In recent years, sustainability and climate change have been key topics of discussion in many parts of life. Many people now endeavour to reduce their carbon footprint and impact on the environment by changing their thinking and daily practices in relation to recycling, cycling to work or school, using reusable goods, reducing their air travel, and so on. For investors, applying a socially responsible approach to investing is gaining momentum and investing is no longer simply about the financial returns. Increasingly, investors are seeking to encourage companies to act responsibly, in addition to delivering strong financial returns. 

Socially Responsible Investing (SRI), has grown significantly in recent years as awareness. According to Bloomberg, ESG assets increased to $37.8 trillion by the end of 2021 and are forecast to increase to $53 trillion by 2025, which would represent one third of all global assets under management. The term SRI adds a moral component to what we already know about traditional investing. It involves including or excluding investments based on specific ethical criteria.

Not only does this type of investment provide healthy financial returns, but also offers a moral reward as it seeks to have a positive impact on the world we live in now and for the future. Therefore, the strategy is defined by considering how an investment may have a positive impact on our communities, in addition to positive financial returns for the investor.

If you are considering investing in an SRI portfolio, ensure you are clear on what matters to you, what you want to achieve, and your political and personal values. Are there certain companies or sectors that you are seeking to avoid with your investment portfolio? Defining what is important to you means that you can be confident that your investments will align with your beliefs and values, which is the key to investing responsibly.

Environmental Social Governance (ESG) Factors Explained

ESG is a broad term that refers to a type of investing that considers the impact of Environmental, Social, and Governance factors, alongside traditional financial measures such as revenues and profits. ESG factors are used as a tool to assess the company's practices and beliefs before investing and can be aligned with the investor’s personal and political beliefs to make a socially responsible portfolio. It stands to reason that companies that score highly on ESG metrics, will also be more likely to deliver strong financial returns. Analysis has suggested that companies with superior ESG performance perform better financially and are valued higher in the market compared to their industry peers. An explanation of each ESG factor is discussed below.

Environmental - Climate change is a financial risk to all companies, therefore environmental factors that companies may seek to align with include reducing the impact of climate change, land use, biodiversity, toxic spills, waste management and water use. By investing in companies that have a mission to tackle these environmental issues, investors can gain confidence that sustainable environmental practices may have a positive impact on their investment position in the long term.

Social - From a social perspective, investors can review the best practices of a company in relation to issues such as factory farming, child labour, supply chains, nuclear weapons, gambling, pornography, tobacco, and alcohol.

Governance - Governance factors refer to the consideration of shareholder rights, fair pay, conflict of interest, diversity, controls, and ensuring best practices.

Including businesses that score highly on these three factors into our investment portfolios will allow our investors and other key stakeholders to realise benefits and deliver value in both financial and non-financial terms.

ESG at Trustees Executors

Not only is ESG integrated into SRI investment portfolios, but it is equally important for us as a business. In addition to the proven financial benefits, there are compelling moral and social imperatives to integrate a strong ESG focus into the way we do things at Trustees Executors. We want to ensure that our key stakeholders are confident in our ability to ‘always do the right thing’. This is driven by our core values of, trust, relationships, and innovation.

How Can Trustees Executors Help?

We have an increasing number of investors who aim to be more aware of where their money is being invested to ensure these investments align with their values. Through our Socially Responsible Investment portfolios, we allow investors to seek fulfilment from both investing sustainably and financial growth. By ensuring our SRI portfolios are globally diversified, low cost and are based on academically backed investment strategies, we can be confident that they provide a quality investment when compared to our standard investment portfolios.

Constructing an SRI portfolio will often start with negative screening which is a tool used to find the least desirable performers for our portfolios and exclude them. At Trustees Executors a majority of this is completed through manager selection, particularly for offshore investments. Our fund managers pride themselves on their responsible investment philosophy and actively engage with companies on their environmental, social and governance (ESG) issues. For local investments this process is more straightforward as there is no market exposure to nuclear weapons, tobacco, adult entertainment, and minute risk of child labour involvement. Locally our main avoided exposures include, gambling (SkyCity), fossil fuels (Z Energy/Ampol, Genesis), and alcohol (Delegats).

Our approach to SRI portfolios also aims to invest to reduce carbon emissions by including investments that have significantly lower carbon exposure when compared to the overall market. This is achieved by holding a higher weighting than the market average in companies that have a higher-than-average sustainability score.

Selecting and Monitoring Your Investments

We manage your investments as if they were our own. Our aim is to provide you with confidence in the quality and success of your investments. As part of this, our process focuses on Manager Due Diligence, Portfolio Monitoring, and Engaging with Managers to select and monitor your investments.

• Manager Due Diligence – Our manager selection process involves a thorough review of the manager universe and all corresponding funds with the same strategy. The selection considers many factors including investment philosophy, team, performance, and the manager’s ESG strategy. We meet with managers to review their investment process and also use third-party providers (Bloomberg, Morningstar, Sustainalytics) to review their offering against peers and our objectives.
• Portfolio Monitoring – We monitor portfolio performance, risks and exposures using the same third-party providers which provides an independent validation of the manager's capabilities. We combine this with our own internal analysis.
• Engaging with Managers – We regularly meet with managers through roadshows or other scheduled meetings. This provides opportunities for our investment team to gain a better understanding, ask questions of and provide feedback to our managers about their process and performance.

Your Socially Responsible Portfolio

Socially responsible investment portfolios can perform equally as well as traditional portfolios, if not better. Recent studies have concluded that SRI funds maintained similar investment growth when compared to non-SRI funds. Ethical investing does not have to be expensive. By selecting fund managers that have a strong focus on ethical investing we are able create a portfolio which excludes the most controversial industries, integrate strong ESG processes where it is efficient to do so, and includes several funds which target lower fossil fuel emissions.

SRI is a new approach to investing and is a style of best practise investing that aims to deliver positive investment outcomes, beyond simply positive financial returns. At Trustees Executors we can help to guide you through this approach to investing.  Our investment services team specialise in this growing market opportunity. If you would like to know more about socially responsible investing, please feel free to contact us here.