Environmental, Social and Governance (ESG)
Schroders believes that companies have the ability to enhance their long-term performance through an understanding of the Environmental, Social and Governance (ESG) issues affecting their business. In an increasingly dynamic environment where legitimacy and credibility in the market place are important indicators of corporate performance, a thorough awareness of ESG issues enables companies to potentially mitigate risks and liabilities that could arise from these issues as well as realise opportunities.
Central to responsible investment is our belief that it is in our clients' best interests to consider a company's management of, and exposure to, ESG issues. Companies that combine good governance and corporate responsibility will tend to deliver long-term shareholder value over time.
We believe that our approach to responsible investment is in compliance with the UN Principles for Responsible Investment. Our approach to Responsible Investment is set out in our Responsible Investment Policies.
The table below provides information on the implementation of our responsible investment approach.
As owners, shareholders have certain rights and powers, including the right to vote and an ability to engage with the companies in which they hold shares. Schroders has, for many years, used these powers. We believe it is in the interests of our clients to be responsible owners, seeking enhanced returns and lower risk in respect of the companies in which our client funds are invested. Accordingly, we exercise voting powers and actively engage with companies on, amongst other things, strategy, risk, performance and governance.
Our policy regarding the governance of the companies in which client funds are invested is described in our Environmental, Social and Governance Policy. In The RI and corporate governance policies detail our approach to engagement, voting and integration, they cover, amongst other things, our approach to voting, our views on the structure of governance at companies and board compensation. It is central to our investment process to consider each company’s ability to create and sustain value. It is essential to this process to question and challenge companies about issues that we perceive may affect their value. Engagement and actively voting shares we manage on behalf of our clients is integral to our investment process.
We comply with the UK Stewardship Code and is addressed further in our UK Stewardship Code Statement.
It is our policy to vote at all companies in which we have equity holdings, unless there are material impediments to voting (for example, share blocking which prevents the trading of shares which are voted). To maintain the necessary flexibility to meet client needs, Schroders' offices may determine a voting policy which addresses local market issues and client preferences.
The combination of numerous factors such as globalisation, changing political landscapes, ecosystem depletion, urbanisation, resource utilisation, demographics, climatic patterns, employee attitudes and consumer preferences creates challenging and changing markets in which companies operate. The assessment of how a company, and its management, generates long-term value through adapting to these changes and capturing the opportunities is enhanced through the analysis of corporate ESG disclosure and performance; as these will help inform on how a company’s strategy aligns with these macro issues.
There is increasing need for fund managers to explicitly demonstrate how these issues are integrated into the stock valuation and selection process. However this is still an embryonic area within RI and, at present, there is no standard definition of what integration should look, or be, like. We have identified three ways in which ESG data can be integrated in the investment process (though acknowledge that there are undoubtedly others):
- As a proxy for the quality of management
- As a financial metric within valuation models (e.g. carbon price)
- As an input into a thematic fund (e.g. Climate change funds)
We utilise specialist research to help develop investment universes that reflect our clients' values. Typically these would exclude companies based on certain moral criteria, for example tobacco or alcohol. However we are also able to develop screens for clients that reflect a company's material exposure to a particular issue or that focus on breaches of international standards.
Cluster munitions and anti-personnel mines
Schroders fully supports the international conventions on cluster munitions and anti-personnel mines (APM). Consistent with this support, and in line with our commitment to responsible investment, we will not knowingly hold any security that derives revenue from or provides funding for cluster munitions or APMs.
Schroders will apply this policy to all Schroders funds that we directly manage. On occasion there may be additional securities recognised by clients or local governments; these will be added to the Schroders group exclusion list for those relevant jurisdictions or specific mandates.
Cluster Munitions - Group Exclusion List (as of March 2016):
|China Aerospace Science and Technology||China|
|China North Industries||China|
|Israeli Military Industries||Israel|
|Splav State Research||Russia|
Association of British Insurers - we are members and currently sit on the Investment Committee at the ABI.
Carbon Disclosure Project - This project was established to encourage the world's largest companies to improve their transparency on their exposure to climate change. Schroders is a signatory and special adviser to the Carbon Disclosure Project.
International Corporate Governance Network - we are members of the ICGN, which provides useful insights into global governance trends and a forum to discuss topical issues.
UK Sustainable Investment and Finance Association - UKSIF was established to promote responsible investment in the UK. Schroders is a member of UKSIF.
European Social Investment Forum - EUROSIF was established to promote responsible investment in Europe. Schroders is a member of EUROSIF.
UN Principles of Responsible Investment - The UNPRI were developed to encourage the continued development and adoption of responsible investment practices within the investment industry. Schroders is a signatory to the UNPRI.
Corporate Governance Forum - we are members of an informal group of UK institutions that takes the opportunity to discuss and share experiences on corporate governance issues and policies.
Access to Medicine Index - we support this research program which aims to provide a tool for investors and other stakeholders to assess and evaluate pharmaceutical access to medicine programs.