Sustainability Risks in Investment Policy

Purpose

This policy explains how sustainability risks are integrated into our investment decisions and advice, consistent with our obligations as an investment management firm and with sustainability-related disclosure requirements.

What we mean by sustainability risk

A sustainability risk is an environmental, social or governance (ESG) event or condition that, if it occurs, could cause a material negative impact on the value of an investment. Examples include physical climate risks such as flooding and extreme weather, transition risks arising from the move to a low-carbon economy, labour and human-rights controversies, weak board governance, and poor business ethics.

Integration into our investment policy

Our portfolios are built primarily on globally diversified, evidence-based strategies. Sustainability risks are integrated at the selection and monitoring level:

• We favour pooled funds and index strategies whose managers apply their own systematic ESG integration and stewardship policies.
• We consider sustainability risk factors alongside valuation, diversification, cost and liquidity when approving a fund or instrument for client portfolios.
• We monitor holdings for material controversies and regulatory developments, and review whether they remain appropriate for the strategies in which they are used.
• Where a client expresses specific sustainability preferences or restrictions, we take them into account in the design and ongoing management of that client's portfolio.

No automated screening as a sole criterion

We do not claim that portfolios exclude all companies connected to controversial activities, and we do not select investments solely on sustainability scores. Sustainability risk is one input among many in a disciplined, long-term investment process, and it is weighed in proportion to its potential effect on client outcomes.

Effect on returns

The integration of sustainability risks can affect returns in either direction: it may reduce exposure to assets that lose value as a result of ESG events, and it may also result in missing returns from assets that perform well despite such risks. Past performance is not indicative of future results, and the value of investments can fall as well as rise.

Review

This policy is reviewed at least annually and updated when regulation, our investment approach or our supplier and fund landscape changes materially.