Investing

Coutts complies with the UK Stewardship Code. Our Responsible Ownership Principles and our Stewardship Compliance Statement is available on our website.

We believe that responsible corporate behaviour with respect to ESG factors can generally have a positive influence on long-term financial performance. We therefore recognise that a broad range of financial and non-financial considerations may be relevant in making investment decisions.

We take a pragmatic approach to applying our responsible investment principles, which may at times have to be adapted to the local financial and legal environment and the commercial imperatives within which a particular company operates. However, we always expect the companies in which we invest to comply with the legal and regulatory regimes applicable to them.

ESG factors are integrated into our decision making for all asset classes. We believe in a risk-based approach to setting priorities at both a strategic and fund level.

When investing directly in equities, we assess ESG risks and opportunities as they relate to overall corporate performance and we look to identify and mitigate ESG factors that are, or could become material to long-term financial performance. ESG risks are monitored throughout the life of the investment. 

We encourage responsible behaviour in the companies in which we hold direct public equity holdings through voting and engagement. We believe that engagement is an effective way in which shareholders can best effect positive change and enhance long-term financial performance. We identify engagement focus areas through a detailed review of our holdings in order to prioritise key ESG issues using a risk-based approach, including relative risk and size of holding. Direct engagement is done privately (with support from Hermes EOS) as we believe this is more effective than public engagement. Accordingly, we do not typically disclose the names of companies with which we have engaged.

Funds managed by third-parties make up a significant proportion of client investment portfolios. When selecting funds, we undertake due diligence and assess the performance of each manager, which includes an assessment of their approach to responsible investment and stewardship. We receive regular reports from the asset managers and monitor progress. When investing in third-party funds, we delegate the day-to-day environmental, social and governance activities to our managers. Third-party fund managers vote at their discretion and, when exercising their vote, must take in to account the principles of good corporate governance. In respect of investments in the United Kingdom, we encourage our managers to have due regard to the UK Corporate Governance Code and the UK Stewardship Code.

We acknowledge that endeavours to implement responsible investing practices will take time and perseverance. We are committed to continually improving our investment processes that underpin our approach to ESG integration and stewardship.

We have formed a Responsible Investment Committee to inform our responsible investment strategies and activities. This Committee includes individuals who are ultimately responsible for investment decision-making.

We report annually on voting and engagement. We also commit to engaging with our third-party fund managers to ensure they comply and apply best practice standards of global stewardship. 

Disclosure is the key that allows investors to better understand, evaluate and assess potential risks and return, including the potential impact of ESG factors on a company’s performance.

We actively support transparency and good reporting from companies and the integration of ESG in investment decision-making processes by engaging with other bodies with similar goals. For example, RBS Group is a member of the UK Sustainable Investment and Finance Association (UKSIF) and we engage with industry bodies and working groups in this developing sector. 

This document will be reviewed at least every two years or more frequently if needed.

We publicly disclose how we will discharge our stewardship responsibilities.

As stewards of our clients’ investment assets, we believe embedding responsible investment principles into our investment process will lead to better-informed investment decisions. 

Coutts defines responsible investment as the integration of environmental, social and corporate governance (ESG) factors into our investment processes and our ownership practices.

We believe that ESG factors have the potential, over time, to impact investment portfolios across companies, sectors, regions and asset classes. Strong corporate governance practices and management of environmental and social risks are important drivers to the creation of long-term shareholder value.

ESG considerations are fully embedded in our Investment Principles as outlined in our Approach to Responsible Investment. Responsible investment is especially relevant to our long-term approach to stock selection and our focus on the quality of organisations in which we invest on behalf of our clients. Once we have bought a company’s shares on behalf of our clients, we adopt the principle of engaged ownership where strategic or governance issues arise.

Third-party funds make up a significant proportion of client investment portfolios. While our compliance with the UK Stewardship Code relates to direct equities, when selecting funds, we undertake due diligence and assess the performance of each manager, which includes an assessment of their approach to responsible investment and stewardship.  

We monitor investee companies.

Once we have bought a stake in a company on behalf of our clients, we seek to act as engaged owners. The ultimate goal is to protect and enhance long-term shareholder value.

For direct equities, we assess ESG risks and opportunities as they relate to overall corporate performance and we look to identify and mitigate ESG factors that are, or could become material to long-term financial performance. ESG risks are monitored throughout the life of the investment. 

