Stewart Investors Sustainable Funds Group invests in the shares of high quality companies that are well positioned to contribute to, and benefit from, sustainable development.
We believe that fully incorporating sustainability considerations into our investment process is the best way to protect and grow capital for clients. As an output of our bottom-up investment process, we do not invest in companies with material exposure to harmful products and services, or who fail to discharge their environmental stewardship and human rights responsibilities.
All members of Stewart Investor’s investment team sign our Hippocratic Oath, which includes the commitment that we will not pursue risk-adjusted returns to the extent that our actions will knowingly harm others. In accordance with our investment philosophy and strategy, the investment team is responsible for avoiding the allocation of client capital to harmful activities.
We do not use quantitative thresholds in the quality assessment of companies in our investment process. For example, we prefer companies to manage their balance sheets conservatively but do not set specific debt thresholds. Our analysts and portfolio managers must be able to justify, and are accountable for, the decisions they make.
However, for harmful products and controversial industries, we appreciate that our clients reasonably expect clarity on what exposures they may have to negative activities. The table below includes information on the activities and practices we find inconsistent with our investment philosophy. We have set a materiality threshold for direct involvement in the relevant activities of 5% of revenue, and for tobacco production and controversial weapons 0%. Where we cross this threshold we will report the investment to clients.
Transparency and exceptions
We will be transparent about our portfolio holdings. In rare instances, we may make investments where exposure is above the stated threshold, but in those cases we will disclose our reasoning for maintaining that holding.
As our focus is on companies well-positioned for sustainable development, the reasons for such holdings could include indirect involvement, for example, a company which provides safety products or technology solutions to a wide range of industries also providing those products/solutions to the fossil fuel industry to improve energy efficiencies and reduce environmental impact. Exceptions may also relate to legacy activities which are being wound down or where the company is not increasing capital expenditure. In these cases we must determine the company is making a meaningful contribution to sustainable development. Where we believe necessary, we will encourage and support the company in exiting these business activities.
We employ the services of an external environmental, social and corporate governance (ESG) research provider who reviews our portfolios and provides quarterly reporting on company involvement in harmful industries and breaches of social norms, like those found in the UN Global Compact. These reports are reviewed by the investment team. We also receive regular updates from controversy monitoring service RepRisk.
While for some of these activities revenue thresholds are possible, in others like environmental stewardship, ethical conduct and tax practices, judgement and knowledge of the company are required. We believe that in many cases engagement can be an effective lever for change. Where we agree with issues raised by our external ESG research providers, we will endeavour to engage with the company in question. However if the issue is verified and engagement shows no prospect of change, we will divest to ensure the portfolio continues to meet the principles which sit at the heart of our investment philosophy.
Material exposure disclosures
We believe transparency is vital for the credibility of sustainable investment approaches. For activities and practices we find inconsistent with our investment philosophy we have set a materiality threshold for direct involvement in the relevant activities of 5% of revenue (unless otherwise stated). The full list of activities is shown above. In the instances, we may make investments where exposure is above the 5% threshold, we are happy to disclose our reasoning for maintaining that holding.
See below for instances of companies held across the Sustainable Funds Group strategies which were above the materiality threshold in any of the relevant activities, as at 31 March 2022.
View our list of investment terms to help you understand the terminology within this document.
Through the services of an external environmental, social and corporate governance (ESG) research provider, we monitor investee companies compliance with the United Nations Global Compact (UNGC), the Organisation for Economic Co-operation and Development Guidelines for Multinational Enterprises (OECD MNE Guidelines) and the United Nations Guiding Principles on Business and Human Rights (UNGPs), as well as their underlying International Labour Organization (ILO) conventions and treaties.
Sustainable sourcing and environmental stewardship are critical considerations in our company analysis. We consider a range of factors (including but not limited to) when assessing a company’s environmental stewardship such as: upstream and downstream pollution; waste management; resource consumption; water use and scarcity; emissions reduction; use of renewable energy; recycling successes; product lifecycles and their circularity; as well as attitudes and actions towards the protection, conservation, and sustainable use of biologically diverse ecosystems and habitats within operations and supply chains.
While some of our funds have the ability to invest in forward contracts, we not do invest in these and would not purchase forward contracts on agricultural commodities for the funds.
We define fossil fuels as: coal, unconventional oil & gas (artic drilling, oil sands, shale energy), and conventional oil & gas. We consider the following related/supporting products/services: exploration, extraction, power generation, transportation, distribution, refining or providing dedicated equipment or services as part of the value chain.
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