We share Richard Stone's speech from the Sustainable & Social Investing Conference that took place recently in London.
Our speech at the Sustainable Investing Conference
We recently co-sponsored the Sustainable & Social Investing Conference that took place on 12 December. Our Chief Executive, Richard Stone, delivered the welcome address and Keynote speech alongside M&G’s Head of Sustainability and Impact, Ben Constable-Maxwell.
We're happy to share Richard Stone's speech below, and if you would like to find out more about the conference and other past and future events, please see to our events page.
"Welcome to the first Sustainable and Social Investing Conference. My name is Richard Stone and I am the Chief Executive of The Share Centre, and we are very proud to be sponsoring today’s event. I am delighted to also be joined today by Ben Constable-Maxwell from co-sponsor M&G who will take us through M&G’s approach to ESG.
I’d like to start by thanking you all for turning out on this cold and wet December day, not least when there are other events taking place today which might otherwise be a distraction. What it does show is the increasing importance of the topic of Sustainable and Social investing to personal investors.
I’m going to just address three topics this morning.Firstly, what is Sustainable and social investing. Then I’m going to explain a little bit more about The Share Centre, who we are, what we do and most specifically how we are incorporating sustainable and social investing within our service offering and finally I’d like to address the topic of investor activism and the role this has to play.
So, what is Sustainable and Social investing.
There are many acronyms and phrases banded about in this area. ESG, SRI, Impact investing. Each is slightly different. SRI or socially responsible investing is probably the broadest of these definitions. It tends to focus on environmental and social factors when considering investment and was one of the initial concepts in this area. ESG broadens that slightly to look at specific factors relating to environmental, social and corporate governance when determining what to invest in, assessing companies against each of those three criteria. Impact investing is more specific and relates to investing in companies which aim to generate a measurable environmental or social benefit alongside a financial return.
Sustainable and social investing has evolved greatly over a number of years. Initially it started out as a process of negative screening and many still view it as such today – in other words ensuring that you do not invest in bad, sometimes referred to as ‘sin’ stocks or companies. The history of this negative screening dates back over 250 years to a time when the Quakers prohibited members from investing in anything related to the slave trade. More recently the Pax World fund was established in 1971 as the world’s first socially responsible mutual fund in the United States enabling investors to avoid investing in any companies associated with the Vietnam War.
Bringing the story up to date in the 21st century the concept of negative screening is how many still see responsible investing – making sure as investors they avoid tobacco, arms, and alcohol stocks for example. However, ESG investing which looks at environmental, social and governance factors when assessing different investment propositions recognises that the concepts are more nuanced than just a binary view of whether a company is a ‘sin’ stock or not. When investors look at ESG factors they are assessing the impact the company has on the environment, how it treats its suppliers, customers and workforce, and how it is governed. Company reporting has evolved so that public companies have to report on many of these factors and personal investors alongside fund managers can then evaluate the relative performance of different companies. As individual investors we may each rank the different factors differently and have different views of what is and isn’t acceptable.
The example I often quote is BP. Is this a ‘sin’ stock. Many would consider it to be because it is largely a carbon based business. However, it is also using its resources to invest heavily in green energy, to put electric charging points into its network of service stations and is arguably therefore using its financial might to progress a greener agenda and has the economic power to do so at a pace which outstrips the capability of new entrants to these markets. Another example would be Tesla. An electric car company and therefore addressing one of the key climate change challenges may be the initial perception. However, closer inspection suggests the Lithium-Ion batteries the cars use have a significant environmental impact so the judgement may not be as clear cut as it may initially appear. The point is that as an investor, as with any fund manager, we have to make a judgement as to how these issues sit with our own values and views of the world and our own ESG filters.
So this brings me on to The Share Centre.
The Share Centre was established in 1991 and has at it’s very heart the purpose of serving and advancing the interests of personal investors. We offer the full range of account types that you would expect from a retail investment platform and fundamentally do two things – we provide custody to safely look after our customers’ assets and we provide a trading service enabling our customers to trade those assets. Unlike many of our competitors we charge a simple flat custody fee and then a dealing commission for trading. This makes us agnostic as to whether an investor is investing in funds or equities and means that our charging structure does not penalise investors as they invest more or are successful in their investing activities in the way that value related charging structures do.
As I said, at our very heart from our initial inception, we have been strong advocates of the rights of personal investors. This included changing the Companies Act in 2006 to include Part 9 which enfranchises nominee shareholders. This also then translates into our approach to ESG and how we enable investors to invest in a socially responsible manner.
We also look continuously at how we operate as a business. We are based in Aylesbury in Buckinghamshire, in a relatively residential area enabling about 40% of our staff to live within a short distance, many within walking distance, of the office. We encourage walking or cycling to work and take very seriously the wellbeing of our staff. We encourage our customers to interact with us online so that we send out fewer pieces of paper and print less. We try to encourage our landlord to source greener energy. There is much more we can do and as with any business and in our own lives there are areas where we fall short and are looking to improve further.
We recognise that many of the issues are, as I said previously, nuanced. In terms of our customer proposition we do not try to make judgements on behalf of investors, rather we make the information available to enable you as personal investors to make choices which chime with your own values and desired outcomes.
