Responsibility matters: why we back the PRI

James McManus

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Nutmeg is a proud signatory of the Principles for Responsible Investment (PRI), which seeks to influence positive change in the investment industry. Here’s why we back this initiative.

Supported by the United Nations, the PRI is an independent organisation that works to understand the investment implications of environmental, social and governance (ESG) factors. Investors have long recognised their power to force companies to be more responsible, for example by influencing them to reduce their carbon dioxide output, increase the number of women on their board or improve conditions for workers in low-income countries.

The PRI is proactive in its efforts to promote good behaviour. This year it has promised that, for the first time, it will delist signatories that do not meet its minimum requirements. “We think this will signal that becoming a PRI signatory is not a box ticking exercise,” says the group’s chief executive, Fiona Reynolds.

What does Nutmeg commit to?

The story of the PRI began in 2005 when the then United Nations secretary-general Kofi Annan invited a group of the world’s largest institutional investors to help to develop what would become the organisation’s six principles.

The idea is that the PRI supports signatories in incorporating ESG factors into their investment and ownership decisions, encouraging investors to use responsible investment to enhance returns and better manage risks. It does not operate for profit, instead acting in the long-term interests of its signatories and of the financial markets and economies in which they operate.

Signatories of the PRI commit to six principles, acknowledging that we have a duty to act in the best long-term interests of clients and that within this fiduciary role we believe ESG issues can affect the performance of investment portfolios. We also recognise that applying these principles may better align investors with broader objectives of society.

How does this affect your portfolios?

Signing up to the PRI was part of Nutmeg’s commitment to socially responsible investment (SRI), which we put at the core of our service. Our socially responsible portfolios are designed for people who want their portfolio managed with a view to investing in companies that do business in a fair and progressive way. These portfolios are over-weighted toward companies with strong sustainability profiles and avoid firms with poor records on ESG factors.

Investors typically choose socially responsible investments because they want their money to reflect their values. However, there is evidence that socially responsible investment can be good for financial returns too.

In 2015, a review of about 2,200 individual studies on the relationship between ESG criteria and financial performance found that about 90% of them had identified either a neutral or positive correlation between ESG and financial returns. “The results show that the business case for ESG investing is empirically very well founded,” wrote the authors of the review, Gunnar Friede, Timo Busch and Alexander Bassen.

Of course, past performance is not a reliable guide to future performance. There are many different factors to consider when comparing SRI portfolios with their non-SRI equivalents, as we have written before.

At Nutmeg, we believe in SRI. That’s why we have been working hard on a series of measures to improve our service:

  • Nutmeg launched ESG scoring metrics for all our portfolios, not only SRI, to provide a better level of transparency and help investors make more informed decisions.
  • We are committed to integrating ESG considerations into our investment processes and have developed a responsible investment policy.
  • We are doing our best to promote the value of ESG considerations within investment portfolios and to provide the data that allows our customers to better align their investments with their personal values. Our data shows that in the year leading up to 30th April 2020, a fifth of new investments have been into our SRI portfolios.

To underline our credentials, we are sharing our full responsible investment policy below.

Responsible investing at Nutmeg

Nutmeg is committed to delivering a high-quality investment service to clients and is focused on maximising client investment outcomes while managing risk appropriately in order to achieve our clients’ investment goals.

We have a medium to long-term investment philosophy and are always committed to act in the best interests of our customers. As such, we aim to acknowledge all factors that present material risks and opportunities to our investment portfolios over both short and long-term time frames.

For the purposes of our investment propositions with an explicit “socially responsible” focus, we define socially responsible investing as limiting exposure to companies who engage in controversial activities while increasing exposure to companies who lead their peers in social responsibility. To implement this approach, we use best-in-class index solutions from providers such as MSCI to screen out undesirable activities before weighting portfolios towards the highest scoring companies for ESG criteria.

Our approach

Nutmeg is committed to recognising the importance of ESG factors in the delivery of sustainable long term returns for clients. We believe that to ignore the risks and opportunities arising from ESG factors would be a failure of our fiduciary responsibilities. In addition, we believe that the integration of ESG factors could result in portfolios that are better aligned with the broader objectives of society.

We look to apply best practice when it comes to the integration of ESG factors within our investment decision making. Given the diversified nature of our investment activities, no single ESG framework is universally applied across all investment portfolios, however we consider responsible investment as core to our operating principles, clients and company culture.

Nutmeg commits to undertaking the following activities in asset classes where ESG issues can be practically addressed:

ESG integration. We commit to the consideration and analysis of material ESG factors within our investment decision making process.

Ownership and governance. We commit to exercising our stewardship responsibilities appropriately, and to the integration of ESG analysis in our selection, ownership and monitoring processes for externally managed funds.

Engagement and transparency. We commit to supporting efforts to promote responsible investment practices and the future sustainability of financial markets. We commit to being transparent in our approach to responsible investment, to report on ESG factors for every investment portfolio offered by Nutmeg, and to increase awareness and education for clients on the topic of responsible investment.

Risk warning

As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. Past performance indicators are not a reliable indicator of future performance.

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James McManus
James is chief investment officer at Nutmeg, having joined in 2015 from Coutts & Co. A self-confessed ETF geek, James is regularly quoted in the national and industry press and has been voted one of Private Asset Manager’s ‘Top 40 under 40’ in each of the last three years. James holds a BSc in International Business from Nottingham Business School, the CFA UK Investment Management Certificate, and the CFA Certificate in ESG Investing. He can be found tweeting @j_a_mcmanus

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