ESG at Schroders
Schroders' global commitment to Environmental, Social and Governance
Our world is changing faster than ever, environmental stresses are growing more acute and social pressures continue to surprise at every turn. Corporate fortunes rest on their ability to navigate that turbulent world. For investors this changing picture creates challenges and opportunities. That’s why we seek to put responsible investing at the heart of all we do. From choosing the right assets to engaging with our investments, positive principles guide our actions.
Integrity – We’re committed to managing clients’ assets responsibly. That’s why we’re dedicated to promoting sustainable business practices that help businesses reach their full potential.
Influence – We’ve always seen ourselves as owners, not renters of the companies we invest in. That means we’re active and involved in how they navigate the long-term environmental, social and governance challenges they all face.
Insights – To fully understand a company’s potential you need to look beyond the annual report. Analysis of how companies deal with all their stakeholders – such as customers, clients, and employees - are all vital clues to a company’s long-term ability to grow and deliver consistent returns.
Interpret – Knowing what to do with insights is the key that unlocks value for clients. Our team of investors and analysts around the world have the experience and local knowledge to apply that understanding to specific situations.
Our ESG brochure provides insights on the broad umbrella of "ESG investing" and our assessment of the terms most commonly associated with each.
Schroders Global Investor Study
We recently conducted some research into the importance of ESG issues for investors, which highlighted some interesting key findings:
- ESG to gain momentum: 62% of advisers expect ESG to become increasingly important within the next five years. Among investors, ESG issues were more important to millennials than to older generations.
- A willingness to invest for longer in ESG: On average, global investors would hold ESG investments for more than two years longer than a standard investment. 82% of investors were willing to give their ESG investments more time to succeed.
- Willing to act on conscience: The majority of investors would consider selling a successful investment if they discovered the investment was not conforming to ESG considerations.
- Geographical variance in attitudes: The study unearthed differences in attitude between continents and countries, with investors in Asia and the Americas most likely to base investment decisions on ESG factors.
We’re committed to managing clients’ assets responsibly. That’s why we’re dedicated to promoting sustainable business practices that help businesses reach their full potential.
Our responsible approach isn’t a new attempt to follow market trends, nor is it separate from our mainstream investment processes. Responsible principles drive our investment decisions and the way we manage our clients’ capital. While Schroders has always considered the impact of responsible investment issues, over the past 19 years we have formalized how we responsibly engage and manage our investments.
We see ourselves as long-term stewards of our clients’ capital and this means looking beyond the numbers. Our approach involves engaging with companies about their activities and helping them manage risks to drive better performance. Our investment experience and academic research show that companies with good environmental, social and governance management often perform better and have the ability to generate excess return over time, both for investors and society.
Screening and exclusions
In line with commitment to responsible investment, we utilize specialist research to help develop investment universes. These reflect our clients' values and exclude companies that have a material exposure to a particular issue or breach international standards.
Schroders fully supports the international conventions on Cluster Munitions and Anti-Personnel Mines (APM), and we will not knowingly hold any security that will derive revenue from these sources.
Schroders has the ability to manage segregated accounts which can be tailored to individual client preferences with explicit exclusion lists.
Cluster munitions - group exclusion list (as of March 2016):
|Aeroteh||Romania||Isreali Military Industries||Israel|
|Aerojet Rocketdyne||USA||Orbital ATK||USA|
|Aryt Industries||Israel||Poongsan Holdings||Korea|
|Ashot Ashkelon||Israel||Poongsan Corporation||Korea|
|China Aerospace Science & Technology||China||Roketsan||Turkey|
|China North Industries||China||Splav State Research||Russia|
We continue to support, and collaborate with, several industry groups, organizations and initiatives. These are important in improving sustainability standards across sectors, establishing a consistent dialogue with companies, and in promoting the ongoing development and recognition of ESG within the investment industry. We also work with member organizations, as well as national and regional trade associations to develop their submissions on various regulatory issues around the world.
We believe that working with peers and policy makers on ESG issues is an important activity and regularly respond to public consultations both as a firm and working with investor groups.
Carbon Disclosure Project - Climate Change 2006, Water 2010 and Forest 2013
Financial Reporting Council - 2010
Investment Association Corporate Governance and Engagement Committee - 1988 and Peter Harrison currently serves on the Investment Association (IA) Board
UK Sustainable Investment and Finance Association (UKSIF) - 2000 and in 2015, our Head of SRI within our Cazenove Capital business was elected to serve on UKSIF’s board.
