St James’s Place plc                            FSUK0030

Written evidence submitted by St James’s Place plc

Executive summary

St James’s Place plc takes our commitment to Net Zero very seriously and have implemented a number of measures to make progress as a firm and via the funds where our clients’ money is invested. We delegate the management of our funds to a number of asset managers around the globe, predominantly through segregated mandates. This means we have direct control of the strategy objective and the way in which we want the fund to be run by the external fund managers.  In response to the Committee’s questions, we would draw attention to the following points:

The rest of this response addresses these issues in further detail and makes a number of other points as well. We would be happy to discuss them further if the Committee has any questions.

 


Dear Environmental Audit Committee,

We are writing to provide you with our response to the Environmental Audit Committee’s call for evidence. By way of background, St. James’s Place plc. is a FTSE 100 company managing and advising on c.£150bn of assets for 860,000 retail clients, with 4,550 authorised financial advisers (“the Partnership”). We manufacture life and pensions products and are the authorised fund manager for six NURS and forty UCITS unit trusts. We delegate the investment management of these funds to asset managers across the globe.

We were one of the first UK signatories of the GFANZ and joined the NZAOA in December 2020. We are committed to be net zero as business by 2050 and have set interim targets across our Operations, Partnership, Suppliers and Investment Proposition. Climate change and responsible investment are core pillars of our firm wide Responsible Business framework, which is a key strategic priority of the Board.

We recognise that one firm alone cannot singlehandedly tackle the complex and globally interconnected issues of the climate crisis; and it needs all businesses, individuals and policy makers to play their part in order to achieve an orderly transition to net zero. We do recognise the leading role the Finance sector can play, and, whilst we are pleased with the progress we have made over the past few years, we acknowledge we still have more to do and are only at the start of our journey.

Our response looks to address the Committee’s questions on fossil fuels and renewable energy through the key pillars of our climate framework:

1)      Strategic direction

2)      Engagement

3)      Managers & mandates 

4)      Reporting

Please see key 2021 highlights later in the response:

We appreciate the Government’s, Parliament’s, and other policymakers’ focus on net zero and would welcome the opportunity to discuss our approach and views further. Our approach document is attached below sjp-our-approach-to-climate-change.pdf

Strategic direction

A key pillar of our approach to incorporating the transition to net zero within our investment process it to embed this within our top-down strategy and direction. We believe the transition to net zero will create risk and opportunity for all sectors, especially carbon intensive industries such as fossil fuels, and is therefore a factor we think all our external fund managers should be considering when they are making investment decisions on our behalf.

This is why we have embedded responsible investment as one of our core investment beliefs which guide all of our decision making. We also continue to embed responsible investment and, more specifically, the topic of climate change into our investment governance, people responsibilities, process and technology of our Investment Division.

We recognise that investment in climate solutions has a key role to play in the transition and we continue to monitor and assess our top-down allocation and exposure to investing in areas such as renewable energy technology. This totalled c£5bn of our assets under management at the end of 2021 (using the NZAOA methodology for green revenue solutions). These companies are held within a range of different funds, but particularly within our Sustainable & Responsible Equity Fund which looks to invest in firms best positioned for the transition to a sustainable economy.

As mentioned in the reporting section, we do recognise there are challenges and complexities to reporting climate solutions data, and caution these numbers are best estimates based on the methodology and data available.

We are exploring the expansion of our sustainable range to include more funds centred around environmental solutions and renewable energy technology. We also know private markets and tax advantage products have a significant role to play and are working with our managers in this space to improve the reporting and insight of their climate solutions.

Case study: We have worked closely with our private markets manager, driving a project to better disclose carbon emissions data and climate related metrics across several strategies. The result of which saw emissions intensity data and climate risk assessments captured and analysed for the majority of our Diversified Asset Fund. 

 

 

Engagement

A key reason why we joined the NZAOA was their alignment with our belief that engagement with companies is the most effective way to drive real world change regarding the transition to net zero. We recognise divestment versus engagement is a polarised debate within the industry, and in reality, it is likely both levers will be needed.  However, we have a firm belief that engagement should be the starting point, using your voice and influence with companies to drive change, with divestment being the final lever. This is why we joined Climate Action 100 last year.

