Responsible Investing for

sustainable returns

Evidence is mounting that investing responsibly could improve long-term returns

Companies that minimise their environmental impact, respect their workers and customers, and are managed in transparent ways can deliver improved financial returns for investors who factor in these principles. So says a growing body of research into what drives sustainable profits and, therefore, investment returns over the long term.

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.”[1] (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.

80% of the studies show that stock price performance of companies is positively influenced by good sustainability practices[2]

IMPLEMENTING RESPONSIBLE INSIGHTS

Insights from responsible investing can be used to inform our portfolio management decisions in several ways.

For funds we select, this could include considering how the managers use ESG factors in their own security selection process. For individual securities, we might assess the ways a company deals with these elements themselves.

Growing evidence suggests companies who score high on responsible investing measures also perform well financially over the long term – we believe embedding responsible investing principles is likely to enhance long-term returns for investors too.

[1], [2] “From the Stockholder to the Stakeholder: How Sustainability Can Drive Outperformance”, University of Oxford and Arebesque Asset Management Ltd

IMPORTANT INFORMATION

This webpage is produced by Coutts for information purposes only and for the sole use of the recipient and may not be reproduced in part or full without the prior permission of Coutts.

The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your original investment.

Past performance should not be taken as a guide to future performance.

In the case of some investments, they may be illiquid and there may be no recognised market for them and it may therefore be difficult for you to deal in them or obtain reliable information about their value or the extent of the risks to which they are exposed. Where an investment involves exposure to a foreign currency, changes in rates of exchange may cause the value of the investment, and the income from it, to go up or down. Investments in emerging markets are subject to certain special risks, which include, for example, a certain degree of political instability, relatively unpredictable financial market trends and economic growth patterns, a financial market that is still in the development stage and a weak economy.

The information in this webpage is not intended as an offer or solicitation to buy or sell securities or any other investment or banking product, nor does it constitute a personal recommendation. Nothing in this material constitutes investment, legal, credit, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you.

The information in this webpage is believed to be correct but cannot be guaranteed. Any opinion or forecast constitutes our judgment as at the date of issue and is subject to change without notice. The analysis contained in this document has been procured, and may have been acted upon, by Coutts and connected companies for their own purposes, and the results are being made available to you on this understanding. To the extent permitted by law and without being inconsistent with any applicable regulation, neither Coutts nor any connected company accepts responsibility for any direct or indirect or consequential loss suffered by you or any other person as a result of your acting, or deciding not to act, in reliance upon such information, opinions and analysis.

This document has been produced by Financial Advice & Investment Solutions at Coutts and does not constitute investment research. Neither this document nor any copy thereof may be sent to or taken into the United States or distributed in the United States or to a US person. In certain other jurisdictions, the distribution may be restricted by local law or regulation.

Wealth division of Royal Bank of Scotland Group.

Coutts & Co. Registered in England No. 36695. Registered office 440 Strand, London WC2R 0QS. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.

Become a client

When you become a client of Coutts, you will be part of an exclusive network.

BAC_link_mobile.jpg
Read more »