Lloyd McAllister
“ESG integration is now standard; it’s almost negligent if you don’t do it.” Lloyd McAllister, Newton Investment Management
child labour in its supply chain and it uses a lot of water. Like any other business they have impacts and a footprint. You are not going to stop them being tobacco companies, but if they are in your portfolio you can encourage them to manage their business’ more responsibly and you need to ensure that corporate governance issues are flagged and addressed, as you would with any company in your portfolio. Health and safety standards in some plantations are unacceptable and exploitation can occur, by engaging with tobacco companies and encouraging them to exert their influence down their supply chains you can make a difference to people’s lives. Thompson: Exclusion happens on two levels. One is that a trustee wants to exclude something from the portfolio. If you are excluding something on non-financial grounds then you have to be confident that the majority of your membership feels the same. You must also ensure that by excluding companies you do not have a negative material impact on the portfolio’s investment performance. The second level is if the fund manager, as the fiduciary, decides that they don’t want to invest in tobacco, for instance. They have weighed up all the points and found that it is not viable as an investment. Williams: It also comes down to whether the engagement is successful. The ultimate aim is to change a company’s behaviour but it might come to the point where you realise that it is not working and will have to decide when to walk away. Aviva, for example, is assessing 40 coal companies to see if they are going to transition or not. If they cannot see enough change then it will divest.
May–June 2019 portfolio institutional roundtable: ESG 17
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