Responsible investments: frequently asked questions

Responsible investment considers Environmental, Social and Governance factors (known as ‘ESG’ factors) when researching and selecting investments.

Environmental factors look at how a company impacts the environment in which they operate. These factors could include how a firm manages environmental issues such as: climate change; renewable energy; carbon mitigation and decarbonisation; resource allocation; waste and recycling; preserving the natural environment; biodiversity.

Social criteria examine how a company manages its relationships and its impact on communities. These criteria could include: human rights; child labour; modern slavery; equality and diversity; conditions of employment; employee relations.

Governance factors look at how well a company is managed. These factors could include: executive pay; audit services; anti-fraud policies; conflicts of interest; bribery and corruption risks; board diversity; ensuring that shareholder rights are fair.

As stewards of our clients’ wealth, we want to make sure the investments we provide reflect our clients’ values and how they expect companies to behave.

There is a growing awareness of how companies conduct themselves, particularly with regards to how they impact the environment and society as a whole. As a responsible business, we want to ensure that these impacts are assessed when managing our clients’ investments.

By implementing a responsible investment approach, we believe we will be able to better manage investment risks to help us achieve our portfolios’ investment objectives on behalf of our clients. We believe that better management of these risks has the potential to lead to a better overall investment outcomes for our clients over the long term.

However, as with all investing, there is always a risk as the value of investments and the income from them can fall as well as rise and are not guaranteed. The investor might not get back their initial investment.

The discretionary managed portfolio invests in two types of fund: SPW Multi-Manager funds (accounting for the majority of portfolio assets) and third party funds. The portfolio will use the following framework:

Investment manager and fund assessment

Schroder Investment Management, our investment adviser, will incorporate an ESG assessment into the selection criteria of investment managers for SPW Multi-Manager Funds and third party funds. This assessment covers how well ESG analysis is incorporated into the investment process.

Only investment managers and funds that meet a minimum standard will be eligible for investment.

Given that our approach generally favours positive change over exclusion, existing investment managers or funds that fall short of the minimum standard will be a given a grace period (approximately 12 months) to meet it.

Funds that invest more than 50% of their assets in fossil fuel-based energy securities will be excluded.

SPW Multi-Manager Funds

Additional restrictions to the above will be implemented on those funds managed by SPW, the SPW Multi-Manager Funds:

Avoiding companies that persistently fall short of ESG standards

Our approach generally favours positive change over exclusion. Each of the SPW Multi-Manager Funds appoints a range of investment managers to manage equity and bond portfolios on its behalf.

Through these selected investment managers, we will try to encourage companies to improve their characteristics from a responsible perspective and contribute to a more economically sustainable future over the medium to long term. This will involve the investment managers assessing the ESG factors of the companies in which they are investing.

Investment managers will not invest in companies with very poor ESG factors and that they deem not to be taking appropriate action to improve their practices.

Revenue based exclusions

Investment managers will also be prohibited from holding certain stocks. These exclusions will be applied to companies that derive more than a specific proportion of their revenue from harmful activities, such as producing tobacco, or manufacturing controversial weapons.

SPW Portfolio funds invest primarily in a diversified range of Schroders managed funds, which themselves invest in a mix of global equities, global bonds and alternative investments.

Overall, each SPW Portfolio fund will target a better sustainability score than that of its benchmark. A sustainability score is a measure of how well a fund’s underlying investments are managing their ESG risks and opportunities.

Each SPW Portfolio fund will also seek to exclude derivatives and funds that invest more than 50% of their assets in fossil fuel-based energy securities.

The investment objectives of our portfolios and funds will not change. By implementing a responsible investment approach, we believe we will be able to better manage investment risks to help us achieve those objectives.

The costs and expenses of the proposed portfolio changes will be covered by us and there will be no change to the ongoing charges of Funds held in the discretionary managed portfolio. Clients will not incur any direct portfolio restructuring costs, but will indirectly bear the transaction costs incurred by the SPW Multi-Manager Funds (more detail provided below). Transaction costs are the cost of buying and selling securities within a fund.

The SPW Multi Manager Funds will incur minor transaction costs to restructure the underlying portfolios of shares or bonds with the responsible investment approach. These transaction costs will range from a minimum cost of 0.01% (i.e. a cost of £1 for every £10,000 held) to no more than 0.15% (i.e. a cost of £15 for every £10,000 held), depending on the Fund.

There will be no additional costs for the Portfolio funds.

You do not need to take any action in relation to the introduction of the responsible investment approach. There will be no change to investment objectives or benchmarks due to implementing this approach.

It will not be possible to ‘opt-out’, delay or defer the change to the responsible investment approach, due to be implemented on 30 November 2022.

If you have any concerns about the responsible investment approach, please contact your Personal Wealth Adviser. After discussing any concerns, if you decide that you do not want to remain in your SPW investment, you can choose to sell out of your investment or transfer to another provider. Costs and charges may apply.

SPW will measure the impact of the responsible investment approach by assessing certain criteria, such as carbon emissions metrics and exposure to Principle Adverse Indicators (PAIs).

PAIs are defined by the European Union’s Sustainable Finance Disclosure Regulation, and the UN Sustainable Development Goals (SDGs), which form a framework of 17 overall goals and 169 underlying targets set by the United Nations to work towards a more sustainable world and a fairer global society.

We will enhance our client communications and reporting in two key ways:

1. We will update our literature to reflect our responsible approach, relating to SPW as a responsible business and SPW’s responsible investment approach. We will introduce these changes over the next 12 months.

2. We will produce a Responsible Investment report, which will be published on our website at least annually and will show the impact your investments are having on the environment & wider society.

We expect to publish the first Responsible Investment Report at the end of 2023. We will keep you informed of further developments as we build this enhanced reporting for our clients.

If you need further information that cannot be immediately answered by this FAQ, please contact your Personal Wealth Adviser.