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In addition, we actively engage with the companies we invest in to help improve their ESG profiles over time. In this approach, ESG analysis, carried out by our dedicated team of responsible investment analysts, is a key input into the investment decision-making process. However, the ultimate decision about whether to include a security in a portfolio lies with the portfolio manager. This means that companies with material ESG risks may be included in the portfolio as long as the portfolio manager believes that the valuation adequately compensates for the risks identified. In our view, this time-honoured method of ESG analysis enriches our fundamental analysis of risks and opportunities.
Finally, the newest element of our responsible investment approach is what we term sustainable investing. In short, our sustainable strategies adopt the fundamental principles captured by our integrated ESG approach, but amplify the responsible investment requirements by adopting sustainable ‘red lines’ and a responsible investment veto approach.
We use ESG analysis to identify companies with robust business models which effectively incorporate sustainability into their core business and strategy.
While engagement with companies on ESG considerations is common to our integrated ESG and sustainable approaches, our sustainable strategy ‘red lines’ are an extra step to ensure that the companies that we choose to invest in do not violate the UN Global Compact’s 10 principles that promote responsible corporate citizenship (relating to areas such as corruption, labour standards, human rights and the environment). The ‘red lines’ also ensure that we avoid companies with characteristics which make them incompatible with the aim of limiting global warming to 2°C.
Finally, we exclude tobacco as we do not view those businesses as compatible with our commitment to sustainable investment.
In this context, our responsible investment team determines whether an investment opportunity is suitable for sustainable strategies over and above the traditional financial analyst’s recommendation. We do not expect the veto to be needed, but it is a strong signal of what matters most to our sustainable strategies both internally and externally.
Your capital may be at risk. The value of investments and the income from them can fall as well as rise and investors may not get back the original amount invested.
Important information This is a financial promotion. This article is for professional investors only. These opinions should not be construed as investment or any other advice and are subject to change. This document is for information purposes only. Any reference to a specific security, country or sector should not be construed as a recommendation to buy or sell investments in those countries or sectors. Please note that strategy holdings and positioning are subject to change without notice.
Issued in the UK by Newton Investment Management Limited, The Bank of New York Mellon Centre, 160 Queen Victoria Street, London, EC4V 4LA. Registered in England No. 01371973. Newton Investment Management is authorised and regulated by the Financial Conduct Authority, 12 Endeavour Square, London, E20 1JN.
May–June 2019 portfolio institutional roundtable: ESG 25
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