How do great companies stay great?

How do great companies stay great?

Hello everybody and welcome to the first Global Sustainable Growth regular update. In this video, we will briefly refresh our conception of what makes a sustainable business and how we identify them.

As a reminder, sustainability for us means ‘what makes a great company stay great?’ It is about the durability of growth and returns over a long-term investment horizon. We believe that only companies that are run for the long-term, taking account for their impact on all stakeholders, not just their shareholders, will maintain their performance in a fast-changing world.

We talk a lot about our concept of “corporate karma” – the idea that what goes around, comes around with regard to how companies treat their stakeholders. Companies that look after their stakeholders will have the most productive employees, loyal customers, and constructive relationships with regulators. Furthermore, they are less likely to experience controversies such as customer boycotts, strikes and walkouts, litigation, regulation, environmental or occupational accidents. In financial terms, they’ll deliver higher risk-adjusted returns.

Despite this, the market continues to focus on traditional financial metrics and struggles to assess more nuanced sustainability information. This tends to lead to an underestimate of the long-term growth potential of a company, and consequently its fundamental value. This creates investment opportunities for active investors.

How do we identify sustainable companies?

Finding sustainable companies requires going beyond ‘box-ticking’. And finding those where their strengths aren’t already reflected in the price means doing your own homework rather than relying on the same 3rd party research as everyone else.

We use our proprietary Sustainability Quotient (SQ) framework which is a forward-looking, qualitative assessment of the long-term sustainability of a company’s business model and growth prospects based on those stakeholder relationships. Importantly, our process involves engaging with companies to avoid penalising those with less disclosure or rewarding greenwashing.

Important Information
The contents of this document may not be reproduced or distributed in any manner without prior permission.
This document is intended to be for information purposes only and it is not intended as promotional material in any respect nor is it to be construed as any solicitation and offering to buy or sell any investment products. The views and opinions contained herein are those of the author(s), and do not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. The material is not intended to provide, and should not be relied on for investment advice or recommendation. Any security(ies) mentioned above is for illustrative purpose only, not a recommendation to invest or divest. Opinions stated are valid as of the date of this document and are subject to change without notice. Information herein and information from third party are believed to be reliable, but Schroder Investment Management (Hong Kong) Limited does not warrant its completeness or accuracy.
Investment involves risks. Past performance and any forecasts are not necessarily a guide to future or likely performance. You should remember that the value of investments can go down as well as up and is not guaranteed. You may not get back the full amount invested. Derivatives carry a high degree of risk. Exchange rate changes may cause the value of the overseas investments to rise or fall. If investment returns are not denominated in HKD/USD, US/HK dollar-based investors are exposed to exchange rate fluctuations. Please refer to the relevant offering document including the risk factors for further details.
This material has not been reviewed by the SFC. Issued by Schroder Investment Management (Hong Kong) Limited.