We asked Ashley Hamilton Claxton, Head of Responsible Investment, and Carlota Garcia-Manas, Senior Responsible Analyst, Royal London Asset Management, how they implement responsible investing in a fast-paced world
How do you define ‘responsible investing' at RLAM?
Ashley: It's the umbrella term for how we run our business, covering four related activities: active stewardship of clients' money, e.g., proxy voting; engaging with companies; integrating environmental, social and governance (ESG) into the investment process; and offering sustainable or ethical funds to clients.
My team supports all those activities and provides a lot of the ESG intellectual expertise, working across fixed income, equities and increasingly cash and other areas. But how that is embedded by our fund managers depends on their investment mandate. It takes collaboration: we've been working for over six years with our credit teams on how to best apply ESG in fixed income.
Do you spend much time monitoring new social trends?
Ashley: That's 50% of our job if not more. People ask us: Won't ESG issues eventually get priced into the market? But the point is, society is continually changing. There's new research coming out and there's new social expectations around, say, plastics or pollution or climate change.
RLAM's sustainable funds have always been active in terms of emerging environmental and social topics. In terms of the whole of Royal London, historically we are best known for our work on UK corporate governance but we're now getting more global, e.g., global equities and global high yield debt. We are also broadening the issues and themes we look at such as climate risk, social and financial inclusion, circular economies - themes that resonate with end clients.
How do you turn those ideas into action through engagement programmes?
Carlota: Engagement is a toolkit. It starts with deep research into our portfolio exposures and objectives so we ask the right questions. Then it can move from a letter, to a meeting with investor relations, to speaking with board members, to collaborating with other investors, through to AGM attendance, to deciding how to vote - an escalation process.
One issue comes up again and again. Companies put all activist shareholders in the same bucket. But we are an activist with a small ‘a' in the sense that our focus is on continual improvement.
Ashley: When we meet up with companies, it's with the weight of Royal London Asset Management behind us. We engage as a house, we vote as a house - not as individual funds. That's important in terms of sending the right signals.
Can responsible behaviour in firms be quantified?
Ashley: It's tricky. There's a lot of data out there; data providers are starting to use big data and AI. So yes, we can have some indicative measurement, say on a scale of 1 to 10. But it's just an indication. How that manifests itself into an investment decision really depends on the time horizon and financial objectives of the fund.
Carlota: The approach I've always taken in engagement is to benchmark. You compare a given company with its peers - similar companies with similar industry/market capitalisation - then look at indicators. Responsible investment approaches have traditionally been a little backwards looking but as ESG issues bring more uncertainty and risk into portfolios, investors are looking for more forward-looking projections, scenario analysis and stress testing. We like that!
For professional clients only, not suitable for retail investors. The views expressed are those of Royal London Asset Management and do not constitute financial advice. Past performance is not a guide to future performance. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested. Unless otherwise stated, the information in this document has been derived from sources believed to be accurate as of October 2019. Information derived from sources other than Royal London Asset Management is believed to be reliable; however, we do not independently verify or guarantee its accuracy or validity. For more information on the fund or the risks of investing, please refer to the fund factsheet, Prospectus and Key Investor Information Document (KIID), available via the relevant Fund Information page on www.rlam.co.uk.
Issued November 2019 by Royal London Asset Management Limited, Firm Reference Number: 141665, registered in England and Wales number 2244297; The company is authorised and regulated by the Financial Conduct Authority. Royal London Asset Management is a subsidiary of The Royal London Mutual Insurance Society Limited, registered in England and Wales number 99064. Registered Office: 55 Gracechurch Street, London EC3V 0RL.