1. Is ESG integrated into your investment process? How? Which funds or does this apply to the entire firm?
At Schroders, responsible investment principles drive our investment decisions and the way we manage funds. We see ourselves as long-term stewards of our clients’ capital and this philosophy naturally leads us to focus on the long-term prospects for companies in which we invest. We believe successful investment is intrinsically linked to identifying, understanding and incorporating the effects of environmental, social and governance (ESG) trends in our decisions and ownership. ESG analysis and integration at Schroders occurs across equities, fixed income, multi-asset, alternatives, real estate, private equity and infrastructure debt.
Our integration approach spans the breadth of the ownership lifecycle, from identifying trends and analysing companies through ownership, engagement, voting and reporting. Schroders has been incorporating ESG considerations into our fundamental research and security selection process for more than twenty years. We published our first corporate governance policy in 1998, followed by our Responsible Investment policy in 2001.
We believe successful investment is intrinsically linked to identifying, understanding and incorporating the effects of environmental, social and governance (ESG) trends in our decisions and ownership. In 2019 we publicly announced our previously internal commitment to integrate ESG across all assets we manage by the end of 2020. As at 30 June 2020, over 80% of our AUM is ESG integrated.
2. Who conducts ESG analysis within the team? Is it done by PM, financial analysts or a central ESG team?
Schroders’ central Sustainable Investment team which includes 22 professionals* are responsible for supporting ESG integration efforts through the production of region and sector focused research and developing proprietary tools. We believe that responsibility of embedding ESG within the investment process must ultimately lie with the investment decision makers. Our analysts and fund managers therefore work closely with our Sustainable Investment team to identify, understand and manage ESG risks.
We recognise that different asset classes require different methods to integrate ESG into their investment processes effectively. We have therefore developed a suite of proprietary tools which draw from conventional and unconventional data sources to provide a flexible framework for our investors to incorporate ESG factors into their analysis and investment decisions.
3. Please summarise the key ESG metrics that are core to your strategy?
As an active manager hosting a broad range of strategies that span a number of asset classes, we do not prioritise individual ESG metrics. We start by identifying the right questions to ask in order to understand the ESG risks facing a company, and then identify metrics that we should use in order to answer those questions and quantify the risks in financial terms.
For example, our flagship proprietary ESG tool, CONTEXT provides a systematic framework for analysing a company’s relationship with its stakeholders and the sustainability of its business model. It starts by identifying key ESG stakeholder trends for each sector, their implications and the questions they create. CONTEXT then logically attempts to answer those questions using metrics embedded within the tool.
As at 30 June 2020, our Sustainable Investment team has identified 735 global sustainability trends facing companies across 47 sub-industries. CONTEXT includes over 250 objective data points to assess how well 13,000+ individual companies are likely to adapt to changing social and environmental pressures, drawing on both conventional and unconventional data sources to build a more complete picture of companies’ performance.
SustainEx, our other flagship proprietary tool, provides a unique measure of impact. The tool quantifies the positive contributions and negative impacts companies have on society. Viewing those costs and benefits through a hard economic lens provides an objective measure of companies’ credit or deficit with society, which will become more important as they crystallise into financial costs or benefits.
Our initial research identified and examined approximately 40 externalities, drawing on over 400 academic studies and applied over 70 data points to each individual company (currently 13,000 and rising).
We are continually working to expand the data and deepen the analysis that underpins our research and these tools. As such, we believe a multi faceted approach using a wide range of data points is critical to conducting holistic assessment of ESG issues.
4. How is this research carried out? Positive/negative screening? Qualitative?
Sustainable research is conducted in a variety of ways. As ESG integration at Schroders requires our analysts and fund managers to take responsibility for ESG analysis, the approach will depend upon the strategy of each investment team.
Our Sustainable Investment team produces dedicated research on ESG trends and issues to keep our investors abreast of the latest developments. Schroders’ dedicated Sustainable Investment Analysts have a sector focus, enabling them to gain a deep understanding of sector-specific ESG issues and work in tandem with our analysts and portfolio managers to identify and assess ESG risk and opportunities, and incorporate consideration of these factors into their forecasts.
They also produce thematic research on emerging ESG trends and present the findings to our analysts and investors to generate further discussion and debate.
Similarly, our Corporate Governance Analysts have a regional focus with specialist knowledge of best practice in individual markets. They regularly work alongside investors to discuss key governance issues and vote in line with our ESG policy.
Our proprietary tools have been developed such that they provide flexibility for the outputs to be effectively incorporated into different investment approaches. Our tools offer numerical outputs that can be incorporated to more quantitative strategies, but also offer unique insights that support our fundamental analysis.
Our Data Insights Unit works closely with our Sustainable Investment team to enhance our proprietary tools and embed our sustainable research within our investment infrastructure.
5. How do you measure your success regarding ESG? Performance against benchmarks (which ones)? Reports?
The embedded nature of our analysis, combined with the fact that performance is not driven by ESG factors alone, makes it difficult to isolate the impact of specific ESG factors in a quantitative manner.
The Sustainable Investment team have developed a toolkit that allow investors to measure and report on a number of sustainability characteristics at the portfolio level. The tools compare a range of environmental, social and governance metrics for the fund relative to the benchmark, such as carbon intensity, employee fatalities, independent board members and board gender diversity. For each metric, we provide a more detailed description of what the metric is trying to capture, along with the weighted average for the portfolio and benchmark.
The team have also developed a reporting tool that is more focused on the environmental profile of our portfolios. The report provides an overview of a portfolio’s aggregate exposure to a range of climate change metrics, and how this compares to the benchmark. For example, the report shows as the portfolio’s carbon emissions, carbon intensity and fossil fuel exposure.
By using commonly available metrics in these reports, this allows for clients to compare the sustainability characteristics of our funds, as well as against those of our competitors. We are working to incorporate a number of our proprietary metrics into our fund-level reporting and our firm’s ESG risk governance framework.
6. Is your business a signatory to PRI? Why, why not?
We became a signatory to the UNPRI on 29 October 2007. For the fifth successive year, Schroders has retained its A+ rating for our Strategy & Governance. Read our PRI Transparency report >
7. Are you disclosing climate change policies in line with the Task Force on Climate-Related Financial Disclosures (TFCD)? Please briefly outline your policies.
Schroders has publicly supported the TCFD recommendations, along with over 100 other corporates. Read our latest TCFD reporting in our 2019 annual report and accounts >
We regularly engage with companies in which we invest to encourage disclosure in line with TCFD recommendations, ensuring they are minimising and disclosing climate risks and opportunities.
8. Has your business signed up or committed to any other campaigns relating to ESG?
Schroders is a member, participant or signatory to a number of reputable industry organisations in which we share know-how and collaborate on various industry initiatives. A full list is available on our site >
Most recently, Schroders became a signatory to the UN Global Compact (UNGC) principles on 6 January 2020. We are committed to making the UNGC and its principles part of the strategy, culture and day-to-day operations of our company, and to engaging in collaborative projects which advance the broader development goals of the United Nations.
*As at 7 July 2020