This article is from the latest Good Investment Review, from Good With Money and Square Mile Research, which focusses on the issue of greenwash.
Investors’ desire to make a positive difference has driven huge inflows into sustainable investments and triggered a proliferation of funds that claim to have responsible investment approaches.
However, a number of ‘sustainable’ strategies and funds have been revealed to be not nearly as green as they seemed beneath their branding and high-level descriptions. Recent regulation (SFDR) has raised the bar for asset managers making sustainability claims about their products but greenwashing still continues. Clients should be prepared to dig a little deeper to see whether a fund or strategy matches their expectations.
With this is mind, here are six questions investors can ask their fund managers to sort the green from the greenwashed.
1. Does your fund manager publish a UK Stewardship Code Statement?
Wealth creation at society’s expense is likely to be ephemeral, but responsible companies tend to create durable economic value for investors and society alike. This is the thinking behind the UK Stewardship Code, which sets high stewardship standards for asset managers.
It defines stewardship as the responsible allocation, management, and oversight of capital to create long-term value for clients and beneficiaries, leading to sustainable benefits for the economy, the environment and society.
Signatories publish an annual statement showing their stewardship activity and they are graded on the extent to which they have implemented the Code’s principles.
2. Is your fund manager a signatory to the UN Principles for Responsible Investment (UNPRI)?
Being a UNPRI signatory involves an extensive application and assessment process and ongoing commitment to UNPRI reporting. Signatory status is not a given, and asset managers that fail to uphold UNPRI standards can lose signatory status after a two-year watch period.
3. Does your fund manager work with companies to promote sustainable business practices?
Investors have important rights, but they also have responsibilities to promote sustainable business practices and
hold management responsible through thoughtful voting and engagement with companies. Active engagement with company management has a pivotal role to play in improving sustainable business practices. For it to be truly effective, asset managers should be prepared to dedicate resources to ongoing engagements that may take years to play out.
Policy outreach is another important way in which investors can drive change. Where there is scope for a ripple effect, investors can – and in our view should – make public calls for change and build coalitions with like-minded stakeholders through initiatives such as the Net Zero Asset Managers’ Commitment (NZAM).
4. Does your fund manager make good use of shareholder votes?
Shareholders’ votes are a powerful tool that can be used to change corporate behaviour for the better. We believe
that asset managers should vote actively against harmful corporate practices rather than simply abstaining on difficult issues, or blindly voting in support of company management.
For example, we vote against company directors where we see inadequate action to align company activity with a 1.5°C
cap on global temperature rises. We are also one of only two asset managers that vote against auditors who fail to call out unsustainable company accounts.
5. Does your fund manager publish its voting record regularly?
Sunlight is a great disinfectant. When asset managers publish their voting records it promotes progress and corporate accountability by publicly acknowledging best practice and placing the spotlight on poor performers.
It also ensures that clients can see whether their asset manager is acting in a way that aligns with their stated corporate governance and investment policies.
6. Is your fund manager’s investment process fully sustainable?
Having ESG (environmental, social and governance) investment ‘guidelines’ or excluding some controversial industries from an investment portfolio is one thing; integrating ESG across an entire investment process demands much more detailed work.
Sarasin & Partners has fully integrated ESG across its investment processes: from idea generation in long-term thematic trends such as climate change and automation, to stock selection that incorporates bottom – up ESG and climate impact analysis and in portfolio construction, where we decide our engagement plans.
Sarasin & Partners LLP is a London-based asset manager that manages £21 billion on behalf of private clients, intermediaries, charities, institutions and pension funds.
Our goal is to grow and protect our clients’ capital in a way that is aligned with a sustainable society.
We achieve this through a global thematic investment approach that embeds rigorous ESG analysis. We also use the power of shareholder votes and engagement with companies to promote sustainable business practices.
Risk warning: The Good Investment Review provides general information only. It is not financial advice. If you invest in any of the products mentioned in the review, you do so at your own risk. This is not a recommendation to buy or sell any funds mentioned or engage in investment activity with any particular fund manager. Capital is at risk and past performance is not a guide to future performance.