Stewart Investors

Climate change risks and opportunities are relevant to all companies, albeit in different ways, to different extents, and over different time horizons. Risks can also be direct to a company’s operations, or indirect through product use or supply chains. 

Our investment process is bottom-up and focused on the specific risks and opportunities for individual companies. These include physical, transition, regulatory, fiduciary and reputations risks. We provide detailed descriptions of each company we invest in through our Portfolio Explorer tool, including key risks, engagement priorities and a description of any climate change solutions the company is contributing to. 

While in a general sense physical, transition and regulatory risks are evident depending on the industry or location of a company’s direct operations, indirect risks can be more difficult to ascertain. Fiduciary and reputational risks pertain to the stewardship, competence, integrity and vision of a company’s management and board, and so can relate to almost any company. 

Since 2005, our investment philosophy has explicitly sought to invest in companies we believe are well-positioned to contribute to, and benefit from, sustainable development.

Every investment decision we make across our various investment strategies considers the sustainability positioning (risks and opportunities) of every company from the bottom-up and includes:

• Detailed company analysis
• Written investment team discussion and debate
• Weekly team and strategy meetings to discuss
• Investment decisions
• Meetings with company management and key stakeholders, from competitors to NGOs
• Commissioned research on various aspects of business quality, including understanding climate and related risks
• Consideration of other third-party research
  

The output from over 15 years of employing this investment philosophy has resulted in portfolios that are 90% lower in carbon emissions than their corresponding benchmarks, free of fossil fuel extracting companies, and with more than 50% of companies contributing to climate change solutions.

We incorporate climate-related risks and opportunities in our company level analysis. This can include the sustainability positioning of the product mix and end markets, the emissions intensity of a company’s operations and its supply chains. We avoid companies who we believe face significant risks in these areas, as detailed in our position statement on harmful and controversial products and services. However, it is impossible to reduce systemic risks like climate change to zero, in particular for physical risks such as extreme weather events that can have negative impacts on a company’s assets, employees, essential infrastructure, supply chains, and so on.

The Taskforce on Climate-related Financial Disclosure (TCFD) includes recommendations on scenario analysis. We don’t believe top-down scenarios are relevant or effective for understanding the climate change related risks and opportunities of our investments at portfolio level, however we regularly consider different scenarios (not just climate scenarios) at a company level.

Investing in quality companies

While only investing in companies with positive sustainability positioning is important for managing climate change risks, it is not enough. We also only invest in companies we believe are high-quality. These companies have;

• exceptional management teams and cultures,
• enduring franchises with strong market positions and reputations, and
• sound financials with low debt, sustainable margins and free cash flow.

We believe that quality companies like these are in a better position to make the long-term investments and the changes needed to transition their businesses to net-zero emissions.

Engagement

Company engagement is a critical part of the way that we invest.

Engagement helps us build confidence in company management, and is the means through which we encourage companies to improve. We believe constructive engagement is vital for the success of long-term investors with a 10-year investment horizon.

Climate change has long been an engagement topic for us, and in 2022 we will commence a new climate change engagement strategy.

For more information please refer to our climate report.

We have set the following targets related to climate change and have committed to the Net Zero Asset Managers Initiative:

• 100% of investee companies disclosing emissions by 2025
• 80% of ‘financed emissions’ (aggregated emissions attributable to an investor based on their ownership of the invested companies) covered by targets by 2025, 100% by 2030
• 50% reduction in financed emission by 2030
• Net zero scope 1 & 2, & employee travel emissions by 2030
• Net zero financed emission by 2050

Our targets relate to 100% of our AUM. For more information, please refer to our climate report.