By Henry Boucher, Deputy CIO at Sarasin & Partners
Too often finance has been isolated from sustainability and social and environmental concerns, placing the needs of the present above those of future generations.
But mindsets are shifting. Climate change has exposed that some businesses, for example those that depend on burning fossil fuels to make their profits, can do more harm than good. Finance can no longer ignore ‘externalities’, however inconvenient they may be to the business of making money.
Not all of the blame can be placed on business – all of us are guilty of focusing on our own activities and not seeing the bigger picture. But if we are to solve these problems many of us will need to recognise that the system must change. This is particularly true of those in the richer countries, with the most intense consumption, and the largest businesses organising and fostering that consumption. Those businesses and their investors must question whether the patterns of consumption that support their current profits can continue. By ignoring harmful environmental and social impacts they may be taking increasingly large financial risks.
Part of seeing the bigger picture is better measurement – what gets measured gets managed. The European Union’s Sustainable Finance Disclosure Regulation (SFDR) came into force in March 2021 and is one part of the European Commission’s package of reforms relating to sustainable finance. It imposes harmonised transparency by introducing various disclosure-related requirements for the financial services sector. This gives investors a greater understanding of the sustainability-related impact of their investments in financial products and financial returns are now viewed in a context beyond purely monetary value. It is a watching brief waiting for announcements relating to the UK regime but many are hoping for equivalence.
To better see the bigger picture, it also helps to stand back and consider the purpose of what you’re doing. “The purpose of business is to solve the problems of people and planet profitably, and not profit from causing problems” was the conclusion reached by the British Academy in their 2019 Future of the Corporation programme. An increasing number of large company management teams are pondering their purpose.
And they should be hearing more from their shareholders too. As the owners, it is incumbent on investors to help set the purpose of the business by directing the company management. This happens through voting on matters like the appointment of directors, incentive packages and major strategic changes, as well as engaging with the management team.
Too often this shareholder leadership obligation is treated passively and left for others to deal with. Sadly, the voting records of many fund management companies do not look good. At Sarasin we have placed stewardship at the heart of our investment process for more than a decade. It is one of our core principles and it is how we believe we can secure tomorrow. Simply put, wealth creation at society's expense is likely to be ephemeral, and sustainable companies are likely to make better investments.
The Sarasin Tomorrow’s World Fund is a multi-asset fund that draws from Sarasin’s global thematic investment process to invest in purposeful companies that strive for sustainability. In its bond portfolio, the fund seeks lenders which support positive social and environmental development.
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This document is for investment professionals only and should not be relied upon by private investors.
This promotion has been approved by Sarasin & Partners LLP of Juxon House, 100 St Paul’s Churchyard, London, EC4M 8BU, a limited liability partnership registered in England & Wales with registered number OC329859 which is authorised and regulated by the Financial Conduct Authority with firm reference number 475111.
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