RESPONSIBLE INVESTING
YOUR INVESTMENTS - CREATING A BETTER WORLD
Investing can be a powerful force for change. The shares and funds we select on your behalf are scrutinised to ensure the companies involved are acting in a way that protects the environment and the people they work with.
We cooperate with our clients, the companies we invest in, other investors and international organisations to help build a better world.
WHAT IS RESPONSIBLE INVESTING?
Responsible investors essentially take responsibility for the impact that the companies they invest in have on the world.
Broadly speaking, responsible investing covers three categories of company behaviour: environmental, social and governance, often abbreviated to ‘ESG’.
At Coutts, we expect the companies we invest in to have strategies in place to deal with these issues.
- Environmental – the impact a company has on the environment. This includes carbon emissions, deforestation, water usage and packaging.
- Social - the impact a company has on society. This includes how it treats its staff, making sure supply chains avoid unethical labour practices, and the health impacts of its products.
- Governance - the impact a company has on the business environment. This includes its accounting practices, how it negotiates with suppliers, its attitude to diversity and how it contributes to a fair and stable market environment.
“Climate change is an urgent priority, for our clients, for the companies we invest in, and for society. As long-term investors we believe that these companies must have credible strategies that address the impacts of climate change.”
investment process
Responsible investing is one of the three main pillars that collectively underpin our investment process, along with managing risk and managing costs.
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.
our philosophy
We also believe that when companies behave responsibly towards ESG factors, it can have a positive influence on their long-term financial performance. We therefore recognise that a broad range of non-financial considerations, alongside the financial ones, may be relevant when considering which businesses to invest in.
We take a pragmatic approach when applying our responsible investment principles, which may at times have to be adapted to the relevant financial and legal environment of a particular company.
At the very least, we expect all companies in which we invest to comply with the laws and regulations that apply to them.
how we do this
Before investing directly in equities, we assess ESG risks and opportunities. We look to identify and mitigate ESG factors that are, or could become, material to long-term financial performance. These risks are monitored throughout the life of the investment.
Funds managed by third parties make up a significant proportion of our client portfolios. When selecting these funds, we undertake due diligence and analyse the performance of each manager, which includes assessing their approach to responsible investing and stewardship, and the degree to which they adhere to our approach and responsible ownership principles.
We monitor progress through regular reports from the asset managers, as well as annual reviews with them.
In respect of investments in the United Kingdom, we encourage our third party managers to have due regard to the UK Corporate Governance Code and the UK Stewardship Code.
statement of Compliance with Uk stewardship code
Coutts complies with the UK Stewardship Code, set up by UK regulator the Financial Reporting Council (FRC), and has been awarded the highest rank – Tier 1 – for the quality of our disclosures and activities.
The FRC says the code “establishes a clear benchmark for stewardship as the responsible allocation, management and oversight of capital to create long-term value for clients and beneficiaries leading to sustainable benefits for the economy, the environment and society”.
Find out more about the UK Stewardship Code.
PRINCIPLES FOR RESPONSIBLE INVESTMENT
Coutts has signed up to the Principles for Responsible Investment (PRI), an organisation supported by, but not part of, the United Nations, which encourages investors to use responsible investing to enhance returns and better manage risks.
Our PRI assessment achieved an ‘A’ grade or above in each of the key categories except one, achieving the highest possible rating for our strategy and governance.
RESPONSIBLE INVESTMENT FORUM
We’ve also formed an in-house responsible investment forum which meets monthly and directly informs the decision making of our investment committee, from which we define our relevant strategies and activities.
How we're helping our clients protect the planet through their investments
At Coutts we believe climate change poses as much of a risk to the global financial system as it does to the environment. And dealing with it is urgent.
With that in mind, we carefully consider climate change risks at every step of our investment process as we aim to help preserve our clients’ portfolios and funds, and aid the move towards a zero-carbon economy.
