Why we need sustainability across all investments

Time in Japan set Mohammad Kamal Syed on a personal journey towards understanding purpose, for himself and the investment business he leads. But what does this mean in practice and is it possible to create meaningful change?


Coutts

SPONSORED BY Coutts

Head of asset management at Coutts, Mohammad Kamal Syed became interested in the Japanese concept of ikigai, which seeks to define purpose as the combination of passion, mission, vocation and profession. In investing, this has led to him evolving a definition of purpose as “considering the intended consequence and impact of our wealth”.

He says: “It could be your legacy for relatives, children or society and it quickly brings in the concept of sustainable investing.”
But can such ambition become reality? Syed has been driving this purpose across the group’s investment process zealously and Coutts has become one of the few UK wealth managers to apply a rigorous sustainable investing policy across all assets under management.

“We haven’t launched a sustainability fund, like some others. We’re applying it across all our £30-billion assets,” he says. “That gives us a much greater overall impact. It’s the only way to effect large-scale change without affecting investment returns.”

Overcoming barriers

The biggest barrier in this journey towards sustainability was some clients’ perception that sustainable investing would compromise returns. But recent data has shown returns from sustainable companies are no worse and, in many cases, better over the short and long term. “It’s gratifying to see clients now embrace this and have come on the journey with us,” says Syed.

Rather than using negative screening to improve sustainability, Coutts prefers engagement through actively trying to influence companies’ attitudes. It takes a robust approach to this with the help of engagement service provider EOS at Federated Hermes. “We prefer engagement because we know it drives change,” says Syed. “But not all engagement works.” As part of its sustainability framework, Coutts has created a list of activities it will not support and things it wants to change. Climate change is a major thrust, and it has a climate change governance structure and a working group with ambitious one to three-year targets.

Measuring impact

Coutts has been at the forefront of measuring the sustainability impact of investments.“We have been in existence for 326 years,” says Syed. “This history, and the way our clients are increasingly looking at the consequences of their wealth, led Coutts to start our sustainability journey in 2016, earlier than many others.

”The group signed up to the United Nations-supported principles for responsible investment (PRI) three years ago and now has a PRI A+ rating for governance and strategy. “To get a score like that, you must build a proper framework from the start,” says Syed. “But this is not just about the principles or narrow investing lenses. It is also about making responsibility an intrinsic part of the investment process from end to end.”

Ambitious targets

Coutts has set itself stretching sustainability targets. For example, by next year, it has committed to reducing the carbon footprint of all equity investments by 25 per cent. This has been a powerful, unifying incentive for its team and they are well ahead of targets. But is it possible to go further? Syed says: “We want to go much further and we see our ability to influence ESG [environmental, social and governance] issues increasing significantly in 2021.”

For example, in the coal, oil and gas sectors, the group will move progressively towards only supporting activities that result in no net impact on the climate, helping end harmful emissions. Similar targets extend to all parts of Coutts’ business, including banking, lending and operations. For example, it aims to make its operational carbon footprint net zero by 2021 and climate positive by 2025. Coutts has also signed up to the Green Finance Institute’s Green Home Retrofit Finance Principles, launching a green mortgage pilot this November to support clients in improving the energy efficiency of their properties.

We want to go much further and we see our ability to influence ESG issues increasing significantly in 2021

This is part of Coutts’ plan to help 50 per cent of its clients’ homes achieve at or above energy performance certificate rating C, or equivalent, by 2030.Coutts’ parent NatWest Group is playing a major role too. For example, it is providing an additional £20 billion in funding for climate and sustainable finance by 2022, and aims to reserve at least 25 per cent of its entrepreneur accelerator hub places for firms supporting environmental activities.

Future challenges

There is still much to do. Syed says the next stage of Coutts’ strategy is to make sustainable investing core for more investors by making it more accessible.

A focus will be engaging more on human rights, including encouraging companies to improve transparency and report more data on the subject. Another is to help address low levels of access to equity capital among women and people of colour. Syed highlights the work of NatWest Group chief executive Alison Rose, who was commissioned by the UK Treasury last year to conduct a review of female entrepreneurship. That has resulted in a series of actions aiming to bridge the gender gap in this area, including signing up big banks and private equity companies to an ethical code. NatWest Group has also instituted a council for female entrepreneurship in conjunction with the Treasury, looking at funding gaps and how it can fill them. One result has been to launch a fund to provide equity capital for female-led businesses.

Recently, Syed’s focus on purpose has also seen him joining the advisory board for the British Academy’s Future of the Corporation programme, which aims to review the role of business in society.

Wider actions

Coutts aspires to champion potential, helping people, families and businesses to thrive. The group has put this concept at the heart of its training programme, operations, and all products and services.

“Working for an organisation that has clear statements on sustainability and purpose resonates with employees,” says Syed. “We have seen a step-change in positive employee feedback over the last two years.”For its clients, all this activity means they can rest assured everything Coutts does aims to benefit all stakeholders, not just shareholders, consistently across the value chain. This includes how it treats employees, its supply chain and the environment.

For more information please visit coutts.com