Our experience suggests that conventional financial modelling only gives part of the answer as to what makes a company a good investment and we recoginse that most charity trustees are concious that a hard won reputation can be undermined by inappropriate investments. For this reason, all of our assets are managed in accordance with Ethical and Responsible investment criteria.
We seek to manage our clients' assets in a way that delivers the financial returns that they expect through an approach that manages risk to an appropriate level. To do this we invest in a variety of asset classes.
We manage the vast majority of our assets directly as this allows us to implement our responsible investment policies in full. However, as we do not have the neccessary knowledge in house, we use a small number of investment funds managed by third parties to access specialist asset classes like private equity and infrastructure. When investing in this way we have adopted the following strategy:
First, we recognise that alternative assets provide us with an opportunity to invest money in activities that will provide environmental or social benefits as well as financial returns. For this reason, we seek to identify projects - like renewable energy infrastructure, social housing or energy efficency investments - that will maximise our positive impact. One example of this is our investment in Sustainable Development Limited's Energy Efficiency Partnership. This has delivered an 8% return to our investors per annum and enabled the development of energy efficiency projects such as the installation of a new low carbon chilling, heating and power system at St. Bartholomew's Hospital in London.
Second, we recognise that implementing our responsible investment, and our clients' ethical, criteria in funds managed by others is challenging. For this reason, prior to allocating our clients’ capital to a third-party investment vehicle, we seek to establish a legal agreement. These agreements ensure that ESG factors are considered in the management of the mandate and restricts investment in the activities that our clients wish to avoid in their portfolio.
Third, if this is not possible, and there is no alternative route to the investment, we consider the Fund’s responsible investment literature and underlying exposure to the activities restricted by our clients. Should more than 10% of the Fund’s net asset value be exposed, or likely to be exposed in the future, to such activities we would not proceed to investment. We also ensure that considerably less than one percent of the capital in our own funds is exposed to restricted activity in this way.
Finally, once an investment has been made we continue to monitor the manager's approach to responsible investment and exposure to restricted activity. If we have concerns, we engage with the manager and would divest from any fund if the 10% threshold is breached. For instance, in 2018 we exited a legacy position in a 'Geared Income Trust' due to concerns about the underlying holdings within that Fund.