Our ambition is for ESG integration to be at the core, rather than an additional element, of the investment process. In our investment process, we principally undertake asset allocation (where needed) and portfolio construction and then delegate security selection to the third-party managers either through mandates or purchase of funds. (In some instances, this activity is carried out by internal investment managers.)
We select and continue to hold these managers based on our confidence in their ability to deliver their investment objectives, along with their associated strategies and practices to responsible investment. We inform our external managers of our focus on and commitment to the PRI principles.
As part of our due diligence and ongoing monitoring we will review their integration of the principles and practices of responsible investing. This includes review of the ESG policies and governance of potential managers, identifying how effectively they integrate ESG factors into its investment decisions, and how the fund communicates ESG information to its investors. Throughout the life of an investment, we monitor identified ESG risks and work with managers to ensure effective oversight.
We encourage managers to engage in an open a dialogue with us about their own approach to responsible investment and how ESG factors impact its investment analysis and decision-making processes.
To support our ESG integration, we use external research sources to provide ESG data and insight and will use external data provider(s) to supplement our internal analysis by our investment teams. This includes company and industry reports and thematic research on specific ESG issues, as well as data and screens for our teams. We believe these insights, and in particular quantitative data, should be used alongside, rather than a replacement for, the analysis of our investment professionals.
Screening and Exclusions Policy
Overall, our approach to responsible investment involves ESG integration, rather than screening. Where we provide mandates to external managers who undertake screening as part of their investment process, we will acknowledge their practices. We do not extend restrictions to investment managers of co-mingled funds where Barclays is not the sole client.
One exception to this approach is the case of cluster munitions, in which we will decline holdings in companies known to manufacture cluster munitions in violation of the international convention on cluster munitions.
Additionally, we do provide clients, within segregated mandates, the option to exclude sectors or companies based on ethical or personal preferences which are incorporated into investment guidelines. There are approximately 17 screening rules in place, including for example, animal testing, human rights, arms. Furthermore, our Charities Fund and portfolios aim not to have any direct exposure to companies that generate more than a small minority of their turnover from tobacco, pornography, gambling or the manufacture or sale of arms.
We use an external research provider to provide screens which undertakes comprehensive research on each theme and identifies the companies to be excluded. These screens are incorporated into our portfolio management system which allows us to manage the investment process as well as monitor and ensure that we do not invest in the companies that come under any rules.
With the development of our impact investing proposition, and launch of our multi-asset class impact fund of funds, we have undertaken to develop an impact due diligence framework that incorporates and builds on traditional RI questions. It parallels our institutional due diligence standards to assesses each fund, and its firm, against an extensive set of criteria in four areas - Intention, Implementation, Organisation, Management.
Overall, the impact due diligence focuses on the firm's approach to non-investment risks, integration of Impact and ESG factors into the investment process, extent to which it targets specific social/environmental outcomes as well as impact management and reporting capabilities
We designed this proprietary methodology with support from leading industry thinkers and existing best practice. Based on the extensive data collected, this assessment feeds into the decision-making via recommendation notes of our investment analysts and as a key component of our Manager Selection Forum.