Sustainable Investment Report 2018

Sceptics have argued that the growing interest in sustainability would diminish as stock markets became more difficult.

Yet, as I write to you after a challenging 2018 for markets, I can assure you that our commitment to sustainability as a firm and as an investor remains undimmed.

If anything, the ebbing of the macro tide will demonstrate the importance of rigorous analysis on environmental, social and governance (ESG) in separating out winners from losers.

I have long held the belief that companies, including our own, need to have a wider social purpose. They cannot be solely focused on making profit. There was abundant evidence in 2018 that the costs of companies maintaining their licence to operate is rising.

Big tech, which previously seemed immune from such costs found out that this was no longer the case, with last year bringing intense scrutiny on their practices from data security, to who they work for, to warehouse conditions. Never has there been a greater need for business to articulate and live up to a clear purpose.

As ESG grows in importance to investors, so does the need for rigorous analysis. We are committed to developing proprietorial tools and frameworks that are evidence-driven, enable systematic analysis, and draw on the expertise of our financial and sustainability analysts. You will see one of these tools, SustainEx, explained more fully in this report. We are excited about how it harnesses data to quantify the externalities that are likely to impact companies in the future.

In 2018 we conducted over 2,200 ESG engagements, retained our A+ rating from the UN Principles for Responsible Investment (PRI) for our overall ESG approach, and continue to launch ground-breaking thought leadership in the space. This year the focus was on the physical risks of climate change, and given the record levels of hurricanes and typhoons around the world, few are immune.

Yet we know barriers remain to the widespread adoption of ESG considerations in our clients’ portfolios. Our Global Investor Study examined some of the barriers in the retail market, it is clear that a lack of advice and understanding needs to be addressed.

But equally important is the need for asset managers such as ourselves to clearly articulate our activities and their impacts at a firm and fund level. We hope that this report goes some way to achieving this.

Finally we have been working with policymakers around the world as they seek to develop and grow the markets for sustainable investment products and improve ESG disclosure from companies. While much
of the focus has been at the European level, we are seeing increased action from other regions to embed ESG considerations in investment decision making which we have been excited to collaborate on.

Sustainability is mission critical to us at Schroders, both as an investor and as a company, and lies at the heart of our purpose and stakeholder relationships.

Sustainable Investment Report 2018:

We highlight how the following teams integrate ESG considerations:

  • International small cap equities
  • Infrastructure debt
  • Securitised credit
  • ILS
  • Real estate
  • Private equity
  • Wealth management

Key topics covered:

  • SustainEx: measuring social and environmental impact
  • Climate change opportunities: looking beyond the obvious
  • ESG in passive: let the buyer beware
  • How well are companies disclosing their climate-related financial risks?
  • View on sustainability: results from our 2018 Global Investor Study
  • 2018 stewardship review

Read the full report

Schroders annual Sustainable Investment Report 2018 58 pages | 4,393 kb