Brown Advisory U.S. Sustainable Growth Fund (OEIC/Unit Trust)
SRI / Ethical Overview
The Brown Advisory U.S. Sustainable Growth Fund is based on long-term fundamental, bottom-up stock picking. The Fund seeks competitive risk-adjusted returns over a full market cycle through a concentrated portfolio of companies that we believe offer durable fundamental strengths, sustainable competitive advantages and compelling valuations. These companies are building powerful business models on a foundation of Sustainable Business Advantages (SBA), which we believe can drive attractive long-term performance and risk protection through revenue growth, cost improvements and enhanced franchise value.
Through deep fundamental analysis, managers look for the following qualities in companies they select for the portfolio: strong, experienced management teams, leadership positions in industries with high barriers to entry, high visible revenue streams and good capital allocation decisions made over time. This should all lead to solid economics.
The managers also look for companies with a sustainable business model. We believe these companies that exhibit Sustainable Business Advantages (SBA) can improve their financial position through three distinct ways:
1. Revenue Growth: by offering a product or service that helps customers reduce the cost of doing business – energy usage, water intake, raw material usage – helping to drive productivity and efficiency for their customers.
2. Cost Improvements: companies that are productivity leaders themselves.
3. Enhanced Franchise Value: Improving the overall value of the business franchise through increasing customer loyalty, elevating the brand reputation, and improving employee engagement, retention and recruitment.
Sustainable Business Advantages make great companies even better and add to bottom line performance. The financial impact of these sustainability drivers is not easily extracted from the financial data available to most investors and differentiates us from our peers. The U.S. Sustainable Growth Fund seeks to take advantage of this gap in market knowledge by using our differentiated investment tool of thorough and proprietary research to uncover a company’s sustainability risks and opportunities. With this, we seek to deliver consistent, attractive risk-adjusted returns over the long-term.
SRI / themed / ethical assets under management – overview
- Fund Size (GBP): Fund AUM: $83m USD / £62m GBP
- Strategy: $1,143m USD/ $846m GBP
- Total value of SRI/ethical/environmental/ social/ environmental or sustainability themed funds under management: $3.9bn / £2.9bn GBP
- Total assets under management: $61.8bn USD /£45.8bn GBP
SRI Policies (Primary strategy in bold)
- Environmental policy Find investment funds with environmental policies - ie that consider issues such as pollution, climate change, resource management, environmental impact. This will include options from all of the different SRI Styles, including funds where their core strategy is to focus on other areas such as ethical funds. See fund information for fund specific policy details.
- Limits exposure to carbon intensive industries Find environmental, sustainable investment, ethical fund and other options that aim to significantly reduce or limit exposure to carbon intensive industries (ie sectors which are major contributors to climate change). Funds vary - strategies may involve excluding sectors such as coal, oil & gas, mining or airlines - or may indicate a 'best in sector' approach is taken. See fund literature for details.
- Measures positive impacts Find funds that measure the positive effect of their investment decision making on society and/or the environment. (This may involve eg carbon saved or jobs supported.) Managers aim to quantify the benefits they deliver (relative to other strategies or other benchmarks) to ensure they are delivering positive benefiting. This is a new and evolving area. See fund literature for information
- Sustainability policy Find fund options that consider issues relating to the sustainability agenda (e.g. resource management, environmental impact, climate change and/or social issues such as equal opportunities, human rights and adherence to recognised codes). This will include funds from all of the different SRI Styles. See fund information for explanations of the different strategies.
- Ethical policies Find funds with 'traditional' ethical investment policies. These typically focus on avoiding companies that are involved in the armaments industry, tobacco, gambling and/or pornography. Options will include funds where their core strategy or style may be to focus other issues - like sustainability or the environment, not just 'ethical funds'. Strategies vary significantly. Check fund literature for details.
- Social policy Find fund options that consider social issues (e.g. human rights, labour standards, equal opportunities, child labour and adherence to internationally recognised codes such as the UN Global Compact). This will include funds in most of the different SRI Styles as this is considered a core issue. See fund information for detail.
- Governance policy Find fund options that have policies that relate to corporate governance issues such as board structure, executive remuneration, bribery and/or corporate corruption. These funds will typically avoid companies with poor practices.
- Animal welfare policy Find ethical fund options that have policies that require specific animal welfare standards to be adopted by investee companies in order for them to be considered for inclusion within the fund.
- Nuclear exclusion policy Find ethical funds (and other options) that have a published policy that sets out the fund's position on avoiding or limiting exposure to nuclear power. See fund literature for details of their policy.
- Animal testing exclusion policy Find ethical investment options that avoid companies that are involved in testing their products on animals. Ethical fund strategies vary - some exclude all companies that test on animals, others allow companies that test for medical purposes or where required by law. Read fund details for fund specific information.
