Opinion: Analysis from RBC Brewin Dolphin’s Tom Buffham on the power of stewardship and the SDR

by | Jun 11, 2024

Sharing his latest thinking with us, Tom Buffham, portfolio manager at RBC Brewin Dolphin, explains how and why the importance of sustainable investing and stewardship is heightened especially under SDR

Sustainable investing has been in the spotlight recently amidst claims of greenwashing and the potential difficulties for clients to understand the positive impact of their investment. For these reasons, there’s been a lot of interest in the Financial Conduct Authority’s (FCA) new Sustainability Disclosure Requirements (SDR). We see this piece of regulation as a really important step forward in providing clarity for investors.

Crucially, the new regulation introduces the ‘Sustainability Improvers’ label for funds. This will focus on those funds that currently might not invest enough in assets that are deemed sustainable, with the aim to improve their sustainability objectives through active stewardship.

Stewardship has long been a core part of our work at RBC Brewin Dolphin, but we have found that this approach is not consistently applied throughout our industry. Often, it is poorly understood and some in the industry unfairly dismiss stewardship as mundane or inconsequential.

In fact, reviewing the current academic literature; the evidence suggests that engagement with companies is the single most effective driver of change[1], more so than either negative exclusionary screening or through positively selecting investments that are orientated to social or environmental goals.

When we launched our Sustainable Model Portfolio Service (SMPS) three years ago, a key factor was to make stewardship central in our investment process. This thoughtful approach has resonated with financial advisers and their clients, as we’ve seen steady inflows into our SMPS offering.

Over the past three years, we’ve also initiated some important engagements that have led to tangible progress. These include:

  • Co-sponsoring an auditable BSI standard across the entire plastic products supply chain aimed at preventing the loss of plastic pellets into the environment, and then following this up with both company and asset manager engagements.
  • Two consecutive years of engaging with fund managers on the companies that have been identified by the Transition Pathway Initiative as being high-emitting and not adapting their strategies to align with international climate goals.
  • A comprehensive assessment of passive managers’ approaches to stewardship, providing them with feedback on areas for improvement. This is particularly important as passive funds are owners of entire indices and do not have the option to divest.

By creating an investment label that specifically focuses on the work investors undertake to encourage companies to improve their business practices, the FCA has helped increase the profile of this key area. Hopefully, the elevated importance and awareness will bring greater resources across several investment businesses.

Extra resources are vital, as right now we often see some fund houses keeping their priority lists small, focusing on just a few high-quality engagements. Ideally, there is scope for these engagements to broaden out, which will accelerate change across businesses.

The other key change that we see coming is the growing importance of collaboration across fund houses. Stewardship is a team sport, not a competitive race. This requires a shift in mindset for our industry.

We are seeing an increasing willingness by different firms to work together towards a common goal or in important areas, like improving labour standards or reducing pollution/waste and deforestation. Industry collaboration efforts that we also support, such as Climate Action 100+ and Nature Action 100, which are aiming to further push companies to take action on climate change and biodiversity loss respectively, are gaining momentum. A key sign of this happening may also be an increasing percentage of votes against boards and management teams, as large blocks of shareholders make their voices heard. Until recently, the majority of shareholders have been mostly whispering, but we look forward, in time, to being part of a louder conversation.


[1] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4601201

https://scholar.harvard.edu/files/hart/files/exit_vs_voice_1230.pdf
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3562534
https://www.sciencedirect.com/science/article/abs/pii/S0304405X18300783

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