Making profits without sacrificing your principles, December 2018

On 2 December 2018, delegates from nearly 200 nations met in Poland to begin two weeks of talks: talks that are being described as 'the most important United Nations meeting on global warming since the landmark 2015 Paris deal to shift away from fossil fuels'.

While President Trump may be dismissive of the impact of climate change, many others do not share his view. But what can we, as investors, do invest more responsibly and limit our impact on our environment and encourage big business to do the same?

We asked Sue Round, manager EdenTree Amity UK fund, and a pioneer of ethical investing.

What is your approach to ethical investing?

“For three decades the core elements of our approach to responsible and ethical investing have remained unchanged: we integrate environmental, social and governance (ESG) risk factors across our investment process to deliver superior returns. Or, as we like to call it, ‘profits with principles’. This integrated approach involves screening, proxy voting, engagement and thought leadership research.

“We believe that applying a profits with principles approach should start at the very beginning of the investment process. This means ethical investors should not only seek to invest in quality companies, with sound financials and good growth prospects, but they should go a step further: they must find those companies that are strong corporate citizens, delivering economic, social and environmental benefits for society and the communities in which they operate.”

How does your process work?

“Our eight negative screens aim to ‘avoid harm’, and these remain unchanged and focus on ethical values – alcohol production, gambling, pornography & violent material, tobacco production, weapons, animal testing (for beauty and household products), intensive farming and oppressive regimes.

“We then have responsibility criteria incorporating six different considerations, which reflect material environment, social and governance (ESG) risk, and our commitment to responsible investment; these are core to the way we consider stocks as being suitable for our Amity fund range – business ethics, community, corporate governance, employment & labour, environment and human rights.

“Ultimately, for stocks to earn their place in our Amity portfolios, they must first pass the ethics-values screen and meet our rigorous responsibility-ESG standards. The ESG risk criteria can act as a brake on investment if companies do not meet our exacting standards; this is why the Amity funds have no exposure to mining or transnational oil.”

How do you tap into trends in sustainability?

“Our process also considers positive investment themes and we include sustainability trends, alongside education, health & well-being and social infrastructure. As we screen stock ideas, we will consider the positive sustainability case in terms of products and solutions and how companies are referencing the United Nations Sustainable Development Goals as part of their business case.

“Where the investment case is strong, we will seek to look positively at sustainability as an investment theme. This may include renewable energy, water, sustainable transport, pollution prevention, sustainable waste, financial inclusion, safety and security and agricultural sustainability.”

What do you believe are the current biggest ESG concerns?

“We engage regularly on important ESG issues, with both prospective and held investments. Each year we decide the thematic engagement we wish to carry out to promote responsible and sustainable investment. This will include climate change related engagement linked to our equity fund carbon footprints; the promotion of diversity; material ESG concerns such as modern trafficking, the living wage or environmental issues such as plastic.”

Are you working with industry and independent bodies on ESG issues?

“We are forming broad collaborative partnerships with many industry and global bodies affecting positive change and driving ESG progress. For example, we are active members of the UK Sustainable Investment and Finance Association (UKSIF) and have developed key partnerships with other bodies in this field. These include the Carbon Disclosure Project (CDP), UK Stewardship Code and PRI.”

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Sue's views are her own and do not constitute financial advice.
Published on 03/12/2018