- Tobacco production avoided Find fund options that exclude manufacturers of tobacco (or related) products. This typically relates to ethical funds however funds from other SRI Styles commonly avoid this area also. Strategies vary and funds may invest in retailers of such products (e.g. supermarkets or hotels.) See fund information for further information.
- Armaments manufacturers avoided Find ethical fund (and other SRI) options that avoid avoids companies that manufacture products intended specifically for military use. Fund strategies vary - particularly with regard to non strategic military products. Read fund literature for specific details.
- Coal, oil &/or gas majors excluded Find sustainable investment and ethical fund options that avoid significant involvement in coal, oil and/or gas producing companies. Funds vary. See individual fund literature to confirm details.
- Alcohol production excluded This filter helps you to find ethical funds - and other options - that avoid investment in alcohol production. See fund literature for further information.
- Fracking and tar sands excluded Find fund options that avoid companies involved in fracking and tar sands - which are widely regarded as more controversial methods of oil and gas extraction.
- Gambling avoidance policy Find ethical fund options (and other options) that avoid companies with significant involvement in the gambling industry. See fund policy for details.
- Pornography avoidance policy Find ethical fund option - and in some cases other options - that avoid companies that derive significant income from pornography. See fund details for further information.
- Human rights Find funds that consider human rights practices when approving companies for investment. Such funds will require decent standards of human rights to be demonstrated - which typically means adherence to international norms as a minimum standard.
- Norms focus Find funds that use internationally agreed standards, conventions and 'norms' to help direct where the fund can and cannot invest (e.g. the UN Global Compact, UN Sustainable Development Goals). Read fund literature for further information.
- Positive selection bias Find funds where their main 'ethical approach' is to invest in companies that are considered to be positive/good or useful to people and/or the environment. The fund may also have negative avoidance criteria - see fund details to read more about fund strategies.
- Negative selection bias Find funds where their main 'ethical approach' is to avoid companies by using negative screening criteria. Read fund literature for further information.
- Balances company 'pros and cons'/best in sector Find ethical funds and other options that consider both the 'positive' things companies do and the 'negative' things they do in order to make balanced, often complex decisions about where they might invest. Such funds often invest in the best/most ethical companies across most industries ('best in sector'), rather than excluding entire sectors. The fund manager may combine this with 'responsible engagement' activity to encourage better business practices. See fund literature for specific policy explanations.
- Over 50% large cap Find funds that invests more than half of their money into what are commonly regarded as 'large companies'. This will typically mean that the market capitalisation (or value) of the companies they hold is in excess of £5 to £10 billion.
- Sustainability themed Find funds where there is a significant emphasis on sustainability issues either as its primary strategy or as a core strategy that compliments other criteria. (This may apply to a number of different SRI Styles). Such funds will consider environmental and social issues when making stock selection decisions. Read fund literature for further information.
- Favours cleaner, greener companies Find funds that aim to nvest in companies with strong environmental policies and practices. This may mean it invests in smaller companies offering market leading environmental services or products and/or larger companies that are working towards the improved management of their negative impacts. Read fund literature for further information.
- Favours companies with strong social policies Find funds that invest in line with positive strategies that relate to 'people' issues - such as having strong human rights, labour standards and equal opportunities practices. Such funds are likely to invest in companies that have market leading standards with regard to employee and supplier practices. Read fund literature for further information.
- ESG/SRI engagement Find funds and fund management companies that actively encourages higher 'environmental, social and governance' and/or 'sustainable and responsible investment' practices amongst investee companies - when positive change is aligned with the best interest of investors. This may apply to a single fund or a group of funds. Read fund literature for further information.
- Integrates ESG factors into all/most fund research Find fund management companies that research environmental, social and governance (ESG) issues when deciding whether or not to invest in a company. This typically applies to all funds, not only those which are promoted as being 'ethical' or 'SRI themed'. This is increasingly often used as a risk management tool.
- Vote all* shares at AGMs/EGMs This fund manager votes or aims to vote all* the shares they own at Annual General Meetings and Extraordinary General Meetings. A commitment to voting shares is a key indicator of 'responsible share ownership' - where fund managers consider - and express their views on - the key business issues effecting the companies they part own. (*Allowance is made for exceptional situations such as when shares are in the process of being sold.)
- In house responsible ownership/voting expertise Find fund / fund management companies where there is in-house expertise that enables the fund manager to make their own decisions on issues such as shareholder voting, setting of in-house guidelines - for example - particularly with regard to environmental, social and governance (ESG) issues.
