Fund manager engagement is crucial to business change – but how does it work in practice? Columbia Threadneedle Investment fund manager Sonal Sagar and analyst Michael Hamblett explain their strategy on the Threadneedle UK Sustainable Equity Fund
Q: How do funds stand out in a crowded ESG sector in 2021?
Sonal Sagar: The philosophy for the Threadneedle UK Sustainable Equity Fund is different to other ESG strategies. Firstly, the focus of the Fund is on positive inclusion of companies and whose products or services contribute to a positive sustainable outcome, rather than simply screening out companies that have a negative impact.
But we are also looking for companies with strong and improving ESG characteristics, and we have a dedicated Responsible Investment (RI) team and a proprietary RI ratings framework to help identify those.
We also go further, by quantitatively measuring company positive outcome through net revenue exposure to the 17 UN Sustainable Development Goals (SDGs). The Fund has 100% exposure to these positive outcomes.
Perhaps most importantly, we strongly believe that you don't have to sacrifice returns to do good through your investments. In fact, this core belief led to us change the benchmark of the Fund to the FTSE-All Share index in 2019.
Q: How do you ensure the companies you invest in are future leaders?
Michael Hamblett: What is absolutely crucial to our strategy is engagement. As an active manager, we have the discretion to pick and choose what we buy and sell and a lot of that depends on the conversations we are having with a business. As a large active manager, we get good access to and have these conversations with a range of C-suite and board level individuals as well as sustainability experts within the businesses.
By doing this, we can effect change: if we think management is missing the mark on strategy or sustainability, we express these concerns and make sure we use our proxy votes as a lever for change.
This is what allows us to find future leaders and help those companies achieve their potential; companies that are underappreciated by the market or changing their strategy to make the most of the significant market and tailwinds for companies that make sustainable solutions.