Our position on harmful and controversial products, services or practices

Our position on harmful and controversial products, services or practices

Stewart Investors invests in the shares of high quality companies that are well positioned to contribute to, and benefit from, sustainable development.

Download position statement

We invest in the shares of companies we consider to be of high-quality and that we believe 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 our client’s capital. Subject to any exceptions (see below), we do not invest in companies with material exposure to harmful or controversial products, services or practices.

Material exposure disclosures

For instances of companies held across the Stewart Investors' strategies that generate revenue above our set materiality threshold for direct involvement in a relevant activity as outlined in this Position Statement see below.

Thresholds

We appreciate that our clients reasonably expect clarity on their exposure to negative activities. The table below includes information on the products, services and practices we find inconsistent with our investment philosophy.

For those products and services that generate revenue for a company, we have set a materiality threshold for direct involvement in the relevant activities of 5% of revenue (unless otherwise stated in the table below, e.g. production of tobacco has 0% materiality threshold).

For harmful and controversial practices like supply chain or employee issues, revenue thresholds are not possible; therefore, judgement and knowledge of the company are required in order to determine whether a company is materially exposed to such practices. 

Monitoring

We employ the services of external environmental, social and corporate governance (ESG) research providers who review our portfolios and provide regular reporting on company involvement in harmful industries and breaches of social norms, like those found in the UN Global Compact. We also receive regular updates from controversy monitoring service RepRisk. These reports are reviewed by the investment team. 

Exceptions and transparency

Where we become aware of a material exposure to harmful or controversial products, services or practices prior to a new investment in a company or as part of its ongoing monitoring, we will:

  • engage with the company where we require further information or wish to encourage improved practices and an appropriate resolution of the issues identified; and
  • review the company research and investment case, noting the company’s response where we believe it is adequate.

If, following this review and engagement, we determine that an exception to this Position Statement would not be inconsistent with our assessment that the relevant company contributes to, and benefits from, sustainable development, we may decide to invest in or maintain our holding in the company. In such circumstances, we will disclose this on our website, together with the reasons for our decision.

We may make an exception to this Position Statement in the following circumstances:

  • if a company is winding down a legacy commercial activity (in which case the company will be engaged and encouraged to cease the activity concerned); or 
  • where the company is not increasing capital expenditure in relation to, or if a company is only indirectly exposed to, harmful or controversial products, services or practices; for example, a company making safety products for a wide range of industries may also have customers in the fossil fuel or defence industries.

Where engagement has been unsuccessful or where the harmful activities are part of a pattern of behaviour that raises concerns regarding the quality and integrity of the company’s management, we will not invest or will exit the Funds’ position in the company in an orderly manner having regard to the best interest of investors.

We will not make any exceptions in relation to our positions on the manufacture of Controversial Weapons (as defined below) or the production of Tobacco Products (as defined below).

Issue

Our approach

Environmental issues
Fossil Fuels

We will not invest in companies that have a material exposure to the exploration, production or generation of fossil fuel energy.

We define fossil fuels as coal, unconventional oil & gas (arctic drilling, oil sands, shale energy), and conventional oil & gas. The Funds consider exploration, extraction, power generation, transportation, distribution, refining or providing dedicated equipment or services as part of the value chain.

Nuclear power

We do not invest in companies materially involved in nuclear energy.

Environmental stewardship (see Further Information below)

We will not invest in companies that we reasonably believe wilfully or persistently neglect their environmental obligations, including their obligations under applicable laws, and the principles outlined in the UN Global Compact and other standards and independent assessments that we adopt from time to time. No materiality threshold applies to this item.

Social
Alcohol (production)

We do not invest in companies materially involved in the production of alcohol products.

Tobacco (production)

We do not invest in companies involved in the production of Tobacco Products (this includes any company that owns a 50% or more interest in companies that any revenue directly from the manufacture of Tobacco Products (defined below)). This activity has 0% of revenue threshold. However, for wholesaling, distribution and provision of dedicated equipment and services to companies that produce Tobacco Products, we apply a 5% revenue threshold.

We define Tobacco Products to mean traditional cigarettes and other tobacco products, such as cigars, chewing tobacco, vaping and e-cigarette products.

Gambling
(retail involvement and services)

We do not invest in companies materially involved in gambling operations or the provision of gambling opportunities.

