St James’s Place is not trying to be “woke” in its attitude to sustainable investing, its investments director has said.
Speaking to FTAdviser, Rob Gardner highlighted how the firm has been using its capital for good but said its rationale might not be what the market expects.
“People often confuse ESG with ethical investing, and the two are not the same," he said.
"What we don’t do [at SJP] is ethical investing or screening because that has been what’s led to...underperformance.
“Ethical investing says I don't like tobacco, so I'll just hold no tobacco stocks. It says I don't like oil and gas, so I won't hold any oil and gas stocks.
“Whereas we think what you want to do is understand the industry and the industry leaders and help them become better businesses.”
He uses an example of where SJP’s leverage has impacted a firm’s environmental standards, in pressuring Shell to sign up to a net zero pledge in January.
“We voted against them in April, because we felt they hadn't gone far enough.
“They have now committed to a 45 per cent reduction [in carbon emissions] by 2035. So we think that's what it means to use capital as a force for good.”
He added: “I suppose all of this isn't because we're trying to be woke or save the planet, although there is a byproduct to this because money talks and it’s a pretty powerful voting mechanism.
“But actually the risks of a three degree world [and] the risk of climate change, the risk of destruction of biodiversity impacts all of these businesses.
“So understanding them and engaging with them, and actually creating the incentives for businesses to think not just about short term profit, but think about long term sustainable business performance is key.”
Period of change
St James’s Place saw its assets hit £135bn in the first quarter this year after a period of change.
The investment manager was warned by activist investor PrimeStone Capital in October last year that the firm was running a “bloated organisational structure” and it needed to overhaul its costs to improve investor returns.
PrimeStone, which owns 1.2 per cent of SJP’s stock, subsequently praised the advice giant for "productive and constructive dialogue" around its costs and operating model.
Net inflows were up 22 per cent in Q1 this year, compared with the same period last year.
Investment returns were down slightly on last year but still added £3.22bn to SJP's assets.
Funds retention was steady, at 95.8 per cent compared with 95.4 per cent last year.
Clear gap in education
Gardner also highlighted his concerns about the gap in financial education.
Gardner told FTAdviser: “We don't teach people financial education, we don't teach people the importance of saving and delayed gratification.
“The biggest challenge when it comes to investing, is that really good investing is like watching paint dry for the next 10 or 20 years and nobody wants to do it.”