We asked Mike Fox, Royal London Asset Management's Head of Sustainable Investments, why RLAM has an independent advisory committee
What is the purpose of the Independent Advisory Committee?
If you run a sustainable fund, you face a choice. You can buy in third-party research and effectively outsource decisions about the sustainability of each investment.
Or - like us - you can insource much of the research and take responsibility for those decisions, not least because there is no single definition of sustainability and the decisions are complex. For example, is Google a sustainable company?
If you do the latter, you need some form of independent oversight. Although we are conservative in what we consider for investment, fund managers will be perceived to have inherent biases towards something that is financially attractive but sustainably less sound. So our four-person advisory committee is there to challenge us, help ensure we act in the spirit of our sustainable funds - and offer their wide knowledge and expertise.
Do they meet often and see all your investing?
The committee meets at least three, sometimes four, times a year and can meet virtually as well. Financial markets move fast, so if everybody internally is in agreement on an investment, we can follow our internal processes.
However, at the next committee meeting the external advisory committee can comment on those decisions; if they disagree with them, we'll likely have to take the relevant investment out of the funds. That's not something any fund manager wants to do, so we don't play close to the wind in terms of what we put in the funds.
In practice, we focus the committee's time on the controversial, difficult stuff. That's either where we can't agree internally if individual companies meet our sustainable investing criteria; or special issues that there's no precedent for, so we want the committee to put a framework around how we should be thinking.
It's called an advisory committee because it is advisory. But in the 17 years I've been here, we've not gone against their advice. Ignoring the committee even once would set a difficult precedent.
What sort of special issues does the advisory committee guide you on?
Fossil fuels is a big one. We get asked about that a lot but we say: What exactly do you mean by ‘fossil fuels'? Fossil fuel extraction, power generation, or services companies?
In consultation with the advisory committee, we shaped a policy around each of those areas. The end result, for example, is that fossil fuel extraction is a simple ‘No' - we don't own any oil, gas or coal mining companies. However, we will consider power generation utilities that have a bias towards renewables and that are increasing that bias over time.
Will the coronavirus crisis change how your team and the committee approach sustainability issues?
Firstly, the crisis offers a proof point as to why we invest in companies that solve rather than cause problems. For example, we own companies involved with the UK testing strategy and the effort to develop effective treatments.
Secondly, it's been extremely interesting to see how CEOs and businesses within our potential investment universe have responded. You get a window into the soul of companies at times like these. Some of the good actions we have seen are brilliant but there will also be disappointments.
One member of the advisory committee, Professor Alex Edmans of the London Business School, is a leading thinker on corporate responsibility. We can go back to the advisory committee, describe the spectrum of things we've observed and ask: How do you think that compares to what we should be supporting as investors?
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Past performance is not a reliable indicator of future results. The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author's own and do not constitute investment advice. For more information on the fund or the risks of investing, please refer to the fund factsheet, Prospectus or Key Investor Information Document (KIID), available via the relevant Fund Information page on www.rlam.co.uk.
All information is correct at May 2020 unless otherwise stated. Issued May 2020 by Royal London Asset Management Limited, Firm Reference Number: 141665, registered in England and Wales number 2244297; Royal London Unit Trust Managers Limited, Firm Registration Number: 144037, registered in England and Wales number 2372439; RLUM Limited, Firm Registration Number: 144032, registered in England and Wales number 2369965. All of these companies are authorised and regulated by the Financial Conduct Authority. Royal London Asset Management Bond Funds Plc, an umbrella company with segregated liability between sub-funds, authorised and regulated by the Central Bank of Ireland, registered in Ireland number 364259. Registered office: 70 Sir John Rogerson's Quay, Dublin 2, Ireland. All of these companies are subsidiaries of The Royal London Mutual Insurance Society Limited, registered in England and Wales number 99064. Registered Office: 55 Gracechurch Street, London EC3V 0RL. The Royal London Mutual Insurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The Royal London Mutual Insurance Society Limited is on the Financial Services Register, registration number 117672. Registered in England and Wales number 99064. Telephone calls may be recorded. For more information please see our Privacy Notice at www.rlam.co.uk. AL RLAM P 0015