How do we screen and choose our Socially Responsible Investment SRI funds?

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The funds we hold in our SRI portfolios must demonstrate a commitment to key areas of responsible investment, and that a socially responsible investment culture is intrinsic to their approach.

To measure and assess a fund’s Environmental, Social and Governance ( ESG) credentials, we have various tools at our fingertips.

United Nations Sustainable Development Goals (UN SDGs)

We must be able to associate each fund with one or more of the UN’s SDGs. These are 17 goals that the UN has identified will transform our world for the better, such as ‘Climate Action’ and ‘No Poverty’, and importantly, ensuring they are all achieved by 2030.

Organisations can align themselves with the SDGs using negative and positive screening processes:

Negative Screening

Negative screening deliberately excludes companies involved in activities deemed to be unacceptable such as alcohol, tobacco, and fossil fuels. A challenge here is determining whether a company should be excluded if only part of its operations are involved in these activities. To address this, de minimis levels may be applied – in other words, the percentage of a firm’s revenue generated from the excluded activity, that’s deemed to be acceptable.

Positive Screening

Positive screening seeks to support companies making a positive contribution to the environment and/or society through their products and services, such as combating climate change and standing for social justice.

Shareholder Engagement

One of the most important issues for SRI investors is shareholder engagement. Here, shareholders enter into dialogue with management to encourage behavioural change. This is based on the view that SRI investors could sell their non-green assets; but the assets may simply end up in the hands of a less ethically minded investor, so this does little to improve the way those businesses are run, and the impact their operations have on the environment and society. It’s for this reason that every fund in our SRI portfolios must have engagement and proxy voting policies and procedures in place.

ESG Rating Agencies

ESG rating agencies look at a fund’s underlying investments, and scores them based on specific ESG criteria. These ratings help as a starting point in our research process, but it’s important to remember that agencies use their own methodologies to scrutinise businesses; and along with subjective interpretation, this can result in ratings varying dramatically for the same product. We therefore have to use our own judgement, to assess whether we think a fund is suitable for inclusion in our portfolios, regardless of any ESG label they may have been given.

Fund Manager Meetings

This is an integral part of our investment process, as it allows us to satisfy ourselves that the funds we invest in really are ‘good’ as they say they are.

Over the years, we’ve developed strong relationships with many fund houses, including several high-profiles names with a huge global presence, that are responsible for billions of pounds of assets. This means we have access to one-to-one meetings with the managers, enabling us to fully understand their investment processes, how they incorporate ESG factors, the risks they’re exposed to, and how their funds are expected to perform in various market conditions, to name a few.

We will meet the managers of every single fund in our SRI portfolios, before we invest, to ensure their products are aligned – and, going forward, will continue to be aligned – with our clients’ ESG or ethical beliefs; because at the end of the day, these fund houses are custodians for our clients’ money, and everything we do comes from understanding our clients.

SRI – where people, profit and planet can live together

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