Investment Policy Statement ("IPS"): this is the key investment policy document covering investment policy and specifically details Responsible Investment Policy.
Statement of Investment Principles ("SIP"): this document further guides our approach to responsible investing and is shared with all of our external investment managers. This was updated significantly in 2015 following two major responsible investment initiatives:
1. Becoming a Signatory of the UN PRI.
2. Making the decision to divest from fossil fuels over the medium term.
Additional information on these key policy elements is given below:
Investment Policy Statement ("IPS")
This details Scott Trust's overall investment policy, including Responsible Investing. This is a strategic document setting out the framework for all aspects of investment policy including responsible investment. This states that we are aware of the wider responsibilities of business and believes that companies should seek to act in an ethical manner. We recognise the financial materiality of Environmental, Social and Governance (ESG) issues for companies and the market.
The IPS states that the Investment Committee has the responsibility to oversee our initiatives with respect to socially responsible investing and monitor our progress as a signatory to the Principles for Responsible Investment. They will review annually the progress made in respect of ESG integration and implementation of responsible investing, as reflected in the annual RI Transparency and Assessment Report
The IPS further states that we will make a special effort to include socially responsible, sustainable, and/or responsible investment strategies (collectively "SRI" strategies) that are more consistent with the organization's principles. The Investment Committee will seek to include SRI managers in manager searches when institutional quality options are known and available. We will favour such managers assuming they demonstrate reasonably comparable investment characteristics (i.e., competitive performance, fees, team stability, etc.) relative to their non-SRI peers. However, the Investment Committee will not restrict itself solely to SRI options since A) such options may not be available in all asset classes of interest to the portfolio and/or B) available options may be notably less compelling relative to non-SRI alternatives. In addition, best efforts will be made to participate in active ownership strategies, such as shareholder engagement initiatives, within the equity portfolio.
Statement of Investment Principles ("SIP")
This was adopted in 2008 and is updated on an ongoing basis. This guides our overall approach to responsible investing and is shared with all investment managers on appointment to ensure alignment of the investment portfolio with the sustainability focus. We encourage all of the underlying managers in the fund to be mindful of their reporting of ESG and to collaborate with us where possible to improve the level and quality of disclosure.
The SIP states that the companies in which the fund invests should seek to act and behave in an ethical and responsible manner and follow similar values to those of the Group itself. We believe long term sustainability must be at the heart of the investment approach in order to be consistent with the Group's values, create long-term returns and meet the expectations of our readers.
As a consequence, while taking due regard of the fund's primary duty of generating strong risk adjusted-returns, we believe that working to incorporate environmental, social and governance issues into investment analysis and decision-making processes is important. GMG also believes that the incorporation of these issues in analysis may positively impact financial returns over the long term.
The SIP was also updated in 2015 to reflect The Scott Trust becoming a PRI signatory and agreeing to incorporate the six core principles of the PRI into its investment analysis and decision-making processes. We believe that application of the principles improves alignment of the investment portfolio with its overall mission and with the broader objectives of society.
The SIP was also updated following the significant public announcement in April 2015 of our intention to divest from fossil fuels over the medium term and to invest proactively in strategies which are aimed at supporting the possibility of a lower carbon future. This decision is based on two principles - a belief this it is incumbent on us all to protect the environment for future generations; and concern that carbon reserves may become stranded as policymakers take a more proactive stance against climate change.
Application of Responsible Investment in the Portfolio
These policies are applied to the investment fund in five key pillars:
- UN PRI - proactively pursue commitments under UN PRI.
- Engagement - we will engage with our investment managers on all aspects responsible investment. We aim to improve behaviour in the investment industry, disclosure and the provision of new sustainable and responsible investment products. We are also developing our own collaborations, in order to engage with portfolio companies directly. We have joined both ShareAction's Charities Responsible Investment Network (CRIN) and the Institutional Investors Group on Climate Change (IIGCC).
- ESG integration - we aim to invest in managers taking a proactive approach to integrating ESG in a material way in their investment process. Substantial re-allocations were made during the period to managers with a clear focus here. Given this progress, during the reporting period we raised our target, expecting the majority of our assets over the medium term to be invested with proactive managers showing real leadership on ESG integration.
- Divestment - our investment fund has pledged to divest from fossil fuels over the medium term
- Proactive Investments - we are seeking to invest in solutions for a sustainable and low carbon economy. For example, during the period we helped to seed a new thematic public equity fund investing in clean energy and energy efficiency.
During this reporting period, recognizing the growing availability of investment opportunities offering commercial rates of returns while also having a positive impact, we broadened the scope of our proactive investments pillar, and will target broader social and environmental impact as well as solutions to a low carbon economy. For example, we have recently committed to invest in a venture capital fund investing in solutions to dementia.