At IML we recognise the importance of responsible investment (RI) and the positive impact it can have on shaping the world and society we live in. We also know that environmental, social and governance (ESG) issues can have a significant impact, either positive or negative, on company performance and investment returns.
We believe that we have a fiduciary duty to act in our clients’ best interests, and that integrating environmental, social and governance (ESG) considerations into our investment decisions, as well as engaging with companies that we invest in to positively influence their behaviour, are key components of exercising this duty.
How we incorporate responsible investment and ESG considerations into our investments
IML has followed the principles of responsible investment since it was founded in 1998. We have a long history of active share ownership, where we engage with companies on their corporate governance, seeking to improve their financial performance and so investment outcomes. As society and attitudes evolved we formalised the importance of responsible investing to IML in 2008 when we became a signatory to the United Nations Principles of Responsible Investment (UNPRI), the world’s leading proponent of responsible investment. In 2021 we increased the weighting ESG analysis has on our investment decisions and introduced a traffic light system to place greater investment hurdles, and more stringent analysis, on companies that score lower on ESG.
The main ways we incorporate responsible investment and ESG into our investment operations are:
1. IN OUR INVESTMENT DECISIONS
IML is a quality and value style investor. We independently research and value every single company we invest in to find companies that meet our investment criteria. We incorporate ESG issues into our research and investment decision making as part of our quality and valuation frameworks. We score each company on ESG issues in the same way we do all other investment criteria. ESG makes up 25% of our quality score, however ESG issues are also ‘upweighted’. For each of our other three investment criteria (franchise, management and financial strength) we take the average score out of 5, but for ESG we take the lowest score. This gives ESG greater importance in our scoring framework and so greater prominence in our investment decisions.
2. WHAT SHOULD YOU EXPECT IF YOU INVEST WITH IML?
We maintain regular contact with companies that we invest in, or are considering investing in, usually meeting at least quarterly with senior management or board representatives. We use these engagements to encourage corporate developments and behaviours that are aligned to our expectations, as well as bringing up any concerns we have.
When we have major concerns with a company’s behaviour, decisions, or strategy we initially discuss it with the company directly. If we are unsatisfied with the response to our concerns, we write directly to the company’s board of directors. In the past we have led, or engaged in, significant shareholder campaigns that have resulted in major structural changes to companies including demergers, changes to senior management and board makeup and significant changes in strategy.
We also believe that proxy voting is a key aspect of share ownership, and we vote on all resolutions with the aim of maximising returns for our clients through improved business and ESG outcomes. We think that voting against the re-election of directors who have overseen poor ESG outcomes provides a strong incentive for companies to improve their behaviour, and so is a key mechanism enabling shareholders to hold board members to account.
3. THE FUTURE OF RESPONSIBLE INVESTING AND ESG AT IML
We believe that investing responsibly is a journey rather than a destination. We continue to measure our progress against the Principles of Responsible Investment and seek to improve the way we incorporate ESG considerations into our decision-making.IML'S RESPONSIBLE INVESTMENT POLICY
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