Why responsible investing is an important investment belief when times are tough

At a glance

• We expect our fund managers to consider a wide variety of risk factors and opportunities in their investment decision making
• Responsible investing means you don’t have to choose between investing for good, and aiming long-term returns
• Engaging with companies is key to our approach

When looking at the value of a company, often financial figures will only tell part of the story.

We believe considering non-financial, environmental, social and governance (ESG) elements as part of an overall view of a company can help provide a fuller picture of its potential, helping to identify different risks and opportunities, and providing a more accurate picture of a company’s true value.

For example, this might include assessing how transparent a fast fashion company’s supply chain is. Or analysing whether a fossil fuel company is looking to exploit future opportunities in green energy generation? We expect our fund managers to consider examples like these when making their investment decisions.

Responsible Investing

This highlights why we believe responsible investing (RI) enables us to use investments as a force for good, without needing to compromise on potential returns.

It’s important to distinguish between RI and other methods of ESG tinted investments. Historically, the most common of these was what is known as ‘ethical’ investing – whereby certain stocks or entire sectors would be excluded from a managers potential investment universe.

For some people, this might be a preferred option. By divesting from certain sectors or companies, it means a Portfolio of investments can be tailored to be extremely ‘green’, with a much lower carbon footprint. For those whose priority is along these lines, we have a number of options, including our Sustainable & Responsible Equity Fund, or our Discretionary Managed Service.

However, we believe that for the majority of people RI is a more appropriate option. Whereas ethical investing involves divesting, RI focusses on engagement, and on being active owners. So, an SJP Portfolio may be invested in a big oil and gas company, which will mean the carbon footprint isn’t as low as it could be. But our fund managers and engagement partner Robeco will be working with these companies to help them transition to a greener future.

In the long run, we believe this is better for the planet. By working with companies, we can use our size and scale to push boards to make better decisions. And by remaining invested, it means we’ll benefit from any future potential performance uplift as a result.

In fact, as RI doesn’t particularly limit our investment universe, we believe you don’t have to choose between investing for good, and aiming for long-term, sustainable returns at all.

It’s important to add one caveat: we do have a small exclusion list of companies that manufacture controversial weapons and companies in breach of UNGC principles of controversial behaviour.

Different approaches

Asset allocation and diversification are two of our other investment beliefs, and this means we have a wide variety of fund managers, each with different objectives, and potentially investing in different areas.

Due to this variety, according to Sam Turner, our Head of Responsible Investment, RI is implemented in a variety of ways.

He says: “The biggest way engagement varies is by asset class. You tend to see equity managers doing deep analysis and acting as brilliant stewards of the companies that they're investing in. Whereas fixed income and short dated bonds work in a slightly different climate.”

Another example he mentions is around geography – as investors in developed markets will have access to much more data and insight, compared to many developing markets.

Working with fund managers

Our role, as a wealth manager, is to keep tabs on these fund managers, and ensure they are considering ESG factors as part of their wider investment decisions and are engaging with companies on an ongoing basis.

A classic example of this is with one of our property fund managers, Orchard Street. They’ve worked closely with our Real Assets and Responsible Investment teams to develop their RI credentials over recent years. This includes appointing an internal head of Responsible Investment, as well as setting a 2040 commitment to become a net zero carbon business.

As a result of these actions, Orchard Street’s investments are becoming greener, and they’ve found that as their buildings become more environmentally friendly (as measured by ‘energy performance certificate’ ratings), these properties have become more attractive to tenants, and so yields have gone up.

This is a great example of how RI can both help improve long term returns while working to help the planet.

This is the seventh article exploring our seven investment beliefs. Click here for an introduction to the series.

The value of an investment with St. James's Place will be directly linked to the performance of the funds you select, and the value can therefore go down as well as up. You may get back less than you invested.