Not responsible? Time to think again!
Taking a more active interest in how the companies we invest in are run can have a long-term benefit for investors
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In recent years, shareholders have become more vocal about how the companies they own shares in behave.
Executive pay has grabbed the headlines, but there are a lot of other issues around environmental, social and governance practices – often abbreviated to ESG – where shareholders can have a positive influence.
The benefits of a positive view
There is significant evidence that being an active and responsible shareholder is a key ingredient in managing long-term returns. This is based on the idea that companies that are well-governed and effectively manage social and environmental issues are more likely to have sustainable business models.
Responsible investing fits naturally with our investment principles. For example, we focus on investing in quality companies that should display the hallmarks of a well-run organisation. When we invest directly in a company, ESG factors help shape our overall view and are considered in our analysis of its performance. If we decide to invest, we start to use the voting rights that come with share ownership and engage directly with company managers, where appropriate.
Taking an active role
We draw on the specialist skills of Hermes EOS to inform our voting and engagement activity.
Voting is an important cornerstone of effective stewardship. Exercising a right to vote is one of the most effective tools we have as shareholders to influence the companies in which we invest directly on behalf of our clients. Our voting is guided by our Responsible Ownership Principles, which outline what we expect of listed companies and what they should expect from us.
Engagement means talking to the people who run a company to encourage positive change in relation to ESG issues. We prefer to engage privately, with support from Hermes EOS, as we believe this is more effective than public engagement. Issues raised may relate to risk, performance and corporate governance to encourage responsible behaviour.
Being informed and engaged shareholders is a priority for Coutts. Good stewardship is integral in the values of our business and has the potential to improve long-term performance of the investments we make on behalf of our clients.
“Being informed and engaged shareholders increases our ability to influence the way companies are run where we see a need for change. ”
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What we’re concerned about
Our Engagement Objectives and Plan for the period 2018-2020 outline the key themes that form the focus of our engagement with the companies in which we directly invest.
1. Environmental
- Improved management and disclosure of the risks arising from climate change in support of the goals of the Paris Agreement to limit global warming to 2°C or below pre-industrial levels by 2050
- Sustainable levels of consumption of natural resources including water, land-use
and materials, building a circular economy over time - Control air, land and water pollution to
below harmful level
2. Social & ethical issues
- Respect for basic human rights including those of indigenous communities, eradication of slave and child
labour , provision of fundamental services and protection of privacy - Improvements in human capital management, including the protection of
labour rights and development of a more diverse and inclusive workforce - The development of an appropriate corporate culture resulting in more ethical conduct, including the elimination of bribery and corruption
3. Corporate governance
- Improvement of the governance of companies through better board composition and effectiveness, including more diverse and independent boards and the alignment of executive remuneration with the creation of long-term value
4. Strategy, risk
and
communications
- Robust risk management practices and transparent disclosure of reliable information that is sufficient for investors and wider stakeholders to make informed decisions on long-term investment
Coutts complies with the UK Stewardship Code and has been ranked Tier 1 by the Financial Reporting Council for our statement of compliance, which can be found here. All our voting and engagement reports are available here.
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KEY TAKEAWAYS
As a responsible investor, Coutts engages with the companies it directly invests in to influence their environmental, social and governance practices. This fits with our investment principles as long-term investors in quality companies.
About Coutts Institute
We understand that wealth means more than money. The Coutts Institute focuses on the governance of wealth - helping family businesses succeed, helping clients fulfil ambitions for their philanthropy, and preparing the next generation for inheritance.
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When you become a client of Coutts, you will be part of an exclusive network.
