Sustainable Investment Report 2020: "people want to see change"

A message from Schroders' Group Chief Executive Peter Harrison:

2020 was a truly transformative year. It fundamentally changed the way we live our lives – from how we shop and socialise, to how we do business. I believe 2020 also changed the way people feel about sustainability. They will no longer put up with empty words. We saw clear evidence during the year that society is increasingly demanding action on a host of pressing issues.

People want to see change rather than simply hear of plans to implement it. Indeed, the UN has called for the 2020s to be a “Decade of Action” so that we can meet the 17 Sustainable Development Goals by 2030 as originally envisioned.

At Schroders, we’ve always recognised that we have a responsibility to show our stakeholders that we are committed to taking action. In 2020, we achieved our commitment to integrate environmental, social and governance considerations across our investment teams.

This was just a step on the journey. The way we invest is changing, driven by a fundamental shift in how companies are being viewed and valued. Where once we considered only risk and return, we now assess a third dimension – impact risk.

Our tools, such as SustainEx™, empower our portfolio managers to assess the true impact of each company; to understand their true profits, or their “impact-adjusted profits”.

Eventually, all investors will include this third dimension; our portfolio managers are already on that journey. In 2020, there was much focus on the E in ESG and particularly on climate change. We’ve taken three major steps on this front that show how we’re taking decisive action.

The first is that we’ve joined the Net Zero Asset Managers Initiative, the goal of which is to attain net zero greenhouse gas emissions by 2050 or sooner. It is part of a shared aim to limit global warming to 1.5oC above pre-industrial levels.

There are 30 global asset managers involved, representing more than USD9 trillion in assets. Our involvement is incredibly important to us. It aligns with our aim to invest clients’ capital in forward-looking companies with durable and sustainable business models, in order to achieve risk-adjusted returns in line with their objectives.

Secondly, we have pledged to set robust emissions reduction targets under the Science Based Targets initiative. The initiative provides companies with criteria to set a clearly-defined path to reduce their emissions. We were one of the first asset managers to join and expect others to follow.

The third is our appeal to the largest companies to publish detailed plans describing how they intend to transition, beyond simply showing long-term ambition.

We have written to FTSE 350 companies but expect the same progress to be made elsewhere: we would like all medium and large companies, regardless of where they are listed or operate, to publicly disclose their plans for the decades ahead.

This gives a flavour of how we’re navigating impact risk in one area. On all aspects of ESG, we want companies to go beyond reporting profits; in time, we want them to publish “impact-adjusted profits”. Profit, after all, is only half the story. It’s essential that how that profit is generated is part of the evaluation equation.

Societal and environmental challenges loom larger every day. I do believe that 2020 will go down in history as the year we started to make real and purposeful progress in tackling them.

Sustainable Investment Report 2020 (found here):

Introduction

A message from our Group Chief Executive

A message from our Global Head of Sustainable Investment

2020 sustainability milestones

Integration in practice

Embedding ESG considerations: our journey so far

Equities; Fixed income; Multi-asset; Manager selection (Cazenove Capital); Real estate; Private assets; Commodities

Active ownership

Timeline of events over 20+ years

The evolution of Schroders’ approach to active ownership

The full spectrum of active ownership

Our approach to engagement

Our approach to voting

Collaborative engagement

Industry involvement and public policy

Sustainability insights

Expanding SustainEx: how we’re measuring the social and environmental impact of countries

Reflections on climate change

Appendix

Compliance with UN PRI

Companies engaged during 2020

The report can be found here.