Pornography
(production and sales)

We do not invest in companies involved in the production of pornography or materially involved in the distribution of pornography. Production of pornography has a 0% revenue threshold and distribution of pornography has a 5% revenue threshold.

Animal welfare (agriculture)

We do not invest in companies that are materially involved in:

  • the export of live animals;
  • cruel production practices (e.g. revenue derived from factory farming); or
  • the trade of controversial animal products, such as ivory.
Animal testing
(cosmetics, chemicals, household products etc.)

We do not invest in companies that are involved in animal testing during the production of some consumer, medical, chemical and home and personal care products other than in the following circumstances:  

  • animal testing is done in accordance with ethical principles, policies, protocols and standards for the responsible treatment and welfare of animals; 
  • animal testing is required by regulatory agencies to limit risks to human lives and health; 
  • products require ingredients for which no suitable alternative methods of testing are available.
Sexual and reproductive health and rights

We will not invest in companies that discriminate against or seek to impinge on abortion rights for women. No materiality threshold applies  to this item.

Genetic research and stem cells

We will not invest in companies that are involved in research for the reproductive cloning of human beings or animals. No materiality threshold applies to this item.

Human rights

We do not invest in companies with poor records in relation to globally accepted human rights norms and standards, including modern slavery, child labour, capital punishment, indigenous rights and community impacts. No materiality threshold applies to this item.

Ethical employment practices including discrimination

We do not invest in companies where we have formed a view that they undertake unethical or discriminatory employment practices. In forming a view on this, indicators such as employee compensation, gender equity and diversity, employee turnover rates and safety records can be particularly insightful when evaluating people-related risks. No materiality threshold applies to this item.

Armaments (weapons, strategic and non-strategic products)

We do not invest in companies that are materially involved in the manufacture of armaments. This includes both Controversial Weapons and other armaments such as handguns. A 0% revenue threshold applies to Controversial Weapons (this includes any company that owns a 50% or more interest in companies that derive any revenue directly from the manufacture of such weapons).

Controversial Weapons mean anti-personnel mines, cluster weapons, biological and chemical weapons, depleted uranium, nuclear weapons and white phosphorus munitions.

Governance
Oppressive regimes (companies who have dealings with oppressive regimes)

We do not invest in companies where we have formed the view that they may be compromised as a result of their dealing with such governments we consider to be oppressive regimes. No materiality threshold applies to this item.

Bribery and corruption

We do not invest in companies where we have formed the view that there appears to be cultural or systemic weaknesses that we believe can lead to bribery and corruption being perpetrated. No materiality threshold applies to this item.

Tax

We do not invest in companies where we have formed the view that tax practices are persistently and systematically designed to undermine the integrity of tax systems.  No materiality threshold applies to this item.

Ethical conduct (customers, employees, suppliers and competitors)

We will not invest in companies where we have formed the view that 

the company abuses its relationships with its customers, suppliers and competitors, as we believe that such companies are equally likely to treat minority shareholders poorly, as well as carry with them significant risks of regulatory and consumer responses or compromising the sustainability of their supply chains. No materiality threshold applies to this item.

Material exposure disclosures

See below for instances of companies held across the Stewart Investors strategies which were above the materiality threshold in any of the relevant activities, as at 31 December 2023.

Spirax-Sarco Engineering  

Strategies held in: European Sustainability, Worldwide Sustainability 

Activity exposure >5% revenue: Supporting Oil & Gas

Reason for exception/holding: The company provides precision heat and control equipment and systems that improve energy efficiency for customers operating in the oil industry. 

Revenues derived from oil and gas supporting products and services accounted for 5% of the company's overall revenue in FY2022.

Tata Consultancy Services (TCS)

Strategies held in: Asia Pacific Sustainability, Asia Pacific Leaders Sustainability, Asia Pacific including Japan Sustainability, Global Emerging Markets Sustainability, Global Emerging Markets Leaders Sustainability, India Subcontinent Sustainability, Worldwide Leaders Sustainability, Pacific Assets Trust

Activity exposure >5% revenue: UN Global Compact Principle 2: Businesses should make sure that they are not complicit in human rights abuses

Reason for exception/holding: TCS has no direct involvement in nuclear weapons or energy, however our external research provider considers the company to be involved because its parent company, Tata Sons, owns greater than 50% of TCS. 

