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Newton’s approach to responsible investing


Rob Stewart, head of responsible and charity investment at Newton Investment Management


At Newton, our overarching approach to responsible investment is grounded in our belief that responsible investment is better investment.


We think that looking at environmental, social and governance (ESG) factors and actively engaging with companies to help improve their ESG profiles over time can not only help pinpoint risks beyond those identified in a company’s financial statements, but also help improve a company’s performance over the long term.


While being an active responsible investor is our starting point, we think that more broadly there are perhaps too many definitions of what responsible investment is, which may lead to confusion for some would-be investors. With that in mind, over time we have distilled our approach to responsible investment strategies into three broad areas. While not a definitive list, we believe our approach helps demystify and break down the jargon often deployed in this sector.


The diagram below sets out the key attributes of the three areas: exclusions and screening, integrated ESG, and sustainable investing.


Newton’s three broad categories of responsible investment


EXCLUSIONS & SCREENING ‘Traditional SRI’


INTEGRATED ESG ‘Active Ownership’


SUSTAINABLE SCREENING


Proactive application of investor’s values Reduction of investment opportunity set


INTEGRATION


Maximal opportunity set; no specific values applied


May invest in companies with ESG risks


More emphasis on positive societal outcomes


Some exclusions, but more emphasis on measurable engagement


Omits companies with positive financial prospects but negative ESG profiles


Exclusions and screening is an investment approach we have run since 1988 for some of our faith-based and charity investors. At the request of these clients, we can tailor portfolios to exclude entire sectors, for example armaments, tobacco or alcohol, or screen out individual companies.


The second broad category is our integrated ESG approach, which is how we manage the vast majority of our clients’ assets (and has developed as part of the evolution of our investment approach since 1978).


We were early adopters among our peers by expanding the investment universe in which we make active voting decisions and engage with companies. Following our inception in 1978, we focused initially on domestic UK companies, but widened this in 2000 to ensure we were active stewards across all global companies.


This practice has evolved to also entail our responsible investment analysts integrating ESG alongside conventional financial analysis before we commit our clients’ capital to an investment opportunity. We view ESG considerations as an integral part of our research, alongside conventional financial analysis, as they can also affect a company’s financial prospects.


24 May–June 2019 portfolio institutional roundtable: ESG


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