Client sustainability forum: our collaborative approach in action
Cazenove Capital’s Sustainable Growth Fund was designed to bring clients and managers together to deliver profit with purpose. In our first sustainability forum, we asked our clients about the topics which are most important to them. This is what they said.
As part of our innovative approach to deliver profit with purpose we hosted our first client Sustainability Forum last month, bringing together our sustainable investment experts and our clients to collaborate and prioritise collective action. Our impact report, released earlier this year, showcased our approach to delivering positive impact in two ways:
- Through our investments. Over 30% of the Sustainable Growth Fund is invested in companies meaningfully contributing to the UN Sustainable Development Goals
- Through our influence. We are driving change in corporate behaviour towards a fairer more sustainable future
We asked our clients for their priority actions under both investment and influence, and this is what they told us.
Investment: What thematic area is your priority to allocate capital towards?
- There was a clear consensus, with 75% of our clients prioritising climate action for investment opportunities.
- There was also recognition that the transition to a low carbon economy would also require investment in infrastructure, with a further 15% prioritising sustainable infrastructure projects.
Influence: What do you think our engagement priorities should be for the next 12 months?
- There was a wider dispersion of opinions on priority engagement themes, with climate change still top for most investors. Additionally, the pandemic has focused attention on topics like “build back better” – described as the need for companies to invest in a “just transition”, ensuring the benefits of transition to a green economy are shared widely, creating decent work and quality jobs. Fair taxes are also a significant theme, as government debt burdens have grown.
In our breakout room discussions, we heard clients emphasising the importance of engagement and influence to create impact, particularly in listed markets. We were challenged to extend this influence to policy makers where possible - for instance encouraging EU governments to use COVID recovery packages to “build back better” – and raising the profile of human rights and environmental policies in emerging markets.
There were a range of views on the “spectrum of impact.” Alignment of values was the key factor for many, with clients keen to avoid investments that conflict with their values at the minimum. However, it was noted that there was appetite from some clients to take a more activist approach, investing in harmful companies and pushing for transition. This is not the approach that we have adopted in our sustainable portfolios, which direct capital to businesses that do good while avoiding those that do harm.
In addition to climate action, clients were supportive of investments in communities, such as social housing and urban infrastructure. There was also interest in impact opportunities in smaller companies or private assets. The complexity and interconnectedness of many of the Sustainable Development Goals was noted, with the social cost of job losses in carbon intensive industries just one example of this. We were encouraged to ensure all impacts were considered, rather than narrowly focusing on a single theme.
The disruptive influence of technology provides an exciting opportunity for companies to help build a sustainable future. However, there has been concern over the negative impact. This has focused on the growing power of “big tech” in our societies, encompassing issues ranging from bias in algorithms to the perpetuation of “fake news.” These growing concerns are inspiring investor action. We were pleased to welcome Isobel Mitchell from ShareAction to host a discussion based on their recent research 'Do Androids Dream of Responsible Investment?'. We also heard from Colin Baines, who used Alphabet – which is held in our fund – as a case study.
Katherine Davidson, our lead global equity fund manager, gives her thoughts in her article 'The investor’s dilemma: do sustainable funds need a digital detox?'. Katherine highlights the growing need for regulation and for technology platforms such as Facebook and Twitter to take responsibility for the content on their platforms. She also puts forward the rationale for viewing Alphabet, parent company of Google and YouTube, in a different light to social media platforms.
In breakout discussions, we heard that clients were most concerned about the “policing” of content, and the potential for misinformation. It was noted that governments and regulators hold the power to intervene, but that investors should also be using our influence to promote change.
- Climate Action: We will continue to prioritise climate action both in how we invest and how we use our influence. Currently 40% of our higher impact investments are focused on tackling climate change. Although our sustainable portfolios do not own significant polluters or fossil fuel companies, we have significant influence through our broader business.
Schroders are currently undergoing a programme of engagement with banks on their fossil fuel funding and we have had positive responses to the letter that our Chief Executive wrote to the UK’s largest companies asking for a detailed and fully costed transition plan. This AGM season, Schroders has also voted in favour of climate resolutions calling for emissions reduction targets. This has been focused on significant emitters, such as shipping and logistics business UPS, machinery manufacturer Caterpillar and Conoco Phillips, Alaska’s largest crude oil producer. It also included oil & gas giants ExxonMobil, Royal Dutch Shell and Chevron.
We backed a resolution at Exxon which led to the appointment of three new transition specialists to the board, contributing directly to a change in the company’s direction (please see 'The end of big oil?' for further details).
- Responsible Technology: We voted on shareholder resolutions at the AGMs of Amazon, Facebook and Alphabet.
We asked Amazon for a report on how AI technology called Rekognition, a facial recognition software, could contribute to human rights violations. We also asked for a report on gender and racial pay gaps, promotion velocity and a diversity and inclusion audit. We asked Facebook for a report on online child sexual exploitation and privacy tools as well as for a report on efforts to combat platform mis/dis-information. At Alphabet, owner of Google, we have called for an independent director with human rights experience, for sustainability metrics to be reflected in executive compensation and for a report on its whistle-blower policy.
We will be engaging with Alphabet over the coming months, asking for more information on the action that they are taking to tackle misinformation – in particular on YouTube – and will report back.
This article is issued by Cazenove Capital which is part of the Schroders Group and a trading name of Schroder & Co. Limited, 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.
Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested.
This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements.
All data contained within this document is sourced from Cazenove Capital unless otherwise stated.