Schroders – Global Sustainable Growth Fund

overall rating:

0.33

planets

Matthew Ball
3/1/2022
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Shroder is a British multinational asset management company, founded in 1804 and based in London, England. They label themselves as being active and responsible for their investments - engaging with a range of institutions and individuals, through the £700.4 billion they manage in assets. On their dedicated sustainability page, they go further and note specifically that “Profit is only the beginning. When we invest, we should expect more than financial returns”. 

 

Schroders Global Sustainable Growth Fund is in relative infancy, reflecting a growing trend of environmentally focused - or rather branded - funds that have been created in recent years, it was launched in January of 2021. The aim for the fund is to provide capital growth on investments in excess of the MSCI All Country World Index over a three to five year period - while meeting the Investment Manager’s ‘sustainability criteria’. 

 

As will be explored, ‘sustainability’ at Schroders follows the notion of ESG - Environmental, Social & Governance - with an overwhelming focus on Social and Governance sides of things, highlighting an issue with the branding of the fund from the beginning. The ambiguity that underlies the fund, specifically the aforementioned ‘sustainability criteria’ that goes undefined across all immediately accessible documents, enables a strong degree of greenwashing.

 

This greenwashing is present in both the branding and presentation of the fund, alongside the oversimplification of key concepts such as plastic pollution, climate change and sustainability itself - failing to fully disclose and represent the impacts of their investments. The employment of their own arbitrary classification system for investments and a focus on the individual components of ESG in a means to justify investments is the most notable element of the greenwashing the fund employs which will be discussed further. 

 

Overall, the fund is severely crippled by a lack of transparency and an limited appreciation of the complexity of sustainability coupled with a resolute focus on profit, which severely limits the true credibility of the fund on either a sustainable or global understanding.

What it's made of:

0.25

As noted before, the basis of the fund is on investments that fit the Sustainability Analyst’s “sustainability criteria”. This being said, this apparent lack of clear transparency and critical analysis of funds is supplemented by so-called “exclusion thresholds” which translate to the fund not investing in companies who generate revenue from the above thresholds:

  • Oil and gas extraction and production (5%) 

  • Thermal coal (5%) 

  • Coal (10%) 

  • Alcohol (5%) 

  • Tobacco (5%) 

  • Gambling (5%) 

  • Unconventional weapons (0%) 

  • Conventional weapons (5%) 

  • No company on the Carbon Underground 200 list. 

 

This being said, sustainability isn’t as transparent as simply 8 set categories alongside the Carbon Underground 200 list. Notably, a logging company in the Amazon Rainforest could theoretically see no limits to the investment it would receive against these limits, which goes some way to highlight the lack of significance that this limited list of thresholds provides. It does however give an insight into how the company views ‘sustainability’ as a concept, specifically with the view that it relates solely to fossil fuels, war, drugs and gambling - adopting an extremely traditionalist and narrow viewpoint.

 

The fund is typically comprised of 30 to 50 companies, with there being no limits - besides the above - on the types of companies that are eligible for investment, nor any geographical targets either - which expectedly results in a Western focused fund, a specific issue given the ‘global’ focus of the fund given its name. Specifically, ~40% of capital is invested in companies based in the United States of America, with a further ~30% of capital being invested in companies based across Europe. Therefore, immediately a better title would be “Western-focused Sustainable Growth Fund”, with there also being much less credibility to investments that are focused on the “social” and “governance” aspect of ESG - given the developed nature of the majority of countries invested in.

 

The wider ‘sustainability’ report for the 4th quarter of 2021 details a breakdown of all the ‘sustainable’ investments made by all of Schroders’ funds, separately classified into “Environmental”, “Social” or “Governance” based investments - or a mix of two or all three. Just 48 investments fall into the ‘Environmental’ category, of a total 262. This is a disgrace, given the fact that the ‘Environmental’ category also includes BP for example and other equally questionable choices such as Pepsico. Furthermore, this highlights how primarily there is a lack of environmentally focused investments, yet the investments themselves are justified on extremely minimal grounds. Such as the restaurant chain J D Wetherspoon being categorised as ‘governance’. Resultantly, there is a clear reliance on greenwashing in relation to sustainability at Schroders more generally, which bleeds down into the actions taken in relation to the Global Sustainable Growth Fund.

 

Beyond this, there is a very limited amount of immediate analysis that can be conducted on the fund - a likely deliberate move to attempt to avoid further criticism - yet there is a clear pattern to investments.This pattern being a clear focus on profit, followed by an attempt to justify the investments by any means necessary - with a clear affinity for tech companies. Notably, the global sustainable growth fund’s top three investments are: 5.1% of its total capital invested in Microsoft, 4.2% invested into Google and 3.2% invested into Booking Holdings - who own Booking.com, Kayak etc. There is little to no clear sustainable focus to any of these companies and by extension there is a limited focus to the other companies outside of the top three, highlighting once again the focus on profit over the environment - which directly contradicts the fundamental message of the fund being that profit is only the beginning.

