Our sustainable and environmental options

We exclude companies classified as:

• utilities
• coal miners
• energy
• oil and gas explorers
• diversified metals and miners.

We then review the stocks on a case-by-case basis to determine exposure to fossil fuels. For example, not all diversified metals and mining companies have fossil fuel exposure.

We consider utilities for investment if they’re largely involved in renewable energy—provided they derive less than 30% of energy generation from natural gas only (excluding any coal generation). This allows for energy security/back-up generation capabilities.

Classifications are based on the Global Industry Classification Standard (GICS).

We exclude companies considered ‘aerospace and defence’ by the GICS. We then use specialist third-party ESG research to identify any company that has any revenue exposure to weapons.

If a company has less than 0.5% of total group revenue associated with weapons, we consider the nature of the exposure on a case-by-case basis and decide whether to exclude it. For example, we may invest in a company that produces glass instrument screens but not one that produces explosive materials.

We exclude companies considered ‘casinos and gaming’ by the GICS. We also use specialist third-party ESG research to identify and exclude any company that has gaming as part of its core business (like a hotel group that owns and operates casinos) which comprises more than 5% of its total group revenue.

We exclude companies considered “brewers” or “distillers and vintners” by the GICS. We also use specialist third-party ESG research to identify any companies that produce or sell alcohol as part of their core business (comprising more than 5% of total group revenue).

We evaluate the nature of the exposure on a case-by-case basis and decide whether to exclude particular companies. For example, we won’t exclude a proprietor or airport that leases property to an entity that sells alcohol. Likewise, we won’t exclude airlines that serve alcohol.

We’ve always excluded tobacco from our sustainable investment options. In 2011, we decided to exclude tobacco companies from all our investment options, because:

• tobacco stocks were a small part of our total portfolio and had delivered minimal outperformance
• the tobacco industry faces an uncertain regulatory future and has potential long-tail liabilities associated with it.

For these reasons, we believe the long-term risks of owning tobacco stocks outweigh the benefits.

Using specialist third-party environmental, social and governance (ESG) research, we exclude any companies that breach the UN Global Compact or have otherwise been found to commit human rights violations.

We may exclude other companies if they’re inconsistent with the nature and intent of our screening process.

If a company is clearly associated with an excluded sector, we may decide not to invest in it and exclude it from the sustainable options. For example, we may exclude a gas pipeline company that receives the bulk of its revenues from transporting fossil fuels.