Understanding every holding’s approach to climate change
Our aim is to invest in companies or funds that are resilient in the face of environmental risks and, where possible, contribute to a lower-carbon economy.
Before we invest in anything, we analyse the environmental, social and governance (ESG) factors that could have an effect on that investment, including climate change. We give every potential investment a score to help us decide whether or not we’re doing the right thing.
Here are some of the questions we ask ourselves at the early stages of assessing investment potential:
- does the company operate in line with the commitments made by the Paris Agreement?
- how do they identify climate-related risks and opportunities?
- do they have dedicated staff who focus on responsible investing?
Our approach is based on internationally-recognised principles, provided by respected global bodies such as the Principles for Responsible Investment and Climate Action 100+ (an investor initiative to ensure the world’s largest corporate greenhouse gas emitters take steps to reduce their emissions)
Reducing our clients’ carbon footprint
While our portfolios and funds don’t directly emit carbon, the companies we invest in on our clients’ behalf do. It’s up to us to manage this as effectively as possible and help our clients reduce their carbon footprint.
Against that backdrop, we’ve set two targets to reduce our carbon emissions:
We’ve already reduced the carbon intensity in our Personal Portfolio Funds by 20-30% through shifting allocations to funds with a low carbon designation, while minimising the impact on risk and return.
We measure carbon emissions as ‘carbon intensity’, which covers the amount of CO2 a company emits per million dollars of sales.
Excluding investments that harm the environment
We’ve decided to exclude certain types of company from our investments based on the harm they cause to the environment. We will not invest in any company that:
- derives more than 5% of its revenue from thermal coal extraction for coal mining and exploration
- derives more than 25% of its revenue from thermal coal generation, including utilities that own or operate coal-fired power plants
- derives more than 5% of its revenue from involvement in tar sands – a mixture of clay, sand, water and bitumen that are mined and refined into oil
- derives more than 5% of its revenue from Arctic oil and gas exploration – this is evaluated based on whether a company holds at least one licence or permit for drilling or exploring the Arctic offshore region.
Working with the companies we invest in to fight climate change
In addition to the activity described above, we also actively use the voting rights we have as shareholders and engage with the companies we invest in with support from EOS at Federated Hermes. And we engage continuously with the managers of the funds we hold, to improve their ESG-related efforts.
Here are three key facts about our voting and engagement record that you may not be aware of:
- as well as climate change, we engage with companies on a range of topics including human rights, board diversity, risk management and executive remuneration
- we frequently vote against company resolutions (we voted against management at around 40% of meetings in 2019)
- in 2019 we voted at 100% of the relevant shareholder meetings (over 2,268 times).
Working with the world’s most respected bodies
Task Force on Climate-related Financial Disclosures
One of the most important things we are committed to is communicating our progress on tackling climate change as transparently as possible. To do this, we use the voluntary disclosures set out by the Task Force on Climate-Related Financial Disclosures (TCFD) – one of the most widely used and recognised sets of guidance for companies when reporting their climate-related risks.
See our full TCFD statement here.
UK Stewardship Code
Coutts complies with the UK Stewardship Code, set up by UK regulator the Financial Reporting Council (FRC), and has been awarded the highest rank – Tier 1 – for the quality of our disclosures and activities.
Principles for Responsible Investment
We have signed up to the Principles for Responsible Investment (PRI), a United Nations supported organisation that encourages investors to use responsible investing to enhance returns and better manage risks. Since 2019 we report to the PRI on a yearly basis on our investment and governance practises.
Our 2019 assessment results:
- A+ for our strategy and governance
- A for all key categories except one
- we outperformed the average rating in all categories except one
We hope that provides some reassurance that we’re making a big effort in improving the impact of our investments, not just for client portfolios and funds, but also for the world at large.
If you’d like any more information, please don’t hesitate to contact your private banker or wealth manager.
voting and engagement
We believe voting and engagement is an effective way for shareholders to bring about positive change in a business and enhance long-term financial performance.
