Responsible investments: frequently asked questions
We’ve put together a set of frequently asked questions (FAQ) to help you understand what we are doing, why we are doing it, and how it will affect your investments.
This FAQ is intended to help answer any potential questions you may have about Schroders Personal Wealth’s (SPW’s) responsible investment approach, which is being implemented from 30 November 2022.
If you have any further questions, please contact us on 0344 822 8910.
Frequently asked questions
What is responsible investment?
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 the 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.
Why are you implementing a responsible investment approach?
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 risks to help us achieve our funds’ investment objectives on behalf of our clients. We believe that better management of risks has the potential to lead to a better overall investment outcome 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.
What does this mean for Solution Funds?
The Solution Funds, which invest in SPW Multi-Manager Funds and third party funds, will use the following framework:
Investment Manager and fund assessment
Schroder Investment Management Limited, 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.
What are my options?
You do not need to take any action in relation to the introduction of the responsible investment approach. There will be no change to the fund’s investment objective or benchmark.
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.
You may sell your holdings at any time. The responsible investment approach is due to be implemented on 30 November. If you wish to sell before the implementation of the responsible investment approach, please give us your instructions to do so by no later than 28 November 2022.
Will the changes cost investors?
There will be no change to the ongoing charge of the Fund(s). The costs and expenses of the proposed changes will be covered by us, with the exception of transaction costs. Transaction costs are the cost of buying and selling securities within a fund.
- The SPW Multi-Manager Funds, and thereby their respective investors, will incur minor transaction costs to restructure the underlying portfolios of shares or bonds with the responsible investment framework. 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.
- Solution funds, IPS funds and the Asset Allocator Fund will not incur any direct portfolio restructuring costs but will indirectly bear the transaction costs incurred by the SPW Multi-Manager Funds mentioned above.
How will you measure the impact of the Responsible Investment approach on my Fund?
SPW will measure the impact of the responsible investment framework by assessing certain ESG 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), and 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.
How will SPW report on the responsible investment approach?
We will enhance client communications and reporting in two key ways:
1. We will update our fund literature, such as the KIID, to reflect our responsible investment approach.
2. We will produce a Responsible Investment report, which will be published on our website at least annually. This will show the impact your funds are having on the environment & wider society, including exposures to certain UN SDGs.
We expect to publish our 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.