- Responsible Ownership/ESG a key differentiator The fund managers have said they consider this area to be a key differentiator for their business
- UK Stewardship Code signatory Find fund managers that are signatories to the FRC UK Stewardship Code, which sets out a framework for constructive investor / investee relations where fund managers are encouraged to behave as responsible 'company owners'.
- Publish Responsible Ownership/Stewardship report Find fund management companies that publish information on their approach to responsible investment ownership - also known as 'Stewardship' - following the introduction of 'the Stewardship Code'. This sets out their approach to voting, dialogue with company management and any related activity. This is publicly available.
- Publish full voting record Find fund management companies that publishes a full record of how they vote at AGMs and EGMs. This information is publicly available.
- Regularly lead collaborative ESG initiatives Find funds managed by fund management companies that regularly initiate or help run industry wide (collaborative) investor projects aimed at raising environmental, social and governance standards amongst investee companies.
- PRI signatory Find fund management companies that have signed up to the UN backed 'Principles of Responsible Investment' initiative.
SRI / Ethical Policy
In addition the Fund’s investment philosophy, outlined in the Ethical overview, the Brown U.S. Sustainable Growth Fund runs back-end screens to avoid certain controversial business involvement. These screens include:
- 0% exposure to companies that defy the UN Global Compact Principles
- 0% exposure to companies that conduct animal testing for non-medical purposes
- 0% exposure to companies that generate any of their revenues from controversial weapons
- <3% turnover (by company) from adult entertainment
- <5% turnover (by company) from military equipment
- <5% turnover (by company) from alcohol
- <5% turnover (by company) from tobacco products
- <5% turnover (by company) from gambling
- Excludes companies that own fossil fuel reserves; are utilities that generate power from fossil fuels
Resources, Affiliations & Corporate Strategies
Brown Advisory has 4 dedicated ESG/Sustainable investment personnel within its equity investment team which include portfolio manager and Head of Sustainable Investing, Karina Funk, portfolio manager, David Powell and ESG research analysts, Emily Dwyer and Katherine Kroll. In addition, the team collaborate and share ideas with Amy Hauter an ESG Fixed Income analyst.
As a firm, across our equity and fixed income research team, we perform an ESG Risk Assessment on every company in our pipeline of potential investments and all investments active in our equity strategies. Our ESG Risk Assessment serves as a value-added component of our effort to fully understand the risks embedded in our portfolio’s investments. The ESG Risk Assessment consists of three steps, conducted by our ESG team:
- Research – We identify what we believe to be material company-specific ESG risks and the company's ability to manage both past and present ESG controversies. We note any controversial business involvement such as alcohol, tobacco, gambling, or weapons production. This information forms the foundation of a company's ESG Risk Assessment. We refresh our ESG Risk Assessments periodically, with any new controversies or information.
- Communicate – Should our initial analysis or ongoing updates uncover severe ESG risks and controversies, we immediately notify portfolio managers who hold that security, the analyst(s) who cover it, and the product's working group.
- Document – We save our research to a shared repository accessible by portfolio managers and analysts and update this information when we uncover new findings.
?We do not rely on external ESG scores or rankings given that both our fundamental and ESG due diligence incorporates a multitude of industry- and company-specific qualitative and quantitative factors.
We also quietly engage with companies as part of our investment process. As part of our initial and ongoing due diligence, Portfolio Managers and analysts regularly meet with companies. Should they have questions in regards to a company’s environmental, social or governance performance, they will contact the appropriate individual to better understand the issue.
We have a firm-wide policy for proxy voting that seeks to proactively align voting with ESG proxy matters that favor shareholder value. Generally, we follow the recommendations of proxy voting policy, but there are certain examples where our investment managers have made the decision to vote against those recommendations.
To supplement our extensive in-house ESG and Sustainability research and analysis we draw from external resources including, but not limited to:
• Sustainability and ESG focused conversations with company management
• company reported information
• independent research organisations,
• Bloomberg ESG
• Glass Lewis
• MSCI’s ESG Research Manager
• industry journals
• government databases
• data from the Carbon Disclosure Project
• Brown Advisory's investment relationships in the venture capital, private equity and health care sectors.
We also utilize our partnerships to contribute to and benefit from thought leadership in the following coalitions and memberships:
- US SIF
- Green Bond Principles
- Intentional Endowments Network
- UN PRI
Additionally Brown Advisory has a Sustainable Investing Advisory Board. This board was established to help us focus on our business strategy as we build out our sustainable investing capabilities beyond our ESG focused strategies. The board meets quarterly, each meeting typically has a focus on an aspect of our business, for example, our client driven solutions, data providers, institutional sales strategy etc. The members of the board are used as a sounding board as well as challenge us on how we think about sustainable investing in these areas. The team also call upon these members for advice outside of these meetings and have a very good relationship with the sustainable investing team.