Finance Monthly - June 2022

economy, and already have credible plans to do so - even if they are not there yet. We are keenly aware that sustainability is a journey which cannot be undertaken alone. It’s vital we engage with companies at every stage of their path to netzero and help them change for the better. Research shows that collaboration and engagement adds value, as well as being a truly sustainable approach. At Coutts, we want to lead by example and to encourage others to do the same. The role of investment managers Finding out which companies are in the process of effecting a credible transition to net-zero requires serious commitment. It relies on a deep understanding of a company’s operations and strategy which requires relationship and expertise on behalf of investment managers, rather than a kneejerk divestment response. Managers who truly engage, question and are willing to challenge the practices that companies are engaged in can effectively manage the risks to pension funds, as well as make an impact on the planet. By engaging on these issues, rather than simply divesting, managers can build value and improve outcomes. A focus on engagement At Coutts, when choosing where to invest, we focus on stewardship, through both voting and engagement, as well as ESG integration. We know that how a company reacts to its investors, as well as how it integrates its ESG goals, can be financially material – as these aspects of governance are indicative of good management and understanding of risk. We’re also aware there could be positive financial outcomes when investors engage with investee companies over their low ESG ratings. For example, a 2021 study found that engagement with companies with low ESG ratings could be correlated with financial outperformance compared to their peer group. The future of green pension funds As the transition to net-zero continues, all of us will have a responsibility to engage with the businesses we invest in over their investment approaches, climate risk and their plans to reduce it. Government edicts about reporting on climate change are important but can only do so much. It is also up to us, as investors, to engage positively with the companies we own, to make the biggest difference possible and mitigate the climaterelated risks for our members. At Coutts, by keeping up our rigorous approach to the companies we invest in and continuing to challenge them on their path to net zero, we know we are taking a truly sustainable investment approach, best for our clients, and the planet. For more information, go to https://www.coutts.com/ “Everyone wants their investments to help in the transition to net zero, but there’s significant debate around how best to make a difference and whether taking ESG into account will affect financial performance.” Karen Ermel Director, Responsible Investing at Coutts Finance Monthly. Bank i ng & F i nanc i a l Se r v i ce s 49

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