Sustainable, Responsible &/or ESG Policy:
Our responsible investment policy – embedded in the Sarasin Responsible Global Equity Fund – integrates both ethics and principles of stewardship.
We consider ourselves to be stewards of our clients’ assets, a mind-set that is guided by a commitment to think like owners of the companies in which we invest, rather than simply holders of the shares. We have enhanced the UN’s Sustainable Development Goals and developed our own stewardship principles, which apply to all strategies that we manage. Our Stewardship approach has three core pillars:
- Global thematic investment process focused on long-term value drivers: full integration of ESG considerations in the evaluation of companies’ prospects
- Active ownership: we promote effective and responsible governance of the companies our clients own, voting our shares responsibly and engaging with management and other investors
- Thought leadership and policy outreach: we seek to shape the investment landscape to promote sustainable returns and equitable wealth creation.
Our core process does not systematically exclude any company from our investment universe unless it is involved with illegal weapons (cluster bombs, landmines, biological and chemical weapons). However, Sarasin Responsible Global Equity Fund features an additional layer of ‘values-based’ scrutiny, whereby ‘ethical’ overlays are made to our core process.
This excludes companies from our investment universe based on two further levels of analysis:
We ensure no investments are made in companies that derive a material amount of their business (normally 5% to 10% of sales) from activities deemed to be socially harmful. Examples include: adult entertainment, gambling, tobacco, alcohol, armaments, civilian firearms, tar sands and thermal coal.
We apply a rigorous subjective screen to exclude companies that persistently engage in practices that cause needless social and environmental harm, or where we perceive egregious governance failures, and where we believe there is no potential for our engagement to improve practices. Here we are not focused on financial materiality.
Sustainable, Responsible &/or ESG Process:
Our aim is to deliver enduring value for our clients across market cycles. When we invest on behalf of our clients, we look to the long-term prospects of a company. We purchase shares where there is a case for enduring value creation, and where this is currently underappreciated by the market.
We also believe that responsible companies will tend to create more durable economic value. Specifically, we favour businesses that articulate compelling long-term strategies, and take seriously their responsibilities to their customers, supply chain, staff, local communities, the environment, and their shareholders.
Once we become shareholders on behalf of our clients, we believe it is important to build lines of communications with the executives and the Board of Directors. Stewardship is as much about ongoing responsible ownership as to the considered approach to selecting investee companies.
We also believe that our clients’ long-term interests are not best served by a narrow focus on relative performance against a market index. The service we offer goes beyond beating a benchmark: first and foremost, we start with our clients’ needs and take a holistic approach. We would not, for instance, deploy capital in a company whose success involves causing significant harm elsewhere, which could damage our clients’ interests. Where we believe we can play a positive role in boosting broader market returns through improved government policies or market practices we will seek to catalyse change.
We aim to invest in companies that benefit from our ‘global themes’, or societal trends such as digitalisation, automation, ageing, emerging consumers and climate change. Further, we seek companies that are able to drive long-term performance through credible strategies to transform these strengths into enduring value, and demonstrating robust governance structures that will protect shareholders’ and creditors’ interests.
Environmental, governance and social factors are considered alongside other value drivers in determining a company’s ‘investment case’ and ‘risks to investment’. Companies’ long-term success depends on strategies that sustainably deliver goods or services valued by customers, such that companies earn an attractive return, maintain their license to operate and prosper. A company’s relations with core stakeholders, from employees, to suppliers, to regulators, to local communities to other groups that are impacted by (and may impact) the company’s operations, as well as its environmental performance, are important considerations.
ESG is a required part of our analysis, and where we identify potential material impacts, this must be reflected within our valuation and modelling. This, therefore, has an impact on portfolio construction as it is part of the fair value and fundamental assessment of a company, which is considered in the investment decision and position sizing.
