Sustainable, Responsible &/or ESG Policy:
The Sustainable Funds Group (SFG) 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 SFG’s investment philosophy.
All harmful business activities are defined and publicly disclosed on SFG’s 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, SFG 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.
SFG 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.
SFG aims 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 analyst in the team analyses the sustainability positioning of a business, and is also responsible for engagement and proxy voting.
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:
Do the products and services make a valuable contribution to sustainable development?
Is the company trying to reduce negative impacts in its operations?
Do the culture and values embody sustainability and continuous improvement?
Can the company benefit from sustainability tailwinds and headwinds?
We avoid companies that have unsustainable business models and we engage with companies to improve sustainability outcomes. This leads us to seek out companies with exceptional cultures, run by responsible stewards, where the products, services and operations help reduce ecological footprints or solve environmental problems, or advance human development, or both, wherever possible.
We have established a materiality threshold for harmful or controversial activities at 5% of revenues – 0% for tobacco production and controversial weapons. Within the Sustainable Funds Group, we explicitly seek to invest in companies that are making a positive contribution to society. You can read our position statement on our website.
We supplement our internal research around sustainability using third party data-provider, Sustainalytics. At the end of each quarter, portfolios are checked to ensure companies meet global norms for best practices and against our thresholds for harmful activities. We also receive controversy reporting from RepRisk.
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:
- Carbon Disclosure Project
- Responsible Investment Association of Australia
- Tobacco-Free Finance Pledge
- Access to Medicine
- WWF, Confederation of Indian Industry (CII) and WRAP - India Plastics Pact
- PRI Collaborative Platform leading collaborations on micro-insurance, plastic pellets and conflict minerals
- UK Sustainable Investment and Finance Association “UKSIF”
- FAIRR
- Pensions for Purpose
- Intentional Endowments Network
- Mission Investor Exchange
- Responsible Investment Association of Canada
- The Big Exchange
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:
- PRI – Signatory & Member of the Sovereign Bond Working Group
- UK Stewardship Code – Signatory
- TCFD supporter
- IGCC – member
- Finance for Biodiversity pledge – signatory
- Cambridge University Investment Leaders Group – Founder member & Chair of Working Group
- UK Sustainable Investment Forum – Member
- EUROSIF – President
- Financial Services Council – director of Board and member of ESG working group
- 30% Club, Australia
- Prince’s Accounting for Sustainability (A4S) – Expert panel member
- UK Investment Association – Member of Sustainability & Responsible Investment Committee and Chair of Standards & Definitions Working Group
- First Sentier MUFG Sustainable Investment Institute
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