The importance of responsible investing

8 December 2023

4 minutes

At a glance

• We expect our fund managers to consider a wide variety of risk factors and opportunities in their investment decision making.
• Responsible investing incorporates relevant environmental, social and governance factors when investing, and promotes engagement.
• We believe engagement is the most powerful tool to maximise our influence.

When looking at the value of a company, often financial figures will only tell part of the story.

We believe considering non-financial, environmental, social and governance (ESG) elements as part of an overall view of a company can help provide a fuller picture of its potential, helping to identify different risks and opportunities, and providing a more accurate picture of a company’s true value.

For example, this might include assessing how transparent a fast fashion company’s supply chain is. Or analysing whether a fossil fuel company is considering future opportunities in green energy generation? We expect our fund managers to consider examples like these when making their investment decisions.

Responsible Investing

It’s important to distinguish between responsible investing (RI) and other methods of ESG tinted investments. Historically, the most common of these was what is known as ‘ethical’ investing – whereby certain stocks or entire sectors would be excluded from a managers potential investment universe.

However, for the majority of people RI can be a more appropriate option. Whereas ethical investing involves divesting, RI focusses on engagement, and on being active owners. So, an SJP fund may be invested in a big oil and gas company, which will mean the fund’s carbon footprint isn’t as low as it could be. But our fund managers and our engagement partner Robeco will be working with the company to help them transition to a greener future.

In the long run, we believe this is better for the planet. By working with companies, we can use our size and scale to push boards to make better decisions. And by remaining invested, it means we’ll benefit from any future potential performance uplift as a result.

It’s important to add one caveat: we do have a small exclusion list of companies that manufacture controversial weapons and companies in breach of UN Global Compact Principles – a set of minimum standards around human rights, labour, the environment and anti-corruption.

Different approaches

Investing in any one of our Portfolios or funds will see you invested in potentially a huge number of companies. We have fund managers investing in bonds, equities and other types of assets, across the planet in a huge variety of sectors.

As a result, there isn’t a ‘one size fits all’ approach to how our fund managers invest responsibly. For equities, for example, they might vote at a company's Annual General Meeting, or have direct communications with senior leadership. On the other hand, a bond holder won’t have voting rights, but will be able to influence a company before buying new debt.

Similarly, geography can play an important role. Investors in developed markets will have access to much more data and insight, compared to many developing markets.

Working with fund managers

Our role as a wealth manager is to keep tabs on these fund managers, ensure they are considering ESG factors as part of their wider investment decisions, and are engaging with companies on an ongoing basis. We also have an engagement Partner, Robeco, who engages with companies directly, on our behalf.

For more detail and to read examples of the work of our fund managers and Robeco undertake please take a look at our recently updated Approach to Responsible Investing document, available here.

The value of an investment with St. James's Place will be directly linked to the performance of the funds you select, and the value can therefore go down as well as up. You may get back less than you invested.

‍