We identify which areas to focus on in our own voting and engagement through a detailed review of our holdings. These reviews adopt a risk-based approach, including looking at the relative risk and size of our holding in a company, so that we can prioritise.
This is done privately with support from EOS at Federated Hermes as we believe it’s more effective than public engagement.
Our voting and engagement reports
Voting statistics 2019 Q4
Voting statistics 2019 Q3
Voting statistics 2019 Q2
Voting statistics 2019 Q1
Voting statistics 2018 Q4
Voting statistics 2018 Q3
Voting statistics 2018 Q2
Voting statistics 2018 Q1
Voting statistics 2017 Q4
Voting statistics 2017 Q3
Voting statistics 2017 Q2
Engagement statistics 2019 Q4
Engagement statistics 2019 Q3
Engagement statistics 2019 Q2
Engagement statistics 2019 Q1
Engagement statistics 2018 Q4
Engagement statistics 2018 Q3
Engagement statistics 2018 Q2
Engagement statistics 2018 Q1
Engagement statistics 2017 Q4
Engagement statistics 2017 Q3
Engagement statistics 2017 Q2
Shared responsibility
How our work with the world’s leading environmental, social and governance (ESG) groups improves the world we live in.
Who are they?
A UN-backed initiative working to create a sustainable financial system and understand the investment implications of ESG factors. The PRI supports an international network of investors who have signed up to the scheme.
How we work together
Having signed up to the scheme, we are publicly showing our commitment to responsible investing. We report on how we incorporate factors such as environmental and social issues into our investment process every year, and this is independently evaluated by the PRI. This means we can be confident that our responsible investment practices are market-leading. At the same time, we attend the PRI’s industry events to deepen our expertise and work with other, like-minded investors to share best practice.
What they’ve achieved
Here are three examples of the progress made by the PRI since it launched:
- The number of global signatories grew to 2,372 in 2019, representing $86.3 trillion of assets under management[1].
- In 2017 the PRI helped create Climate Action 100+, a global initiative to ensure the world’s largest corporate greenhouse gas emitters take action on climate change.
- From 2017 to 2019, the PRI worked with 55 institutional investors to press companies for improved disclosure on their cyber security policies[2].
We say:
“By signing up to the PRI, we demonstrate that responsible investing is truly embedded in our DNA. Their 2019 report on our responsible investing approach showed that we outperformed our peers, and we are incredibly proud of that. However, we recognise that there is always room for improvement and our goal is always to provide the best results for our clients while being completely transparent about our processes.”
- Leslie Gent, Head of Responsible Investing, Coutts
[1] PRI, ‘About the PRI’ https://www.unpri.org/about-the-pri
[2] PRI, ‘Engaging on cyber security: Results of the PRI collaborative engagement 2017-2019’ https://www.unpri.org/engaging-on-cyber-security-results-of-the-pri-collaborative-engagement-2017-2019/5680.article
They say:
“Our challenge is to focus ever more deeply on what it truly means to be a responsible investor – and to then embed that so fundamentally and comprehensively in how all investors work that responsible investment as a standalone concept melts away.
“If we do this well, the power and influence exerted by the collective force of the world’s biggest investors will see the effects resonate out beyond the confines of the investment industry, into broader financial markets and on to enrich the world in which we all live.”
– Martin Skancke, Chair, PRI
More about PRI
In 2005, then-UN Secretary-General Kofi Annan invited some of the world’s largest institutional investors to help develop the PRI. It was officially launched in 2006 at the New York Stock Exchange. The UN continues to support the initiative through two partnerships – the UN Environment Programme Finance Initiative and the UN Global Compact.
The six principles offer a framework for companies to incorporate ESG issues into their investment practices, and signatories represent the majority of the world’s professionally managed investments.
What is it?
Launched by the Financial Reporting Council (FRC), it’s a set of standards aimed at UK institutional investors. The code focuses on the responsible allocation, management and oversight of capital, with the goal of creating sustainable benefits for the economy, environment and society.
