Recent years have seen more focus on how investors' money works in a sustainable way. This is commonly referred to as Environmental, Social and Governance investing.
This broadly means that fund managers look to determine non-financial factors alongside the more traditional financial measures. This builds a picture of how a company provides a positive contribution whether that be for the environment such as climate change, social change such as working standards, or governance such as executive pay. The aim is to foster positive change through the companies that a fund manager invests in on behalf of its customers.
There are many differing approaches to how fund managers can achieve this. This could be excluding certain sectors which are deemed to have negative impacts. Alternatively, a fund manager could choose the best in class of a sector deemed to be ESG negative, for example this could be an oil company which has set stringent targets on decarbonising.
NFU Mutual take an integrated approach to ESG. This means that we incorporate ESG considerations directly into our investment process. This approach means that we do not completely exclude certain sectors, although even though that is the case, we look to invest in companies that offer fundamentally sustainable investment opportunities and we consider that non-financial measures can be as important as more traditional financial measures.
We fundamentally believe that factoring ESG into our investment processes can provide customers with an appropriate balance between good long term investment growth and sustainable investing. Our beliefs can be summarised as follows:
- We accept that non-financial considerations can have a material impact upon investment performance.
- We do not believe that ESG is ‘green’ investing and therefore do not exclude specific sectors deemed to be ‘non-green’ such as Oil.
- The reason for this is that we believe that as a major provider of capital we can more effectively influence the direction of companies in moving to sustainability. This will have more positive effects over the longer term.
- We commit to being open and transparent on where we have voted against, influenced culture or made active decisions to divest (or exclude companies).
- Overall these beliefs mean that we take an integrated approach to ESG on all our portfolios. We therefore believe that non-financial considerations such as impact upon climate can be as important as more traditional financial considerations and we take those considerations into account to identify the best opportunities for long term sustainable performance.
- We commit to including our ESG position as a key pillar of our customer friendly investment beliefs document which we will publish on our website and include as the basis for any further reporting.
- Overall we believe that we should be free to invest where we feel there is value but that we will do it consciously and look for sustainable investment opportunities. There is no simple exclusionary process as we believe that this isn’t a simple decision and therefore believe that removing opportunities to invest can mean missed opportunities, both for fund performance and for sustainability to be embedded in investee companies.
- We commit to working alongside our investee companies to encourage ESG considerations and in ensuring that they are transparent.
- We believe in the intrinsic link between all areas of ESG and are of the belief that governance is the key pillar which drives both environmental and social behaviours within a company. This is why we do not exclude certain sectors as correct governance within, for example an oil company, can lead to resources being directed to carbon reduction and therefore positively affect a company’s environmental position.
- We believe that voting is most effective when investor resources are pooled to add further pressure on companies to act and develop in a positive way for the betterment of the environment and society.
We believe that our approach provides many benefits for our customers:
- We look for opportunities which will benefit long term performance, this integrates sustainability which we believe can enhance those returns over the longer term.
- We do not dismiss opportunities to engage with companies upon their overall strategic direction with regard to sustainability. We believe that engagement and holding companies to account can be more effective than simply removing those investments from a portfolio.
- We provide a balance for customers.
- We are transparent upon where we have made ESG considerations and engaged with companies to further their sustainability credentials.