Responsible investing (RI)
We believe 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.
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 Investment and Corporate 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.
There are certain types of businesses that are unacceptable to some of our charity and private clients – for example some cancer charities choose not to invest in the tobacco industry, while some faith based clients may have concerns about bio-ethics and the use of stem-cells. These issues can be excluded from portfolios although investors should be aware of the shortcomings:
- Some ethical screens can exclude a wide variety of stocks/sectors from a portfolio which may constitute a meaningful percentage of the equity index and thus potentially affect investment performance;
- The remaining acceptable stocks can subsequently form disproportionately large positions within a portfolio;
- By excluding stocks clients are unable to use their shareholder power to influence a company’s management to improve its corporate behaviour;
- Portfolios using exclusions are mostly run on a segregated basis and thus have higher costs than unit trusts or pooled funds.
We have a list of 11 different ethical screens that can be applied to UK segregated equity portfolios. We prefer the flexibility of a menu of screens for clients to choose from rather than a single ethical policy contained within a pooled fund. For our larger clients we can create a bespoke ethical screen to meet their requirements.
Our 11 screens are: Tobacco, Armaments, Alcohol, Gambling, Pornography, Animal Testing (non-medical), Nuclear, Intensive Farming, Environmental, GM, Human Rights.
Third party fund selection
Since 2004, through the identification of sustainable themes and their tipping point, we have been investing in Third Party Funds that play to these themes – such as water, alternative energy, demographic changes and the rise of globalisation. We also identify third party ethical and RI funds. Research, selection & monitoring of funds is conducted by our SRI team and supported by our in house multi-manager team.
Social Impact investment which is sometimes known as social finance is provided on client request. These hybrid investments offer a blend of financial and social and/or environmental return in line with the client’s own objectives. We continually identify and monitor a range of impact investments across areas such as climate change solutions, forestry, microfinance and property.
The value of investments and the income received from them can fall as well as rise. Investors may not get back the amount invested.