How do you balance the financial return versus ethical constraint?
This policy means we have to think through what our restrictions are, how narrow we are prepared to be, how to manage the volatility and how to set a benchmark that is more complex than simply matching or beating the FTSE (although FTSE indices are used for the equities element of the portfolio), so it is more thoughtful. I think that is good and means the investment manager has to be more on it.
What do you see as the main risks to the portfolio?
All the standard risks of investing in equities: asset allocation risk, sector risk and specific company risk. A couple of times a year we have independent reports from Stanhope Consulting who will look at the manager and scrutinise it to check if they have outperformed whether it’s because they have taken two or three big bets or lots of individually good decisions. A manager trying to meet the benchmark by taking bigger risks might be more likely to reach it, but also more likely to underperform in the longer term and that is not something we are happy with because we want to
maintain real capital.
How active are you as owners of companies?
We try to make sure our investment policy and practice is as consistent as possible with our campaigning strategy. Sometimes that is challenging. For example, while in this building (The Living Planet Centre, Woking) all the wood is Forest Stewardship Council (FSC)-approved, we would not rule out a company who says ‘not everything we do is FSC’, but we want to invest in companies
and sectors which espouse the sustainability agenda. We argue in the longer run these companies are going to have better returns. We are seeking to practice what we preach. We want to do financially well if people take the kind of decisions we are advocating they should do. So if we want to say we should try and stop using coal as soon as possible and reduce our use of fossil
fuels, we want to be in a position that if that happens we want to do fine financially rather than we may be arguing that and all our money is in coal and oil and gas companies and it would suit us financially if people didn’t do what we say they should. This is part of a strategy which involves seeing businesses as essentially part of the solution rather than part of the problem. So although
we feel there are some things we shouldn’t invest in, our overarching approach to engagement with businesses is positive and trying to get them to change rather than sit and whinge.
What examples are there of engagement?
We have a long-term partnership with HSBC and they have engaged with us in formulating their forest policy, for example. That has implications for their business. Another example would be the
Mercer report (Investing in a time of climate change). We argued vociferously for the inclusion of a 2-degrees centigrade increase scenario in the report because some participants were not keen on having it. If you look at what came out of that some of the most interesting findings were about what a 2-degrees scenario looks like – it is not disadvantageous at portfolio level, albeit you get more volatility between sectors but no surprise there. We also work specifically with the finance sector so we have a programme on influencing the financial sector to be more in tune with the kind of future the WWF wants.
Is it successful?
Yes. Being an NGO it is never as successful as we would like it to be, but we tend to pick those financial institutions that are more open to thinking along these lines. I think there is a wider appreciation of environmental issues and climate change has helped in that respect because it has helped people engage with something that is a long-term environmental threat as opposed
to a direct financial threat.
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