Sustainable, Responsible &/or ESG Policy:
Our sustainable investment criteria comprise the following:
Sustainable themes
We maintain a primary focus on companies exposed to sustainable themes through their products and services. These are best positioned to benefit from, and contribute to, a sustainable future. At minimum, these will comprise 75% of the Fund.
ESG quality
An additional focus is on ESG quality – up to 25% of the Fund represents companies exhibiting best-in-class practices notwithstanding current exposure to sustainable products and services (although these companies must not materially detract from sustainable themes). ESG also provides a lens on quality and risk management across the Fund. We typically avoid companies with entrenched poor practices but may invest where we believe there is scope for related engagement to drive improvements.
Sustainable and ethical exclusions
To underpin the Fund’s sustainability focus, we exclude companies offering unsuitable products and services i.e. those at odds with the fundamental concept of advancing sustainable development, inclusion of which we consider would not be consistent with the expectations of investors in the Fund: this is consistent with the criteria which have underpinned the Fund since launch.
Our sustainable themes and the SDGs
At a global level, the UN Sustainable Development Goals (SDGs)[1] outline a number of sustainable development priorities and aspirations looking out to 2030, for support by both the public and private sectors. At a local level, challenges such as demographic change, housing need, and making the UK economy more environmentally sustainable also require solutions. Together these necessitate significant investment in, and support of, sustainable products, services and practices – indicative of a positive policy and market environment for companies targeted by the Fund.
[1] The SDGs were originally drafted for governments but have since been adopted by investment companies.
Our eight sustainable themes are aligned with the UN Sustainable Development Goals (SDGs), translated for use in an investment context. These themes are shown below, alongside a primary SDG with which they align (although we look across all SDGs when assessing companies in the Fund) and a relevant opportunity for UK equities.
- Health, Well-being and Food Security - Ageing population and obesity crisis
- 3 - Good Health & Well-being
- 2 - Zero Hunger
- 1 - No Poverty
- Financial and Technological Inclusion - Provide banking for all
- 9 - Industry, Innovation & Infrastructure
- 10 - Reduced Inequalities
- 8 - Decent Work & Economic Growth
- Education and Training - Investing in social mobility
- 4 - Quality Education
- 17 - Partnerships for the Goals
- 16 - Peace, Justice & Strong Institutions
- Inclusive Work and Economic Development - Inclusion for all minorities
- 8 - Decent Work & Economic Growth
- 5 - Gender Equality
- 10 - Reduced Inequalities
- Community Formation and Support - Provide affordable housing
- 11 - Sustainable Cities & Communities
- 1 - No Poverty
- 2 - Zero Hunger
- Regeneration and Infrastructure - Supporting communities through investment and infrastructure
- 7 - Affordable & Clean Energy
- 9 - Industry Innovation & Infrastructure
- 15 - Life on Land
- Sustainable Resource Management and Transformation - Reducing pollution and waste
- 12 - Responsible Consumption and Production
- 6 - Clean Water & Sanitation
- 14 - Life Below Water
- Energy and Climate Transition - Solutions required to combat climate change
- 7 - Affordable & Clean Energy
- 13 - Climate Action
- 15 - Life on Land
When assessing a companies’ exposure to our themes we identify both current revenue exposure to the themes as well as strategy and innovation supporting delivery of sustainable outcomes. Importantly, we do not just consider positive exposure, but net exposure (positive less negative) across all products and services as they relate to the themes. As outlined above, 75% of the Fund must be positively exposed to these themes on a net basis. At minimum, all invested companies must be neutrally exposed or transitioning towards positive exposure to these themes (e.g. a food and beverages company repositioning their portfolio towards healthier food).
Depending on companies’ net revenue exposure, they are labelled as a sustainable outcome leader, advanced contributor, contributor, transition or neutral. Companies misaligned are excluded from the Fund.
For companies identified as no longer meeting the Sustainable Investment Guidelines, an appropriate action plan will be drawn up and an action plan comprising an exit strategy implements in the best interest of underlying investors.
ESG Quality
Leadership and improvement on ESG and stewardship issues can signal future success, whilst creating a more sustainable, green and inclusive economy. Consequently, up to 25% of the Fund may represent companies selected for their strong ESG and stewardship practices.
ESG and stewardship also provide a lens on quality, risk management and the mitigation of negative impact – hence relevant for all companies in the Fund. We avoid companies with entrenched poor practices.