Once we have bought a stake in a company, we stay close to it. We monitor the business’ strategic outlook and performance, its critical value drivers to ensure their persistence, and our conviction in the stock’s long-term value proposition. Engagement and voting are key considerations throughout our research process in order to communicate with management on ESG and other issues and press where we see a need for change. A considered approach to voting is vital not just because it is a key avenue through which we can express our views, but also because it supports our relationships with the company’s Board of Directors and executives.
The vast majority of our ESG analysis is proprietary analysis. We do use a range of providers to supplement this proprietary work, including MSCI, ISS as well as various ESG networks like ICGN, ACGA, alongside sell-side brokers and independent research input. All external data provided assists with our overall research process but in no way replaces or precludes the need for proprietary ESG and stewardship research. Our process is founded on the robustness and soundness of our own research prior to reliance on the data of third parties. For ethical screening, we use MSCI data. We also initiate, sponsor and participate in academic work and discussion to identify and investigate early opportunities, themes and trends.
Resources, Affiliations & Corporate Strategies
Internal Resources
All of our analysts and portfolio managers consider ESG factors when discussing stock ideas and building an investment case. Thus, we consider the entire team an ESG resource.
The stewardship specialists are directly responsible for engagement efforts, and work with the analysts to help them develop their ESG analysis and ratings for stocks.
Whilst the analysts own their ratings, this must be approved by the stewardship team to ensure joint accountability. It is important to note that our stewardship specialists are part of the global equity team, and are involved in team discussions and decisions.
We utilise our own framework and ratings systems to represent our proprietary ESG analysis. This analysis is bottom-up and driven by extensive primary research carried out by our analysts, supplemented with ESG data from MSCI, ISS and other sources.
Affiliations and Memberships
In addition to the UN PRI, we are signatories to the 2020 UK Stewardship Code – and passed the Financial Reporting Council’s assessment for this in September 2021s. Other memberships / initiatives including those listed below, are often the forum in which we work to improve ESG standards and taxonomy:
ENVIRONMENTAL
- IIGCC Paris-aligned accounting and audit working group (Chair)
- IIGCC Net Zero Banking initiative (co-Chair)
- Net Zero Asset Managers Initiative (NZAM)
- Taskforce for Climate-related Financial Reporting
- Climate Action 100+
- “Say on Climate” Initiative
- Carbon Accounting Project (PRI)
- Ellen MacArthur Foundation Plastics Initiative
- Plastic Solutions Investor Alliance (PSIA)
- Finance for Biodiversity Initiative (F4B)
SOCIAL
- 30% Club
- Find It, Fix It, Prevent It initiative (FFP) – Modern Slavery
- Workforce Disclosure Initiative (WDI)
- International Accord for Health and Safety in the Textile and Garment Industry
- Investor Statement of Solidarity to Address Systemic Racism and Call to Action
- World Benchmarking Alliance Digital Inclusion Collective Impact Coalition
GOVERNANCE
- International Corporate Governance Network (ICGN)
- UK Corporate Reporting and Auditing Group (CRAG)
- Advisory Group for International Audit & Assurance Standards Board
We also support The Local Authority Pension Fund Forum (LAPFF).
Many of these commitments provide us with a network of peers and supporters for key ESG related issues. It is important for us to remain engaged with group advocacy work, collaborative endeavours, such as engagements, but also to keep aware of best practice.
Often, we find these networks to be useful sources of data and information either on a broad ESG related issue or on company specific metrics that may not be found in other sources.
While the majority of our company engagements are pursued on our own, as outlined in later responses, we will collaborate with other investors where we are seeking to escalate due to resistance from the board or executives. Often having a larger shareholding united on a matter of concern can be more impactful. Wherever we explore collaboration, we ensure the steps we take are consistent with local laws and regulations. In certain cases, these collaborations link into broader initiatives that we support, such as ICCR Covid-19 engagement; the Workforce Disclosure Initiative; the Ellen MacArthur global commitment on recycling; or Climate Action 100+.
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