To generate long-term, risk-adjusted returns by investing in the shares of high quality companies that are particularly well positioned to benefit from, and contribute to sustainable development. Leaders simply means that the strategy is focused on companies with a market cap over USD1 billion.
Stewart Investors are long-term investors striving to make investment decisions with a minimum five-year time horizon. They seek to invest only in good quality companies. Quality is measured through the lenses of quality of management, financials and the franchise. By analysing the sustainability performance and positioning of companies they can better measure less-tangible elements of quality and identify hidden risks.
We only invests in high quality companies that are well positioned to contribute to and benefit from sustainable development. Companies are selected from the bottom-up, meaning we start with a blank page rather than a universe of thousands of companies.
We believe that companies that deliver benefits to society and the environment face fewer risks over the long term and are therefore better placed to deliver positive returns to shareholders. We are looking for companies which have high quality management teams, franchises, and financials. Sustainability and quality are not separated as the consideration of environmental, social and governance issues is a key way we distinguish quality in all three areas.
For us, assessing quality is a highly subjective activity. We don’t go about it by ticking boxes on a sheet, drawing up sets of screening criteria or plugging numbers into computer programs. On the whole we believe these things can hide as much as they reveal.
If a company passes our quality hurdles we begin the process of investing, often starting small and building up conviction over several years, as we meet the management team repeatedly, engage where issues arise, visit sites, and build up reference checks from third parties such as suppliers, competitors, directors, industry associations and media. With such companies we take a disciplined approach to valuation, considering the potential growth of the company over the long-term.
All Stewart Investors’ investment team members sign our Hippocratic Oath
, which includes the commitment that we will not pursue risk adjusted returns to the extent that our actions will knowingly harm others. We have seen many companies that we would not invest in on this basis that would pass traditional negative screens and even some that would be considered “positive”, such as renewable energy companies that operate in harmful or unethical ways. For this reason every analyst and the investment team as whole is responsible for avoiding any allocation of client capital to harmful companies.
By starting with a blank page and a focus on finding companies making a positive sustainable development contributions out of the tens of thousands of companies we have to choose from, means that companies with material exposure to harmful or controversial products and services are naturally avoided. Investing in companies that fail to discharge their environmental stewardship and human rights responsibilities is also inconsistent with our investment philosophy.
To provide clarity and confidence to clients, how we define harmful business activities is publicly disclosed on our website. The materiality threshold for involvement in the harmful and controversial activities is 5% of revenues. In rare circumstances, we may invest in companies above the threshold, for example, if a company’s primary business is providing safety products but this includes selling those products to the fossil fuel or defence industry. Other exceptions may relate to legacy activities which are being wound down. In these cases we will fully disclosure the details and the rationale for investment.
In addition to our own analysis, we also run quarterly checks using an external ESG data provider (Sustainalytics) to ensure that each company held meets the global norms for best business practices and is not breaching the list of harmful or controversial products and services. Checks are also completed pre and post-trade using the order management system, these include breaches of the UN Human Rights Norms for Businesses and the UN Global Compact Principles. The team receives controversy reporting from RepRisk on all shortlisted and held companies. Where red flags are raised, the analysts will investigate the controversy and, if genuine, will engage with the company to improve. If the engagement is unsuccessful the team will divest if we believe the company no longer meets our investment philosophy.