There have been a number of bodies which have come into existence to try and help investors navigate the market such as the Global Sustainable Investment Alliance and the Principles for Responsible Investing which is a UN backed initiative. The asset management industry backed Transition Pathway Initiative or TPI is another which provides a free tool to assess companies preparedness for the transition to a low carbon economy.
It is a complex and crowded market to navigate and so we have aligned our navigation to the UN’s development goals enabling investors to see ranges of funds which are aligned to meeting the objectives in a number of those key areas such as Climate change and renewable energy, healthcare and wellbeing, waste and water or equality and diversity.
Our role is to help you navigate the market, to have at your fingertips the information you need to make the investment decisions you feel comfortable with.
I often get asked isn’t it the case that responsible investing means giving up some of your returns. It can be challenging for example when investors are looking for income from their portfolio and many of the high dividend paying stocks may be in the oil and gas or tobacco sectors. But responsible investing does not need to mean a sacrifice of returns. As I mentioned earlier with the definition of impact investing the key point is that the social benefit is measurable alongside the financial return – it is not an either or equation.
I mentioned the Principles for Responsible Investing initiative which is backed by the UN. Just this last week they published a report which said that over the next five years the 100 most carbon intensive companies were on course to lose 43% of their value – a massive $1.4 trillion while the 100 best performing were on course to see their value increase by 33%. In 2017 a report from the Business and Sustainable Development Commission suggested pursuing green policies could enable global business to unlock savings, in other words improvements to profitability, of $12 trillion by 2030.
So this brings me on to my final point which is about shareholder activism.
In recent times we have seen a significant rise in social activism of all sorts. Extinction Rebellion is probably the most high profile example and their action has taken many forms – even this last week gluing themselves dressed as bees to the various election battle buses being used by the different political parties. Personal investors are not immune from this process and I would strongly encourage all investors to use their investment actively to influence the behaviour of companies. We saw the impact this can have recently, albeit not in an ESG context, with Unilever abandoning attempts to move their Headquarters to Rotterdam in the face of pressure from investors – and in particular UK based personal investors.
I believe the challenge and decision for personal investors is summed up in the concept of ‘engage or divest’. Do you identify stocks in your portfolio that do not meet your own ESG criteria and therefore divest your holdings, or rather do you use your shareholding to influence their behaviour, even going so far as potentially investing in a company to influence it. As shareholders you can attend the annual meeting, write to management, attend any investor days and campaign from within for change or encourage good behaviour that companies are undertaking. Part 9 of the Companies Act enfranchises personal investors and at The Share Centre customers can ‘opt in’ for Shareholder Rights at no cost, so make sure if you are using an investment platform it enables you to do this. Extinction rebellion as an example, whether or not you agree with their methods, have demonstrated ably alongside Greta Thunberg and others that the power of activism can lead to significant change.
I would encourage all personal investors to make sure they are actively engaged with the companies they are invested in and to advocate with those companies strongly on the ESG agenda as through that route investors can bring about material changes in the ways companies operate – and as I indicated earlier there is a potential commercial benefit which ultimately leads to better returns for shareholders from doing so anyway.
For many investors the route to ESG investing, rather than making the judgement calls and evaluating the individual companies themselves, is through funds. Here too there is a role for personal investor activism. Fund managers should be using their investments to press for better adherence to ESG factors in the underlying companies in which they are invested. For personal investors I believe fund managers should be disclosing their full portfolio of holdings, not just a top 10 for example, and they should be disclosing how they are voting at company meetings and any other activity they undertake to exert pressure on those underlying companies. If personal investors are outsourcing the investment screening and investment process to a fund manager then they should also expect that fund manager to take on the responsibility for being an active participant and advocate with those underlying investee companies. This includes personal investors, all of us, being more demanding of the managers of our pension funds.
I hope what I have said has helped explain a little more about ESG investing and set out how important this is to The Share Centre and how all personal investors can make a difference by being actively engaged with their investments. The issues encapsulated in the ESG, SRI or Impact Investing worlds are critical to all of us. I have two young children aged 12 and 9 and it is difficult to overstate the level of awareness and importance they and their friends place on these issues, particularly on environmental factors, in their daily lives. The impact David Attenborough and others have had is palpable and fundamentally if we, as the more mature generation do not grasp this now and use the fortunate position we are in as investors and therefore owners of capital, to influence and address many of these critical issues that next generation will be damning in their assessment of us.
I would just conclude by reiterating how pleased we are to sponsor this event. We see this subject as being central to the service we provide to our customers and if anyone would like to talk to one of our team or see a demonstration of our website and how we help personal investors navigate the market my colleagues will be available at our stall in the auditorium. As investors we may not feel a connection with all the issues this vast topic can touch upon, but without doubt a number will always resonate with us and it is to those points we can make a difference.
Pressure is undoubtedly being brought to bear on global leaders and governments, but as an investor you don’t have to be passive in that process. We can all make a difference now. Companies and organisations are already out there making a difference. Investing in them is the next step. Thank you."
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