 

Overall, what makes up the fund is a clear lack of appreciation for the complexity of sustainability and a lack of true commitment to sustainability itself as well. The lack of transparency behind the investments - notably the full makeup of the fund is extremely frustrating, as if the deep rooted greenwashing that underpins the entire company. The score for this section is therefore 0.25/3. There is little to no attempt anywhere to redeem this section, yet some relatively small investments into renewable energy and the like keep it from bottoming out entirely.

How it's made:

0.5

As noted previously, the investments that are made are at the sole discretion of the sustainable analysts working on the fund. The investments have to meet a set “sustainability criteria” - which consists of 20 unknown questions in four criteria, which are: 

(1) respect for the environment

(2) fair and equitable treatment of employees, suppliers and customers

(3) good corporate citizens

(4) prudent allocation of capital

 

There is no greater weighting of a single category over another or any wider clarity expressed - which raises specific question as to how companies such as BP can be invested in, but ultimately the inclusion of such vague categories besides respect for the environment means that the questions likely allow for any profiting company with a solid track record to be fully considered. 

 

This is all the information we have and all the information we really need for this section as well. The investment process is a personal one, based on 20 questions to assess sustainability and neither these questions nor the scores of this analysis are published. This suggests immediately that there is an awareness of the greenwashing that has been present across the fund, and that with there being no set quotas for any specific company types or geographical restrictions, this fund functions more closely to a tech focused investment fund than anything revolutionising the ESG or sustainability sphere.

 

Again, it’s saddening that companies are able to throw around such bold claims and yet repeatedly fail to disclose any concrete proof or evidence for the underlying ‘sustainability’ that underpins investments. The differing understandings of the term ‘sustainability’ plays into this frustration, as differing concepts such as environmental vs social sustainability mean that investments can be excelling in one area while detrimentally failing in another. Overall this section receives a 0.5 / 3 - there is a clear process behind the investment decisions, yet without any transparency regarding it and only the questionable investments to go off of, there are clear issues with this fund.

Who makes it:

0.5

Despite there being such a heavy focus on the role of the individual within the fund, that being the investment managers and sustainability analysts - there is extremely limited information as to who fills these roles specifically. 

 

The two co-fund managers are known however. Being a male & female pair there is praise in regard to the immediate gender equality of the team - yet both are from a traditional economics background, which highlights a limitation to the purely sustainable background of the two. 

 

Nothing more is elaborated in relation to the team’s makeup in any fashion, which is rather strange and throws into question the background of the team itself more broadly. Notably if there are any analysts with less-traditional economics backgrounds and more of a focus on the environmental perspective for example.

 

Turning to Shroders more broadly, there are commendable achievements - at least on the surface. A prior target of 33% female representation across senior management was met - as of May 2021 - which itself is quite a large step, with most investment funds featuring far lower levels of representation at the higher level. Beyond this, there is little specific mention of any further targets related to diversity - but rather the general inclusions of schemes and the like on the topic. Furthermore, Schroders published a gender pay gap report which shows that the gap is falling, albeit gradually (around a 5% annual decrease in all areas - from bonus mean and median to hourly fixed pay mean and median). When this is put against the present 26% mean hourly fixed pay gap and 57% mean bonus gap, there is clearly more work necessary in this area. 

 

Schroders themselves have fallen into controversy numerous times however, notably surrounding pay in recent years - which follows the trend for other investment banks. In April 2020 it was announced that the CEO of Schroders would be paid £9 million for the year, an increase of 39% on his salary the previous year - which was announced during the start of the COVID-19 pandemic. This led to a pledge from then CEO Peter Harrison that he would donate a portion of his 2020 salary to charity and Schroders also introduced a collection action scheme, encouraging its employees to do the same. This is rather deplorable - to pay a top executive such a huge sum of money and then to try and encourage lesser paid employees to donate to charity in a bizarre attempt to save face is ridiculous. A more appropriate move would have been to have rejected the increase in pay and to ask for it to be donated to charity each year - rather than just for 2020 - but sadly the company’s focus on profit clearly comes in part from the beliefs of said top executives. 

 

Overall, for this section, Schroders again fails to be as transparent as would be expected or desired and leaves otherwise impressive claims and targets questioned. The culture of the company is clearly one of profit, as it is to be expected, but this resultantly warps the focus of sustainable funds such as the global sustainable growth fund and serves as a limitation on their benefit. Therefore, this section again receives a 0.5 / 3.