We encourage responsible behaviour in our direct public equity holdings through engagement as we believe engagement is an effective approach through which shareholders can best effect positive change and enhance long-term financial performance. We identify engagement focus areas through a detailed review of our holdings in order to prioritise key ESG issues using a risk-based approach, including relative risk and size of holdings. Direct engagement is done privately (with support from Hermes EOS) as we believe this is more effective. Accordingly, we do not typically disclose the names of companies with which we have engaged.

All staff are required to follow RBS policies relating to Handling  Confidential and Inside Information and Market Abuse. 

We have clear guidelines on when and how we will escalate stewardship activities.

The Responsible Ownership Principles outline clearly what we expect of listed companies and what they can expect of us. They set out our expectations and form the basis of engagements with companies on a wide range of issues, including investor communications, corporate culture, operations, strategy, financial structure and disciplines, risk management and oversight, sustainability and governance. They also explain what companies can expect from us and set out what we regard as responsible ownership.

Most importantly, companies can expect a consistent approach based on the overriding requirement that companies be run in the long-term interest of shareholders. We apply a holistic approach to analysing companies. This enables us to identify those that are failing to perform, whether in terms of immediate financial returns or in terms of failure to adequately manage risks or relationships that may destroy value over the long term. It is those companies which will receive our greatest attention and are likely to be ones with which we engage most intensively.

The Hermes EOS milestone system allows us to track progress in our engagements relative to objectives set at the beginning of our interactions with companies. The specific milestones used to measure progress in an engagement vary depending on each concern and its related objective. They can broadly be defined as follows:

• Milestone 1 Concern raised with company at appropriate level
• Milestone 2 Acknowledgement of the issue
• Milestone 3 Development of a credible strategy or plan to address the concern
• Milestone 4 Implementation of a strategy or measures to address the concern

Our attitude is one of a long-term owner. However, we may determine that it is our clients’ best interests to sell the company’s shares. 

We are willing to act collectively with other investors, where appropriate.

As investors, we own a portion of the companies we invest in on our clients’ behalf. We can use our rights as owners to encourage companies to act more responsibly and improve their practices. Acting collectively with like-minded asset owners increases the effectiveness of the engagement.

A key benefit of appointing Hermes EOS to advise and support our voting and engagement is that, where appropriate, we are able to collaborate with other investors and pool our voting and engagement power with others who share similar Responsible Ownership Principles.

Disclosure is the key that allows investors to better understand, evaluate and assess potential risks and return, including the potential impact of ESG factors on a company’s performance.

We actively support the development of transparency and good reporting from companies and of the integration of ESG in investment decision-making processes by engaging with other bodies with similar goals. For example, our parent company is a member of the UK Sustainable Investment and Finance Association (UKSIF) and we engage regularly with industry bodies and working groups in this developing sector.

We have a clear policy on voting and disclosure of voting activity.

We have clear Responsible Ownership Principles, as outlined here. Coutts has appointed Hermes EOS to advise on and support voting and engagement. In doing so, we are drawing on good practice in incorporating longer-term sustainability and risk management in our ownership policies and practices.

The Responsible Ownership Principles are reviewed annually, and Coutts may make ad-hoc adjustments where appropriate. Hermes EOS makes voting recommendations to us in accordance with our Responsible Ownership Principles. We monitor our votes, including all votes against the Board, any controversial votes, and votes linked to any on-going engagement. We perceive voting to be a core part of our normal company monitoring activity and voting decisions are embedded within the asset management team. We believe this is important to fully ensure that we are as fully informed as possible when taking more complex decisions, but also because insights gained from being involved in the corporate governance process enhance our investment decision-making.

We take a pragmatic approach and recognise that it would be impossible to foresee all governance situations. We therefore retain the ability to diverge from the Responsible Ownership Principles if we can satisfy ourselves that this would be in the best interests of our clients’ assets. Any divergence is documented with clear rationale.

Funds managed by third parties make up a significant proportion of client investment portfolios. We receive regular reports from the asset managers and monitor progress throughout the year. When investing in third-party funds, we delegate the day-to-day environmental, social and governance activities to our managers. Third-party fund managers vote at their discretion and, when exercising their vote, must take in to account the principles of good corporate governance. In respect of investments in the United Kingdom, we encourage our managers to have due regard to the UK Corporate Governance Code and the UK Stewardship Code.

We report periodically on our stewardship and voting activities.

We report our voting and engagement activity at least annually with metrics that illustrate the issues and objectives covered. This information is shared with clients and is also publicly disclosed on our website. We rely on Hermes EOS to obtain independent assurance of their engagement and proxy voting process.

For more information please contact Leslie Gent, Head of Responsible Investing.