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Client letter: Why change a name?
We have decided to remove the word ‘Sustainability’ from the Stewart Investors fund names. Why? Three and a half slow-burning thoughts have combined to make it the right time.
In late 2005, after much agonising, we launched what is now one of the world’s oldest Asia Sustainability funds. This was never our intention. As long-term investors in Asia, we were already compelled to consider the sustainability positioning of companies to which we were handing over our clients’ savings for five, ten years and longer. We had spent the previous decade and more trying to find better ways to analyse sustainability positioning as an essential part of our investment approach.
There were no sustainability data service providers and very few, if any, sustainability reports across the region. The term ESG (Environment, Social and Governance) was not yet in widespread use. Pictures of smiling children, schools and hospitals were starting to make their way into annual reports but were mainly of use as contrary indicators for those companies with something to hide. We scrambled to find additional clues to the sustainability positioning of Asian and emerging markets companies, often stumbling along the way. We devised our own corporate questionnaires, spoke to local stakeholders including community leaders and non-governmental organisations (NGOs), and commissioned our own external research, usually at a sector level.
"Regulatory approaches are changing quickly and unpredictably and will likely continue to do so. We would rather focus on improving our own approach to sustainable investment than lose focus trying to second-guess regulatory changes."
Clients often expressed interest, before asking us, “Your focus on sustainability positioning sounds great, but how much return are you giving up by focusing on it?” Our answer was always the opposite. We believe sustainability positioning is a driver of investment returns. After one too many trade-off questions and an approach by an interested Scandinavian pension fund, we decided to launch an explicit ‘sustainability strategy’ aimed at proving there was no trade-off.
We debated the name. Stewart Investors already ran an Asian fund and a Global Emerging Markets (GEM) fund. We ran a naming competition internally to generate ideas. There was no winning entry. At the time, ‘SRI’ was the label of the day and could refer to either ‘Sustainable and Responsible’ or ‘Socially Responsible’ Investment. We opted instead for ‘Sustainability’ to capture our emphasis on long-term sustainability positioning and to be a bit different.
Fast forward 19 years and we have decided to remove the word ‘Sustainability’ from the fund name. Why? Three and a half slow-burning thoughts have combined to make it the right time.
First, we no longer have any other Asian or GEM funds alongside us, so there is no need for differentiation. The companies we admire the most don’t put sustainability in their name. It’s ‘Patagonia’, not ‘Patagonia Sustainability’. We would like to be known as Stewart Investors, not ‘Stewart Investors Sustainability’.
Second, we have always wanted to compete in the mainstream. We don’t use sustainability indices. Having the word ‘Sustainability’ in our fund names has sometimes led to us being excluded from mainstream conversations. We are keen to avoid this happening, especially as we push further into markets such as the US.
Third, financial regulators globally are spending more time trying to define what ‘sustainability’ means and how it should be regulated. Unsurprisingly each regulator is coming up with a different approach. There are many paths up the same mountain when it comes to investment styles. No two ’value’ investment approaches are the same, while interpretations of ‘quality’ and ‘momentum’ are many and extremely varied. So too with sustainable investment. Having ‘sustainability’ in a fund name may create regulatory confusion instead of clarity, particularly at a time when the term is becoming more politically charged.
Regulatory approaches are changing quickly and unpredictably and will likely continue to do so. We would rather focus on improving our own approach to sustainable investment than lose focus trying to second-guess regulatory changes. Removing the word ‘sustainability’ helps us in this regard too.
The final half-thought is that for us, sustainability positioning has always been essential but not sufficient on its own. There are plenty of companies with great sustainability positioning in which we would never invest. Quality of the people, franchise and financials are equally critical and, together, form the backbone of our investment analysis. And so too the price we are prepared to pay. Removing sustainability from the name may help to reinforce externally the importance of each and every part of our investment approach.
Taken together, these reasons persuaded us it is time to update our fund names. We have also taken the opportunity to clarify our own distinction between all cap strategies (to be explicitly named ‘All Cap’) and Leaders strategies (which are ‘all cap minus small cap’). We plan to implement these changes across our product ranges over the coming year.
"We will always seek out companies with strong sustainability positioning, not because of any labels, but because it’s an essential part of any long-term investment case. And we will always try to improve."
Removing the word sustainability doesn’t mean we will be focusing less on the sustainability positioning of our companies. The opposite is true. We are always trying to improve and do more, so long as it is company-focused, creative and original. Learning from our mistakes remains our greatest competitive advantage, along with our ten year investment time horizon.
We analyse and map each of our companies to specific environmental footprint and human development solutions. This process naturally continues to evolve and we always seek to improve and add rigour to what we do. Meanwhile, pre-defined sustainability performance indicators for each investment remain on our radar as a potentially useful tool, although we believe companies can contribute to sustainable development in different ways and that it is helpful to evidence that contribution using measures and methods which are suitable for each company.
Elsewhere, our research tender process is now well out of its infancy and the major teething issues we faced - such as how to best design, award and pay for a research tender! – have largely been resolved. We had no idea how difficult the design process was and how many simple mistakes can be avoided with the benefit of experience.
Our engagement continues to improve and is now flourishing, albeit in an unusual way. We actively try and avoid a prescriptive, formal, systematic approach where possible. This has become harder to do, given the financial industry’s predilection for measurement and quantification. Instead, we prefer to take a companyfocused approach which backs the curiosity, passion and persistence of our investment analysts as they grapple with the sustainable investment challenges facing our companies. Our recent conflict minerals engagement is a good example of this.
Born out of analyst frustration that companies are avoiding a critical long-term risk, our conflict minerals engagement has taken many different turns and directions, collecting wonderful partners along the way. No one has all the solutions to the problem, but we are now part of a group of companies and investors working together to see what might be possible. The closer we get to a lasting solution for all stakeholders, the greater the long-term shareholder returns are likely to be. We dream of launching similar engagements over time.
Our reporting is continually evolving and we are proud of our online Portfolio Explorer, which transparently reports on the sustainability thinking behind each and every investment. We are dreaming about what the next version of our Portfolio Explorer will be able to deliver. All these activities, and most importantly the imagination and creativity that they require, are unrelated to what we call ourselves, or our funds. We will always seek out companies with strong sustainability positioning, not because of any labels, but because it’s an essential part of any long-term investment case. And we will always try to improve.
David Gait
September 2024
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