UK Corporate Governance Forum - 2004
Investor Forum - 2015
Responsible investment policies:
We’ve always seen ourselves as owners, not renters of the companies we invest in. That means we’re active and involved in how they navigate the long-term environmental, social and governance challenges they all face.
As active owners in the companies we invest in, we regard stewardship as integral part of our overall investment process. We feel that good stewardship is important to understanding the sustainable value of companies and provides a standard of behavior to enhance the value of our clients’ investments.
It is essential to question and challenge companies about issues that we think may affect shareholder value as appropriate. As such, we actively exercise voting powers and engage with companies on, among other things, strategy, risk, performance and governance.
The overriding principle governing our approach to voting is to act in the best interests of our clients. Where proposals are not consistent with the interests of shareholders and our clients, we are not afraid to vote against resolutions. Below is our latest voting activity, which you can also find in our quarterly reports.
Company meetings voted
Source: Schroders as of December 31, 2016
*Includes withheld or unvoteable resolutions, for example due to shareblocking.
To fully understand a company’s potential you need to look beyond the annual report. Active engagement and analysis of how companies deal with all their stakeholders, in our view, is a vital part of assessing a company’s long-term ability to grow and deliver consistent returns. Our thought leadership offers some of our latest research results.
Keith Wade and Marcus Jennings of the Schroders Economics Team examine how climate change will shape the global economy, with studies suggesting that a worst-case impact of a 1% reduction in GDP growth per year could be realized.
We look at why the swift rise to prominence of companies such as Airbnb and Uber emphasises the importance of identifying sectors and companies potentially at risk of similar disruptions.
Our view is that ESG considerations should be incorporated into default selections, not just as a choice option. In fact, our analysis shows that a successful ESG strategy could increase the savings balance of a 401(k) by 16% over a savings period of 40 years.
We look at the emerging trends that could create headwinds for the food and beverage sector and compare similarities between major food and tobacco companies.
The importance of corporate governance has been on a clear upward trajectory since at least the end of the last century. We explore the evolution beyond ‘check-the-box’ governance, the impact that greater ESG cognizance may have on the investments industry, and our views on being better long-term stewards of capital.
As more investors turn to ESG and Impact investing when allocating their assets, questions arise about how it may add value to a portfolio. Jessica Ground, Schroders Global Head of Stewardship, discusses why she believes investors should be considerate about ESG within their portfolio as a means of enhancing returns.
Knowing what to do with insights is the key that unlocks value for clients. Our team of investors and analysts around the world have the experience and local knowledge to apply that understanding to specific situations.
We seek to integrate ESG considerations into our research and overall investment decisions across investment desks and asset classes. This integration approach spans the breadth of the investment process, from identifying trends, analysing securities, constructing portfolios, through to engagement, voting and reporting.
As such, with expertise and know how, we believe we have the ability to look at different asset classes, portfolio strategies and investment universes through a variety of lenses to most effectively and effectively make investment decisions on behalf of our clients.
Responsible Investment - Quarterly Reports:
Our fourth quarter's Responsible Investment Report includes recent research and engagement efforts from across the globe, including why Japanese markets are getting ESG issues right, how financials are looking to regain trust, low-cost pharma through the lens of Doctors Without Borders, and the energy storage industry.
In this quarter's Responsible Investment Report we look at climate risk at a portfolio level, ESG fund ratings, US corporate governance and the impact of recent modern slavery regulation in the UK. We also share details of our ESG engagement in this quarter.
In our Q2 Responsible Investment Report, we look at the road that led us to Brexit and why investors should be caring about sharing. We also bring you details of our ESG engagement this quarter, demonstrating how we are integrating ESG thinking into our investment processes.
Our Q1 Responsible Investment Report focuses on turning sustainable intentions into fiduciary practice. We also feature some of our thoughts on the oil and gas industries and how raising animal welfare standards can reduce risk. As usual, details of our ESG engagement for the quarter is also included.
In our final Responsible Investment Report of 2015, we discuss the recent Paris climate talks as well as focusing on energy across the oil and gas, thermal coal and electrical equipment sectors. We also include details of our ESG engagement for the quarter and how we integrate this into our investment processes.
Our Q3 Responsible Investment Report, we look at portfolio carbon footprinting (what it tells you, and what it doesn’t), climate change and the insurance-linked securities market, and we discuss our collaboration with CDP (formerly Carbon Disclosure Project) on deforestation.
Responsible Investment - Annual Reports:
2015 was the year when responsible investment became mainstream. As the world's attention turned to the COP 21 talks in Paris, we have also seen an increased interest from our clients in understanding more about ESG. This annual report focuses on some of the key research and engagements that we have undertaken in 2015.