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Schroders: Responsible investing in asset management

Jess_Ground Schroders 400x400Asset managers as custodians

Asset managers are the trusted custodians of trillions of pounds globally. With over £5 trillion of assets managed in the UK alone, our industry plays a key role in channelling money into the economy through the investments we make on behalf of our clients.

At Schroders, responsible investing principles drive our investment decisions and the way we manage funds. We see ourselves as long-term stewards of our clients’ assets and this naturally leads us to look beyond the numbers and focus on the long-term prospects and sustainability of the companies we invest in. As active asset managers, we take our responsibilities seriously and engage with the companies we own to encourage better outcomes for investors and society.

What is responsible investing?

Responsible investing aims to promote better outcomes for investors and society by incorporating non-traditional factors such as environmental, social and governance (ESG) into the investment decision-making process. While these issues are sometimes difficult to value, they can have a material impact on a company’s performance, both in the short and long term. These include (but are not limited to):

Environmental Social Governance
  • Climate change mitigation and adaptation
  • Environmental risks and pollution
  • Renewable energy
  • Natural resource depletion
  • Waste management
  • Human rights
  • Consumer protection
  • Community relations
  •  Labour practices
  • Nutrition and obesity
  • Animal welfare
  • Cyber security
  • Business integrity
  • Executive compensation
  • Majority voting
  • Division of management roles
  • Corporate disclosure and transparency
  • Accounting practices

 

Companies do not operate in a vacuum; they are heavily exposed to changes in society and the natural environment. A company’s ability to adapt to — and take advantage of — trends such as globalisation, climate change or evolving consumer tastes is critical to their long-term success.

“A company’s ability to adapt to — and take advantage of — trends such as globalisation, climate change or evolving consumer tastes is critical to their long-term success”

Being underprepared for, or poorly managing, environmental, social and governance trends can create a significant risk. Assessing the issues that a company faces helps asset managers better define its fair value (the price that should be paid to invest). Additionally, by understanding the challenges all businesses face, we are able to work with management to better plan for change and encourage responsible behaviours.

As society’s expectations are changing we are seeing growing awareness of responsible investing considerations and our clients are increasingly seeking out investments which align with their own core values and beliefs. There is also a growing acknowledgement that responsible investing indeed creates better outcomes. For asset managers the focus is shifting from whether environmental, social and governance principles are being considered, to demonstrating and quantifying the impact of this activity.

What is our approach to responsible investing?

There is a wide spectrum of responsible investing approaches.

Some clients, particularly charities, require ethical screening to be applied so that their investments reflect their specific values and beliefs. This may exclude companies with exposure to activities such as tobacco, nuclear power or animal testing.

However, we believe that integrating ESG analysis into the selection and management of investments is a far more important part of responsible investing. In our experience companies with sustainable business models and practices will be better investments over time. We analyse companies’ management of environmental, social and governance challenges, and where concerns emerge we engage to influence more responsible behaviours, help them to manage these risks and deliver more positive outcomes.

“In our experience companies with sustainable business models and practices will be better investments over time”

Effective and responsible active asset management has long been a priority for Schroders and responsible investing principles are embedded in our culture. Specialists work alongside our investment teams to integrate environmental, social and governance analysis and principles into the process of selecting investments and how we manage ongoing relationships with these companies. Detailed and insightful research helps us to identify and analyse the impact of thematic trends such as the link between sugar and obesity, the impact of climate change on productivity or the depletion of natural resources.

We held nearly 500 specialist ESG engagements in 2015, interacting with a total of 373 companies across 33 countries globally to understand how they are addressing issues we have identified and encourage them to take appropriate actions.

Schroders also has share ownership rights on behalf of clients and we recognise our responsibility to make considered use of our voting rights at shareholder meetings. We analyse and evaluate all of the issues brought to vote on a case by case basis – we voted on nearly 60,000 issues at over 5000 meetings in 2015.

Taking a long term view

At Schroders our long-term focus means we’re thinking about the long-term implications of how our clients’ money is allocated across companies — not just for the next three months but the next five years. We consider ourselves to be owners of the businesses in which we invest and our ultimate responsibility is to protect and enhance the value of investments on behalf of our clients.

 

 

Source: Schroders, June 2016. For information purposes only. Schroders has expressed its own views and opinions and these may change. The document is not intended to provide advice of any kind. It is not intended as promotional material in any respect nor as an offer or solicitation for the purchase or sale of any financial instrument. Issued by Schroder Investment Management Limited, 31 Gresham Street, London EC2V 7QA. Registration No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.


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