Responsible Investing for
Evidence is mounting that investing responsibly could improve long-term returns
Traditional measures of a company’s performance, such as earnings per share and return on capital, tend to get a lot of focus around the quarterly reporting cycle. Responsible investing offers a longer-term perspective – transcending short-term gyrations in the markets – through three factors that affect financial performance and make up the abbreviation ESG:
- Environmental. Reducing damage to the environment that could limit a company’s ability to operate in the future, such as approaches to forestry or fishing. Does a company incorporate broader issues including climate change, which could have far-reaching consequences for all businesses and markets?
- Social. Ensuring fair and sustainable relationships with workers, customers and the communities in which a company operates. Does it pay sufficient attention to issues in its supply chain – such as child labour, adequate working conditions, and health and safety – that may attract negative publicity or regulatory intervention?
- Governance. Implementing transparent and prudent management policies that are always in the interests of shareholders. Are there clear lines of accountability with regards to executive remuneration, bribery controls and shareholder rights? Is there an adequate separation between the chairman and chief executive? Is the workforce suitably diverse, particularly at senior levels?
“We have put our ethical and sustainability programme right at the heart of our business. It makes perfect business sense as well as being the right thing to do.” (Robert Swannell, Chairman, Marks & Spencer)
WHY INVEST RESPONSIBLY?
Investing responsibly is becoming increasingly popular because the link between responsible investing and long-term financial performance has been established and validated through numerous academic studies. As a result, fund managers are beginning to use responsible investment screens as standard practice — and investors are starting to expect them to offer this option.
Institutional investors are increasingly favouring companies that sign up to voluntary ESG benchmarks. They include guidelines set out by the Principles of Responsible Investment, the leading independent organisation supported by the United Nations, and the UK Stewardship Code, which promotes high corporate governance standards.
As part of our ongoing efforts to seek out fresh ideas and innovative strategies as well as meet the changing needs of private clients, Coutts is exploring ways of incorporating ESG principles into our investment process. These principals are also well aligned with our focus on preserving and growing wealth over multiple generations.