Investing can have a positive impact on society and the environment

In the wake of the 2008 financial crisis, the message from regulators to the investment industry was clear — society needs you to be active and responsible investors. For many asset managers, this meant thinking about signing the Stewardship Code, and upping their game on proxy voting and engagement with underlying companies.

For Rathbones, already responding to these trends, it created further incentives to refine and develop our own approach to proxy voting, governance and long-term stewardship. But the Stewardship Code is now under review, with the Financial Reporting Council (FRC) setting out a proposed updated code in January. What’s next on the responsible investment and stewardship agenda?

Often a good basis for looking forward is to look back. This is true also for Rathbones, as 2019 will mark our tenth anniversary as signatories to the UN-backed Principles for Responsible Investment (PRI). We were one of the first UK wealth managers to sign up to these principles, but since that time the pace of growth has been rapid. When we joined, there were fewer than 500 others like us — now we are joined by more than 2,000 of our peers in the investment world. Responsible investment — defined here as trying to integrate environmental, social and governance (ESG) factors into the investment process — is now firmly in the mainstream.

Our own work under the PRI framework has evolved over the past decade. We now employ two full-time people on stewardship issues, and have expanded the coverage of our voting and engagement activities in listed equity holdings. Our stewardship committee sees investment professionals wrestle with the governance issues at our biggest companies, and we now use a detailed bespoke voting policy to guide our decisions. Under the PRI we have engaged with companies on a range of wider ESG issues, from slavery to deforestation. We have seen both companies and policy makers implement investors’ recommendations for more responsible outcomes. While this is encouraging, we recognise that more needs to be done. In particular, we are excited by the opportunities that can arise from integrating ESG into the investment process itself.

Figure 7: Investors are becoming more responsible

More than 2,000 asset managers around the world are now signatories to the UN-backed Principles for Responsible Investment (PRI).

Source: UN PRI.

The year ahead

In the coming year we plan to explore this issue in a deeper way than ever before. Core to this project is a belief that, at its heart, capitalism can be pursued responsibly, and that in doing so, society at large benefits. We believe that capital markets can trigger the kind of investments in useful infrastructure at a scale that can bring benefits to all. We also think that some of the challenges facing society, as summed up neatly by the UN’s Sustainable Development Goals, create a huge investment opportunity.

We are looking to explore the way in which the corporation can be released as a force for good — that is, aligned with the purpose of society, to create shared value beyond the walls of the firm. Encouraged by the proposed new Stewardship Code, we will be exploring the way in which we can bring the most tangible ESG risks and opportunities further within the scope of our investment and stewardship activities. In essence, this concerns spelling out not just how we steward clients’ assets, but the purpose we have in doing so.

These thoughts are echoed by changes to the UK corporate governance code, which emphasise company purpose and values, reminding UK plc that the rights and privileges granted to corporations are done so based on a social contract. That is, companies are allowed to exist in the scale they currently do as only they can raise and deploy capital at the scale needed for the long-term good of society. Investors have a key role to play in restating to companies that the purpose and process behind financial success matters as much as the profits gained.