Tata Sons involvement is due to the company owning Tata Advanced Systems which acquired Tata Power’s Strategic Engineering Division. The Strategic Engineering Division provides control systems for the Indian Navy’s nuclear missile submarines.

As India has not signed the Treaty on the Non-Proliferation of Nuclear Weapons, the external data provider considers Tata Sons and by extension TCS to be in support of the nuclear weapons programme of India.

We disagree with this assessment and do not see anything in the activities or conduct of the company to question its sustainability positioning or the investment case.

WEG

Strategies held in: Global Emerging Markets Sustainability, Global Emerging Markets Leaders Sustainability, Worldwide Sustainability, Worldwide Leaders Sustainability

Activity exposure >5% revenue: Supporting Oil & Gas, and Supporting Thermal Coal

Reason for exception/holding: The company manufactures and sells renewable energy solutions used in solar and wind power generation, hydroelectric power plants and biomass helping society to shift away from fossil fuel energy production. WEG also manufacture and sell energy efficient electric motors, which help their customers reduce their energy requirements and greenhouse gas emissions.

Revenues derived from oil and gas supporting products and services, and thermal coal supporting products and services accounted for an estimated 2.5% per activity (5% in total) of the company's overall revenue in FY2022, according to our external research provider.

Thermal coal exposure for supporting products and services was added by our external research provider in early 2023 and we contacted the company directly to check the 2.5% revenue estimates provided. Given that coal is not a strategic market segment for their products or customers, the company estimate that <1% revenues to be a more accurate reflection of their exposure.

Further information

Normative screening 

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.

Environmental issues 

Environmental stewardship 

Sustainable sourcing and environmental stewardship are critical considerations in our company analysis. We consider a range of factors when assessing a company’s environmental stewardship (including but not limited to): 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.

Forward contracts

While some of our funds have the ability to invest in forward contracts, we do not invest in these and would not purchase forward contracts on agricultural commodities for the funds.

Investment terms

View our list of investment terms to help you understand the terminology within this document.

Important information

This material is for general information purposes only. It does not constitute investment or financial advice and does not take into account any specific investment objectives, financial situation or needs. This is not an offer to provide asset management services, is not a recommendation or an offer or solicitation to buy, hold or sell any security or to execute any agreement for portfolio management or investment advisory services and this material has not been prepared in connection with any such offer. Before making any investment decision you should consider, with the assistance of a financial advisor, your individual investment needs, objectives and financial situation.

We have taken reasonable care to ensure that this material is accurate, current, and complete and fit for its intended purpose and audience as at the date of publication. To the extent this material contains any measurements or data related to environmental, social and governance (ESG) factors, these measurements or data are estimates based on information sourced by the relevant investment team from third parties including portfolio companies and such information may ultimately prove to be inaccurate. No assurance is given or liability accepted regarding the accuracy, validity or completeness of this material and we do not undertake to update it in future if circumstances change.

To the extent this material contains any expression of opinion or forward-looking statements, such opinions and statements are based on assumptions, matters and sources believed to be true and reliable at the time of publication only. This material reflects the views of the individual writers only. Those views may change, may not prove to be valid and may not reflect the views of everyone at First Sentier Investors.

To the extent this material contains any ESG related commitments or targets, such commitments or targets are current as at the date of publication and have been formulated by the relevant investment team in accordance with either internally developed proprietary frameworks or are otherwise based on the Institutional Investors Group on Climate Change (IIGCC) Paris Aligned Investment Initiative framework. The commitments and targets are based on information and representations made to the relevant investment teams by portfolio companies (which may ultimately prove not be accurate), together with assumptions made by the relevant investment team in relation to future matters such as government policy implementation in ESG and other climate-related areas, enhanced future technology and the actions of portfolio companies (all of which are subject to change over time). As such, achievement of these commitments and targets depend on the ongoing accuracy of such information and representations as well as the realisation of such future matters. Any commitments and targets set out in this material are continuously reviewed by the relevant investment teams and subject to change without notice.

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References to ‘we’, ‘us’ or ‘our’ are references to First Sentier Investors, a global asset management business which is ultimately owned by Mitsubishi UFJ Financial Group. Certain of our investment teams operate under the trading names FSSA Investment Managers, Stewart Investors, Realindex Investments and Igneo Infrastructure Partners, all of which are part of the First Sentier Investors group.

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