At Schroders, responsible investment principles drive our investment decisions and the way we manage funds. We see ourselves as long-term stewards of our clients’ capital and this philosophy naturally leads us to focus on the long-term prospects for companies in which we invest. In our view, successful investment is intrinsically linked to identifying, understanding and incorporating the effects of environmental, social and governance.

We firmly believe analysing a company’s exposure to, and management of, ESG factors, in addition to traditional financial analysis, will enhance our understanding of a company’s fair value and ability to deliver sustainable returns over the long-term.

Our integration approach spans the breadth of the ownership lifecycle, from identifying trends and analysing companies through ownership, engagement, voting and reporting.

At Schroders, we believe there are four principal dimensions to sustainable investing:

1. As responsible owners seeking to manage, protect and enhance the value of investments on behalf of our clients through active engagement and voting;
2. As an integral element of understanding companies’ long term competitive strengths;
3. To help identify structural shifts that will drive growth in new markets, technologies and assets; and
4. To provide investment solutions aligned with our clients’ core values and beliefs.

Our assessment of climate related risks is grounded in our understanding of (i) the changes that will be required to mitigate the impacts of climate change (carbon pricing, reduced fossil fuel use etc), (ii) analysis of the impact of those changes on corporate profitability and security valuations and (iii) the likely speed and timing of action to implement those changes. The sustainability team works with investment desks across Schroders to help ensure the investment risks are identified and incorporated into investment decisions.  We firmly believe a thoughtful process grounded in understanding of performance drivers within a comprehensive investment framework is vital to effective climate risk management, rather than reliance on blunt rules or exclusions. 

We engage with a wide range of external stakeholders and experts to ensure we have identified the key changes likely to be implied by climate action and the scale of those changes.  For example, we have developed networks with academics (eg Imperial College), NGOs (eg Carbon Tracker), industry (eg IPIECA) and others to help ensure our understanding of the changes ahead is as complete as possible. 

We have develop the Climate Progress Dashboard to monitor the speed and scale of change in the key areas we identify.  That dashboard is updated quarterly and the results are published via our website.

We have developed several discrete analyses to translate those changes into investment conclusions (Carbon Value at Risk, Physical Risk, Fossil Fuel risk, Growth impacts).  We collaborate with investment teams across Schroders to ensure the results of that modelling are understood and applied to decisions where relevant. 

Our focus is on ensuring investors recognise and evaluate those risks in the investment decisions they make, rather than on excluding those risks entirely.  In many cases, that process prompts indepth discussions on individual stocks to better understand company specific risks and opportunities beyond those which can be quantified systematically (for instance leading to purchases of a nuclear utility and low carbon aluminium producer).  In some cases, we conclude that management is taking robust steps to mitigate the risks they face, or that valuations reflect those risks.  In many cases, we engage with management teams to push for more transparency or changes in strategy to address risks we feel remain.

Schroders' policy regarding conflicts of interest is set out in our Environmental, Social and Governance Policy (http://www.schroders.com/en/sysglobalassets/global-assets/english/campaign/sustainability/integrity-documents/schroders-esg-policy.pdf) and in our UK Stewardship Code statement (https://www.schroders.com/en/about-us/corporate-responsibility/sustainability/uk-stewardship-code/).

We have a documented Group wide policy, covering such occasions, to which all employees are expected to adhere, on which they receive training and which is reviewed annually. There are also supplementary local policies that apply the Group policy in a local context. More specifically, conflicts or perceived conflicts of interest can arise when voting on motions at company meetings which require further guidance on how they are handled.

Schroders' Corporate Governance specialists are responsible for monitoring and identifying situations that could give rise to a conflict of interest when voting in company meetings.

Where Schroders itself has a conflict of interest with the fund, the client, or the company being voted on, we will follow the voting recommendations of a third party (which will be the supplier of our proxy voting processing and research service). Further detail on our policy can be found within our UK Stewardship Code statement.