Stewart Investors - Climate Change Statement

Our investment philosophy and Hippocratic Oath are the primary means by which we ensure our investments are well aligned with climate and other sustainability objectives. Our long-term focus on quality companies that are well positioned to contribute to, and benefit from, sustainable development is not an add-on or side project, it sits at the heart of every investment decision we make.

Supported by our management team and senior investors, each member of our investment team is accountable for ensuring we execute our stewardship responsibilities in line with our philosophy. Our management team ensures that the investment team has the support it needs to deliver on our objectives.

Stewart Investors also participates in and is subject to the governance arrangements of the wider First Sentier Investors (FSI) group, which it is part of Stewart Investors staff sit on FSI’s Global Responsible Investment Steering Group and ESG Impacts Committee. Stewart Investors’ investment strategies are overseen by FSI’s global investment committee, risk assurance and internal audit functions.

Remuneration for all investment team members is linked to the long-term performance of our investment strategies and our business. We do not believe separate incentives for sustainability are necessary, or effective, in the context of our organisation and its deep commitment to sustainable investment.

We are committed to achieving global sustainable development objectives, including the well below 2°C warming target of the Paris Agreement. We believe that we have been playing a positive role in pursuing sustainable development objectives for many years, and are focused on increasing and improving our contribution.

In keeping with this commitment, we have become a signatory of the Net Zero Asset Managers initiative⁴. Being a signatory to the initiative involves a number of commitments from setting emissions targets to working collaboratively with clients and other stakeholders. 

Consistent with the Net Zero Asset Manager initiative we have set a target of reducing financed emissions by 50% by 2030, using a 2019 base year. We have also set a target of achieving net-zero emissions by 2050. We will review these targets at least every five years with a view to setting targets that are more ambitious. As data improves, we will incorporate scope 3 emissions into our targets.

View our Climate Report for full details on our targets and commitments.

Yes, as described in the statement, our action plan on climate change is focused on two primary areas: 1) how we allocate capital and 2) our engagement with investee companies, including our proxy voting decisions. We also:

• Support organisations who are better placed than we are to achieve meaningful change, for example, in the area of public policy.
• Collaborate with investors and other stakeholders so we can learn and achieve shared climate objectives.
• Continue to commission investment research and, where possible, share it with clients and companies for engagement purposes.
• Reduce our own operational emissions and offset those we cannot eliminate.

We will remain focused on real-world outcomes. Our history of dedicated sustainable investing means our starting position for portfolio emissions is far below the broader economy. Currently, the aggregate scope 1 and 2 emissions of our investment strategies is around 10% of the total of our strategies’ benchmarks, and individual strategy have emissions ranging from 5-20% of their respective benchmark’s emissions⁶. Climate success for the global economy should see that gap narrow, rather than grow.

We expect the companies we invest in to make a genuine and growing contribution to global efforts to reduce emissions and ensure an equitable transition to a zero-carbon economy for their stakeholders. This will occur through the products and services they sell, in their direct operations and in their supply chains.

Rather than judge what level is appropriate through top-down economic models, we believe our bottom-up investment analysis is the best way for us to take a nuanced view of how companies are contributing to decarbonisation. With this in mind, our goal is to see increasing ambition and action from the companies in which we invest. To monitor and evaluate this goal we will collect data and report the results to our clients.

We will also report any noteworthy support or funding we provide to organisations helping the world achieve its carbon aims.

For many years we have been commissioning independent investment research on sustainability themes and issues which support our investment decisions. This research spans diverse topics from political lobbying in health care to the lead content in paints. In terms of climate change, we have commissioned research on subjects including sustainable palm oil, alternatives to palm oil, sustainable sourcing of soy, the ecosystem impacts of consumer products, fossil fuel-dependent capital goods, and the loan-book assessment of Asian banks.

Where contractual requirements allow it, we share this research with clients and use it as an important engagement tool with the companies we are invested in. Wherever possible we ask the external providers to publish the research.

We have a history of supporting various industry initiatives (and other initiatives) aimed at improving investor understanding and adoption of sustainable investment practices. For example, we were amongst the first investors to commission carbon-accounting⁷ research in the Asia Pacific (through Trucost); we were founding members of the Association for Sustainable & Responsible Investment in Asia (ASrIA) and are a signatory to the Carbon Disclosure Project (CDP).

For climate change specifically, we are currently signatories to the CDP and have led, and participated in, the Principles for Responsible Investment (PRI) initiatives, including collaborative engagements on deforestation and plastics.

We are also active members and contributors to other related industry forums including the UK Sustainable Investment and Finance Association (UKSIF), the Responsible Investment Association of Australasia (RIAA) and the Intentional Endowments Network in the US (IEN).

Consistent with our position statement on harmful and controversial products and services, we do not have any direct fossil fuel investments. There are many transition risks for these companies that conflict with our objective of investing only in companies contributing to a more sustainable future and our belief that capital preservation is important for capital growth.

There may be rare cases, particularly for utilities, where a company has the ability and willingness to transition successfully and profitably. In such cases, we would need to be convinced that the transition plan can be achieved rapidly and credibly. Should this occur we will fully disclose any such investment and the reasons for it. 

We will report annually on our progress against our climate change objectives. We will model this reporting on TCFD⁸ to the degree it is relevant to us and we will support our clients in meeting their reporting requirements.

The TCFD is primarily focused on the risk of climate change to the reporting organisation, rather than the effect the reporting organisation has on the climate or its role in driving solutions. Both perspectives are important and we intend to cover both in our reporting.

The TCFD also 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 at a company level. We will incorporate climate related risks and opportunities in our company level disclosures.

The TCFD is also a useful model for the companies we invest in to use for their reporting. However, we do not see it as a ‘tick the box’ exercise and are more interested in seeing an integrated approach to reporting which covers all relevant issues as part of the company’s strategy. We will encourage companies to refer to TCFD where we believe their climate change reporting needs to be improved. 

Engaging with companies and proxy voting are core parts of our investment process. In the same way our investment process seeks out quality companies that are well positioned for sustainable development, our engagement and voting revolves around understanding and encouraging improvements in those areas.

One of the expected outcomes from our action plan is increasing ambition and falling emissions from the companies we invest in. We will use engagement to support our companies in the climate challenge. In our Climate Report we provide analysis of company emissions and targets, and will use that information to encourage companies to improve.

We will purchase offsets for our direct operations. Purchasing carbon offsets⁹ helps us to incorporate a cost of carbon into our business while supporting the transition to a carbon constrained economy, particularly for those people and communities most vulnerable to climate change.

We do not count these offsets towards our carbon calculations and pay for them as a business expense. We will only purchase high quality offsets, such as those certified by the Gold Standard or Plan Vivo¹⁰.

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.