In identifying the strength of a company’s ESG and stewardship practices we take the following approach:
- Focus on a few material ESG factors – drawing on established research and the work of the Sustainability Accounting Standards Board (SASB) to identify relevant ESG factors for each industry[1]
- Respond to change – look to identify changes as they occur, even in anticipation of them
- Incorporate stewardship factors – such as accounting transparency and prudent capital allocation as part of our wider sustainability lens
[1] Further information, including their full industry mapping of material factors, is available online.
To implement this approach, we undertake not only our own research but also use innovative tools. In particular our proprietary Responsible Investment (RI) model incorporates all the factors mentioned above and has been back tested to show positive results.
Active Ownership
We also take the opportunity to engage with companies to better understand their perspectives, to offer input as responsible stewards and, as appropriate, to seek improvement in practices. This is particularly important for smaller companies, which typically have weaker governance arrangements as compared to larger peers.
Equally, we vote actively at company meetings and view this as a powerful way of sending signals to company management. Voting processes and policies reflect not only traditional governance issues, but also wider sustainability matters – such as company approaches to climate change and diversity.
For further information on our Responsible Investment approach across the firm, including engagement and our firm-wide voting policy, please see our Responsible Investment website (https://www.columbiathreadneedle.co.uk/en/investment-capabilities/governance-and-responsible-investment/).
Sustainable, Responsible &/or ESG Process:
Resources, Affiliations & Corporate Strategies
The responsibility for our responsible investment activities lies with our Responsible Investment (RI) Team. Our RI Team is responsible for leading the research and assessment of environmental, social and corporate governance issues to support investment across Columbia Threadneedle. Colin Moore, our Global Chief Investment Officer, maintains oversight responsibility for our responsible investment initiatives and Kirk Moore, our Global Head of Research, maintains oversight for leading centralized research across the firm, including oversight of the global RI Team.
The broad objective of the RI Team is to enhance investment performance across the firm by creating unique insights into company and industry risks and opportunities that are not otherwise uncovered through traditional analysis. The global RI Team is based in our London and Minneapolis offices, comprising 15 full time members, across three principal workstreams: (1) Thematic Research, with seven dedicated analysts, (2) Stewardship and Voting, with seven dedicated analysts, and (3) Policy with one dedicated analyst.
Sources of Information to the RI team include:
Broad ESG:
- MSCI ESG Research (company ratings)
- ISS (Governance and accounting data, integrating wider ESG elements)
- BoardEx (Board/Director data)
- ESG brokers
- RI news services, academia, NGOs etc
- Bloomberg (ESG data)
- Sustainalytics (RI Strategy specific research
Broad Thematic
- oekom (Main sustainable impact/outcome data provider and RI Strategy specific research)
- Thematic brokers
- National & Supranational research/statistical sources (Sectoral/Thematic data and social data)
- Bloomberg (Thematic data, e.g. Green Bonds, Bloomberg New Energy Finance)
Issue or Market Specific :
- CDP (Environmental data)
- Ideal Ratings (Islamic/Sharia strategy specific research)
- IVIS (UK governance data)
- GlassLewis (US governance data)
- The Conference Board (US data)
The UK and RI teams work together to identify opportunities for the Fund. Assessment of companies’ sustainable outcomes is done by the RI team who produce bespoke research and assess ESG risk management and the active stewardship approach including voting. Financial analysis is undertaken by the UK equity team, drawing on the wider resources of the business, using their established investment process to identify companies with attractive valuations.
Fund manager
The Fund is co-managed by Sonal Sagar and James Thorne. Supported by the RI team, and the UK team, and mindful of the exclusionary criteria, the manager makes the final investment decision.
General corporate affiliations
We were a founding member of the UN PRI and remain actively involved in the organisation. In our last assessment from the PRI we received an A+ (the highest rating) for our overall approach to responsible investment, a score that has been maintained for the last four years.
Other key memberships are those of: the United Kingdom Sustainable Investments and Finance Association (UKSIF), the European Sustainable Investment Forum (EUROSIF), the UK’s Investment Association, the UK’s Investor Forum, the UK Taskforce on Growing a Culture of Social Impact Investing and the Global Impact Investing Network. These memberships reflect our commitment to RI and impact investing across a range of markets, reflecting the geographic diversity of our investments, as well our significant holdings in UK-listed companies.
Our Chief Investment Officer sits on the board of the Investor Forum, which seeks to contribute to long-term investment performance by promoting cultural change and enhancing shareholder stewardship in the UK. Similarly, we are also an active member of the UK Corporate Governance Forum, an investor network made up of asset managers and owners to discuss individual companies, industry and ESG developments, UKSIF, the Investment Association and the Investor Forum and are signatories to the UK Stewardship Code.
We are also signatories to the CDP (formerly the Carbon Disclosure Project), including their forestry and water programmes.
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