We consider it our responsibility to support our customers’ financial goals by aiming to generate sustainable returns over the long term. But we also recognise that, increasingly, customers are looking to align their investments with their environmental and social values.
Investing selectively on a case-by-case basis, rather than “passively” across swathes of the market, means we can put our customers’ money to work in a way that we believe is responsible for people and the planet.
What is it to invest responsibly?
We believe it is part of our role, as responsible investors, to consider all factors which might have a material bearing on investment outcomes, either positively or negatively.
This includes environmental, social and governance (ESG) factors. These can be overlooked in analysis that looks solely at more traditional financial metrics, like profitability, assets and liability.
The implications of poor governance, and of disregard for the environment or society, are likely to ultimately undermine a company’s performance. It therefore makes financial sense to not overlook these factors. Ignoring them could be costly in the long run, for both investors and society.
What an active approach can offer
We believe that the consideration of ESG factors is a much more complex and nuanced process than simply screening out companies or industries perceived to be unsavoury. The world is rarely black and white, after all.
As active investors, we include ESG issues in our investment analysis and decisions, where they are meaningful to risk and potential returns. We conduct research into companies on a case-by-case basis, to give us an in-depth understanding of how ESG factors are likely to affect the expected risk and return of an investment.
The benefits of ESG integration are a powerful aspect of active investing. There is also another key element of responsible investing: active ownership.
As active investors, we can undertake constructive engagement with the management of companies and organisations we invest in, to better understand their ESG strengths and weaknesses. We will also aim to encourage better ESG practices, where it is appropriate.
Active and informed voting can also be a key part of our long-term responsibility to clients. By exercising the votes that we have as shareholders in a company, we can seek both to add value and protect our clients’ interests.
Investing for impact
The scrutiny that active investors pay to investment decisions is especially important when targeting non-financial goals alongside financial returns.
When investing to achieve a positive impact, investors must gauge the extent to which companies aim to address societal and environmental issues and then measure the actual contribution they make, whether that is reducing carbon emissions or saving lives. This impact might be through pioneering products or services, by driving sustainability improvements in their sector or even by providing other companies with the tools they need to deliver an impact.
This in-depth analysis demands a qualitative lens that lends itself better to active investment approaches. By definition, passive approaches will struggle to capture the nuances of impact investing.
This is not to say there is no role for passive strategies in a well-balanced portfolio – there can be – but it is important to understand their limitations. If you want your savings to be invested for more than financial returns, you can aim higher by taking an active approach.
Please remember that the value and income from a fund's assets will go down as well as up. This will cause the value of your investment to fall as well as rise sand you may get back less than you originally invested.
We’re not able to give any financial advice, and the views expressed in this article should not be taken as any kind of recommendation or forecast. If you’re unsure about the suitability of your investment, please speak to a financial adviser.