is also used to improve outcomes. Recent engagement topics have included climate change, remuneration, gender diversity, sustainability of soy and palm oil, lead and VOC levels in paint, living wage, recycling and packaging, plastic pellets and deforestation.
Sustainable, Responsible &/or ESG Process:
Sustainability is core to our investment philosophy and integrated into our investment process. We do not have a separate team that looks at sustainability – every investment team member analyses the sustainability positioning of a business, and is also responsible for engaging with companies.
We only invest in high-quality companies that contribute to, and benefit from, sustainable development. We define development as sustainable if it furthers human development and has an ecological footprint that respects planetary boundaries. All members of the investment team sign our Hippocratic Oath, pledging to uphold the principles of stewardship.
We approach sustainability as a means to mitigate risks and as a driver of investment returns. Integrating sustainability into our analysis is a natural extension of having a long-term investment horizon; the sustainability headwinds and tailwinds that affect companies are different to the shorter-term risks that businesses face.
Our consideration of sustainability is holistic; it includes ESG but is more than ESG. We consider financial sustainability – conservatism around the balance sheet, for example – and stewardship by management – the treatment of all stakeholders through a crisis, for example – to be as essential to the sustainability positioning of a company as the product or service the company sells.
When assessing a company’s sustainability we ask ourselves the following questions:
- Products and services
Do the products and services make a valuable contribution to sustainable development? - Context
Can the company benefit from sustainability tailwinds and negative headwinds? - Company ethos
Do the culture and values embody sustainability and continuous improvement? - Operational impact
Is the company trying to reduce impacts from its operations?
We avoid companies that do not contribute to sustainable development and we engage with companies to improve sustainability outcomes.
We have established a materiality threshold for harmful or controversial activities at 5% of revenues – 0% for tobacco production and controversial weapons. At Stewart Investors, we explicitly seek to invest in companies that are making a positive contribution to society. You can read our position statement in full on the website.
We supplement our internal research around sustainability using Sustainalytics. At the end of each quarter, portfolios are checked to ensure companies meet global norms for best practices and raise no exceptions against our thresholds for harmful activities. We also receive controversy reporting from RepRisk.
Issues such as climate change, biodiversity and water, human rights and modern slavery, and diversity and inclusion are integrated into our investment selection and engagement and voting processes. Our approach to climate change is explained in detail in our recently published report. Our approach to biodiversity and water is reflected in our selection of companies that mitigate their impact on the natural environment or provide services/products that improve efficiencies. We have engaged on a number of related issues such as palm oil, deforestation, plastic waste and the use of harmful chemicals. Human rights and modern slavery are a risk throughout the supply chain of our investee companies. Our approach is to focus on quality companies that treat their employees well and manage the risks in their supply chain effectively. Where we identify problems we engage. Our recent collaborative engagement on conflict minerals in the semi-conductor supply chain is a good example of this. Our approach to diversity is explained in our statement and article about what we have done so far. We will provide updates on related activities on these issues, amongst others, in our annual report.
Resources, Affiliations & Corporate Strategies
The investment analysts are responsible for all company analysis including ESG, identifying engagement priorities, monitoring and engaging our investments and for making all voting decisions. There is no specific dedicated resource purely for ESG/RI considerations. We carry out the majority of research ourselves. Specialist third-party research is commissioned to deepen and broaden the team's understanding of complex sustainability issues.
Stewart Investors is involved with the following initiatives:
Supporting a longer-term, more inclusive industry
- Altiorem – supporting the world's first community-built sustainable finance library since 2020
- Future Asset – helping to promote careers in finance to high school girls
- GAIN – (Girls Are Investors) improving gender diversity in asset management
- Intentional Endowments Network
- Mission Investor Exchange
- Pensions for Purpose
- The Big Exchange – Founding supporter
Supporting collaborative action
- Access to Medicine
- IAST APAC – Investors Against Slavery and Trafficking Asia Pacific
- India Plastics Pact – commissioned research and engagement on plastics waste in India
- Tobacco-Free Finance Pledge
- PRI Collaborative Platform leading collaborations on micro-insurance, plastic pellets and conflict minerals
Supporting the community and resource conservation
- The Maitri Trust – grant-making charity established by Stewart Investors that supports improvement in government school and pre-school education sectors in India and South Africa
- The Tar-Ra Fund (Maitri’s Australian equivalent) which was also independently founded
- The Centre for Science and Environment (CSE) and the seeding of their training centre
- Net Zero Asset Managers Initiative
- Following on from commissioned research and engagement on plastics waste in India we have part-funded WRAP to develop and launch an India Plastics Pact
- Carbon Disclosure Project
- FAIRR – collaborative investor network that raises awareness of the ESG risks and opportunities brought about by intensive livestock production
- Investor Support for Deforestation
- Parivaar – humanitarian organisation providing care and overall development to highly vulnerable children
- Leuchie – provides respite care for patients with neuro-degenerative conditions in the UK
Supporting industry transparency
- Portfolio Explorer
- Responsible Investment Association of Australasia (RIAA)
- Responsible Investment Association of Canada (RIAC)
- UK Sustainable Investment and Finance Association (UKSIF)
- EUROSIF – Signatory
- Towards Sustainability – making sustainability in finance the norm
More widely, at a First Sentier Investors Group level, we support a number of industry and trade groups that are focused on developing and improving Responsible Investment. These include:
- Cambridge University Investment Leaders Group – Founder member & chair of working group
- Climate Action 100+ – Supporting investor for 3 companies
- EUROSIF – Chair
- Finance for Biodiversity pledge – Signatory
- Financial Services Council – Director of board and member of ESG working group, investment expert group and fund management board committee
- First Sentier MUFG Sustainable Investment Institute
- IGCC – Member
- Institute Chartered Accounts in England and Wales (ICAEW) – Member
- Investors Against Slavery & Trafficking (APAC) – Chair
- Japan Stewardship Initiative - Signatory
- Japan Sustainable Investment Forum - Signatory
- London Stock Exchange Group – Member of ESG advisory committee, Member of Sustainable Investment Committee
- Net Zero Asset Managers Initiative
- PRI – Signatory
- Prince’s Accounting for Sustainability (A4S) – Expert panel member
- Responsible Investment Association of Australasia – Member
- TCFD supporter
- Tobacco Free Portfolios Pledge – Signatory
- UK Investment Association – Member of sustainability & responsible investment committee and chair of standards & definitions working group
- UK Stewardship Code – Signatory
- UK Sustainable Investment Forum – Member
- Women in Sustainable Finance - Member
- 30% Club, Australia – Member
- 40:40 Vision – Member
- In November 2022 First Sentier Investors became a certified B Corporation (B Corp)
A list of the initiatives First Sentier Investors actively support and engage with is available on the First Sentier Investors website.
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