For a segregated mandate, we first speak to the client to understand their views and what they are trying to achieve. While negative screening is superficially simple, there are many ways to translate exclusion principles into the objective rules required for rigorous implementation. Differences in the specific exclusion criteria used for apparently similar exclusion policies can result in very different exclusion lists. We have written thought leadership on this topic (see https://www.schroders.com/en/uk/pensions/insights/thought-leadership/demystifying-negative-screening/), to ensure that all the impacts are well understood.
Following our discussion with the client, our Sustainable Investment team will create the required screen using the input of various research providers. These exclusions are managed through Aladdin, our trading system, which codes and implements all exclusions across different client portfolios. These will be reviewed, on average, twice a year or in line with client agreements. We have been consistent with the data sources used over time, which has led to relative stability of the lists. Any breaches or errors and omissions are handled in line with our usual procedures and all of our processes are subject to periodic review by internal audit.
In our experience, clients typically ask for the number of sectors to be excluded to increase. As a result we may have an ongoing dialogue with them as their requirements change over time to help them implement these. With regards to our cluster munitions and anti-personnel landmines exclusion list, the Sustainable Investment team undertakes an annual review, sourcing input from published lists, specialist research providers as well as our own internal research and feedback from engagement with companies. This list is reviewed and approved by asset class heads and published in our Annual Sustainable Investment report and on our website (see http://www.schroders.com/en/about-us/corporate-responsibility/sustainability/integrity/).
Where our approach to implementing screens changes – for example because existing data sources become unavailable or new, better sources become available – we will engage the client (via the Client Directors responsible for that relationship) to ensures any changes are discussed and agreed, where appropriate.