January is a special month for Rob Stewart. Not only does this January mark 17 years since he joined Newton Investment Management, but also his son was born the day before he started at the company.
In those 17 years, Mr Stewart, the company’s head of responsible investment research, has seen big changes in the investment sector.
The particular area within his purview is all that comes under the umbrella of environmental, social and governance investing.
There was a time in the industry when ESG was wholly treated as an abstract concept, but the tide has been turning. ESG investing is becoming more integrated into investment processes – a trend that Mr Stewart saysNewton was an early adopter of before the City caught on.
“We were spending money on this when nobody wanted to talk about ESG analysis,” he notes.
Political and consumer attitudes towards the environment and company behaviour has been a key driver behind the change.
Mr Stewart says: “What clients want has developed. Our clients have come to us saying, ‘We really love what you are doing with this ESG, but we would like you to take it a bit of a step further’, so that is where our sustainable strategy has come into play.
“We are interested in having portfolios that are dynamic, forward-thinking and are trying to solve some of the problems people are interested in, while also delivering good returns.”
An example of how Newton applies ESG into its process is that when an analyst finds a stock they are interested in, they will speak with Mr Stewart’s team, who will draw up a full ESG report highlighting the risks and opportunities that are material to the fund.
In addition to financial measures, the company evaluates factors such as environmental impacts, social standards and the effectiveness of people in charge.
Mr Stewart adds: “If we decide to own this stock, there are issues we would look to engage this company on, things we would be interested to know more about, so we might talk to the company. We do all of this before we decide to invest.”
Newton does not just want to invest in companies that are already seen as great, but it wants to drive change in companies that have potential, and have areas that need improving.
As change in the ESG arena of the investment sector continues, the biggest driver is sure to be regulation.
The Financial Conduct Authority is consulting on new rules to improve climate-related disclosures by certain issuers and clarifying existing obligations.
The UN’s sustainable development goals also provide an important benchmark for managers of sustainable funds to align themselves with.
There are 17 goals in total that provide a vital reference point for managers looking to identify and monitor ethical credentials.
In the meantime, there is a gap between what investors want and how they can access the funds.