How we work together
The UK Stewardship Code guides the way we manage wealth, ensuring that our actions can deliver sustainable benefits to our clients and society. We publish our compliance statement to the code which sets out all the ways we act as a proper steward. This ranges from voting and engaging with the companies we invest in, to correctly managing conflicts of interest and incorporating ESG factors into our investment decisions. By achieving the highest possible rank (tier 1) from the FRC at their last review in September 2017, we’ve shown that we understand our duty towards our clients, the environment and society.
What it’s achieved
Here are three examples of what the UK Stewardship Code has achieved since its launch:
- By January 2019, there were 280 signatories to the 2012 code.[1]
- The code has been part of a movement to encourage investors to come together to engage with the companies they invest in. According to a 2018 survey by The Investment Association, three-quarters of investors had worked together when engaging with companies.[2]
- To improve reporting standards, the FRC introduced a tiering system for signatories in 2016 based on the quality of their code statements. The organisation continues to assess the overall quality of reporting every year.
We say:
“The UK Stewardship Code sets the golden standard for asset managers as stewards of their clients’ assets. We have been awarded the highest possible rank for our UK stewardship statement, but we know that the work doesn’t stop there.”
- Karen Ermel, Responsible Investing Manager, Coutts
[1] Financial Reporting Council, Proposed Revision to the UK Stewardship Code, January 2019 https://www.frc.org.uk/getattachment/dff25bf9-998e-44f6-a699-a697d932da60/-;.aspx
[2] The Investment Association, Stewardship in practice, November 2018 https://www.theia.org/sites/default/files/2019-04/Stewardship_survey2018_FINAL_3.pdf
They say:
“The FRC will be holding signatories to account by regular review of adoption of the code and the quality of the reporting against its principles. Asset owners and beneficiaries will then be able to see if those investing on their behalf are doing so in accordance with their needs and views. They will also be able to see the impact of their managers’ decisions, particularly in relation to environmental, social and governance issues, including climate change.”
- Sir Jon Thompson, Chief Executive, FRC
More about the UK Stewardship Code
A revised edition of the 2012 Code was introduced on 1 January 2020, which has an even greater focus on sustainable and responsible investment.
The code is a key part of the UK’s broader corporate governance framework, which began with a new Corporate Governance Code in 2019. That code promotes the importance of establishing a corporate culture that is aligned with the company purpose and business strategy, promotes integrity and values diversity.
Who are they?
A global body with the world’s biggest corporate greenhouse gas emitters firmly in its sights. It works with investors to ensure the relevant companies take appropriate action to tackle climate change.
How we work together
As an investor that has signed up to the initiative, Coutts actively engages with companies we invest in to ensure they’re tackling climate change. For example, working alongside a large US pension fund, we’re liaising with a leading aerospace company to ensure they produce a plan of action on climate change and means to report progress.
What they’ve achieved
Here are three examples of what companies have done as a result of Climate Action 100+:
- Nestlé committed to net zero emissions by 2050.
- Volkswagen committed to become ‘climate neutral’ by 2050 and launch nearly 70 electric vehicle models by 2028.
- Rio Tinto has stopped mining coal and published a Task Force on Climate-related Financial Disclosures report, making public how it’s tackling climate change. The company has also committed to an asset-by-asset review to set emissions reduction targets.
We say:
“Climate change is the most pressing investing issue, which is why we have committed to mitigating the risks involved in our portfolios and funds. Our support of the transition to a low-carbon economy is not only good for the future of our planet, it also provides opportunities to reduce systemic risks. We’re long-term investors, so we see anything that could potentially enhance long-term returns as a good thing.”
- Howard Sparks, Senior Equity Specialist, Coutts
They say:
“Investor engagement through Climate Action 100+ is playing a major role in changing corporate attitudes on climate change and we have seen some very significant commitments from companies. Yet we have much more to do.”
- Stephanie Pfeifer, Climate Action 100+ steering committee member and CEO, Institutional Investors Group on Climate Change
More about Climate Action 100+
Launched in 2017, the initiative’s ultimate aim is to help the world meet the minimum requirement of the Paris Agreement – a United Nations accord to ensure the global temperature doesn’t rise more than 2° Celsius.
Working with over 370 investors representing around $35 trillion in assets under management, it holds 161 of the largest corporate greenhouse gas emitters to account over their climate change commitments.
Who are they?
A stewardship service provider enabling institutional investors to have a more open conversation with companies on ESG issues. They say this approach is essential to building a global financial system that provides better long-term returns for clients, and a more sustainable society.
How we work together
EOS is our voting and engagement partner. This means that, where we invest directly in companies, they vote at annual shareholder meetings in line with our responsible investing policy. They will also engage with these companies on our behalf to drive long-lasting change that delivers financial and social value.
What they’ve achieved
Here are three examples of the progress made by the service since it was launched:
- Worked with 1,043 companies in 2019, representing $877 billion assets under advice – a 73% increase over 2018[1].
- Generated positive results working with major companies on climate change – for example, global mining company Anglo American has announced greenhouse gas targets through to 2030[2].
- Participates in initiatives such as the Principles for Responsible Investment and Climate Action 100+.
We say:
“EOS is an important partner for us. They have invaluable expertise and scale that helps them, and us, deliver real results for our clients. By collaborating with such a significant voting and engagement partner, we magnify the impact of our actions in the companies we invest in.”
- Leslie Gent, Head of Responsible Investing, Coutts
[1] EOS at Federated Hermes, 2019 Annual Review https://www.hermes-investment.com/ukw/wp-content/uploads/2020/02/eos-annual-review-2019.pdf
[2] EOS at Federated Hermes, Public Engagement Report, Q3 2019 https://www.hermes-investment.com/ukw/wp-content/uploads/2019/10/hermes-eos-public-engagement-report-q3-2019.pdf
They say:
“Our world faces multiple complex challenges – from the climate crisis to the misuse of artificial intelligence. These problems will not be solved quickly or easily. As the magnitude of sustainability issues grows, so will our expectations of companies. Investors have an important role to play in helping to address these issues as active owners.”
– Dr Hans-Christoph Hirt, Executive Director, Head of EOS
More about EOS at Federated Hermes
Launched in 2004, EOS believes the purpose of investment is to create wealth sustainably. They help ensure institutional investors are responsibly governed, deliver long-term value, improve the lives of employees, promote diversity and support communities while contributing to wider society.
Their goals align with the UN’s Sustainable Development Goals. Examples include helping companies align with the Paris Agreement to limit climate change, control pollution levels and safeguard human rights within global supply chains.
hermes-investment.com/ukw/stewardship
Coutts Investment
Principles
Responsible investing fits naturally with our five investment principles. These underpin our end to end investment process.
Macro-informed asset allocation
We believe this is a key driver of returns over the long term.
Value and selectively contrarian
We look for assets that are inexpensive and may be unpopular and out of favour.
Diversification
Essential to broaden sources of return and manage risk in a robust way.
Quality
We seek well-managed and stable institutions.
Patience
We focus on long-term opportunities and do not over react to short-term noise.
“At Coutts, we take our responsibility to our clients seriously. It's one thing to invest in a way that preserves and grows your wealth for the future; it's something else to make sure we're all proudly contributing to a future worth living in. This means making sure the investment decisions we make on your behalf always also look through a sustainability lens.”
News & Insights
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Investing to fight climate change
26 Jul 2019
We look at just some of the ways philanthropists and investors can support the fight against climate change.
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Coutts makes the grade for responsible investing
29 Jul 2019
How we achieved strong scores when independent body the Principles for Responsible Investment took a look at our processes.
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Getting the benefit from responsible investing
19 Feb 2019
Investors are looking beyond traditional measures of investment success to enhance the long-term returns on their investments.