We undertake engagement in several ways:

 

Case study: One of our UK fund managers had extensive dialogue with the management of a UK oil and gas company over the past few years on their climate strategy and how renumeration of employees is linked to the energy transition. In collaboration with others, they voted against the company’s transition plan, instead aligning themselves with a shareholder proposal which, in turn, led to a strategic review of the company and the Board. We are ready and willing to be a proactive agent of change through our managed funds.

 

Whilst engagement is our starting point, we do recognise that divestment is needed as a final lever if progress is not being made.

Case Study: We are unafraid to use divestment as a final lever. In 2022 we undertook a divestment programme across our fund range which resulted in c.£425m of AUM being divested due to ESG concerns.

 

We envisage our engagement programme will continue with a focus on fossil fuel companies, holding them to account through our fund managers and engagement partner with regards to their climate strategy and targets they have set. To find out more about our approach, please see our Stewardship & Engagement Report below SJP_Stewardship_Report_2021.pdf

 

Managers & Mandates

We delegate the management of our funds to a number of asset managers around the globe, predominantly through segregated mandates. This means we have direct control of the strategy objective and the way in which we want the fund to be run by the external fund managers. Within our fund manager research and monitoring frameworks we have oversight of exactly how responsible investment is being integrated into our managers process. We have three keyways in which we embed responsible investment and climate change within our fund manager research and monitoring:

  1. Fund manager minimum standards

We expect all fund managers to be considering the material ESG risks and opportunities within their investment decision making and engaging with companies on those factors identified. In 2020 we introduced a minimum standard that any fund manager appointed to running money within an SJP fund must be a signatory to the UN Principles of Responsible Investment. This provides a baseline standard in their ESG process and annual reporting on their approach which is independently assessed. This includes a section on their climate risk processes, investment in climate opportunities and broader response to TCFD.

  1. Annual Fund Manager Assessment

Responsible investment is a key pillar of our fund manager monitoring process, and we have undertaken an annual assessment exercise across all our managers since 2014. Crucially, the rating of our fund managers’ approach is a key component of our analyst team’s monitoring responsibilities, Investment Committee oversight and is reported in our Annual Value Assessment Statement.

Our assessment is comprehensive and granular, with a specific section on climate change where we assess areas such as how a manager embeds climate risk within their decision making. Managers who are identified as needing improvement in their process are given specific milestones and timeframes that we would like to see progress, if these are not met, it will likely end with the termination of their mandate.

Case study: We have worked closely with our property manager Orchard Street in the past 2 years, driving improvements in their ESG integration process and their broader sustainability strategy. This has been a direct result of our monitoring work in the annual RI property assessment. This work culminated in Orchard Street committing to achieve net zero carbon for their landlord emissions, refurbishments and corporate emissions by 2030, and by 2040 for their occupier emissions and fit-outs

 

3. Data insights

To support our annual assessment and fund manager monitoring meetings, we also have a range of third party ESG data embedded within our internal monitoring systems. This is used to further challenge managers on their approach. Metrics include data such as carbon intensity, green revenues and exposure to fossil fuels.

We have evolved our c.£14bn Global Equity Fund to integrates ESG factors within the design, ensuring any exposure to fossil fuel companies are to those with improving or leading ESG practices as well as a broader tilt towards companies providing green solutions. The fund aims to have a 50% reduction it its carbon intensity compared to the benchmark.

 

 

Reporting

We believe transparent reporting is a key enabler for a successful transition to net zero. We welcome the direction from Government and FCA through standardising the work of the Task Force on Climate-Related Financial Disclosures (TCFD), which we believe is a foundational layer of reporting.

We became signatories to TCFD in 2019 and recently published our second report. This included a section on scenario testing where we looked at the valuation impact on sectors such as fossil fuels under different warming pathways. Besides TCFD, we produce a range of climate reports and disclosures:

 

 

Over time, we envisage this reporting to increase in breadth and depth e.g., Scope 3 emissions. However, there are practical challenges and concerns with the availability and accuracy of data, especially across certain asset classes and metrics. We also are mindful we need to keep our reporting proportionate to our client base and their demands.

We also believe we have a key role to play in educating our Partner and client community on this topic. For several decades, “ethical investment” and divesting from certain sectors was the main investment solution for clients who were concerned around responsible investment factors.

We know the topic of responsible investment is much broader in practice, such as engagement with fossil fuel companies or investment into renewables. Therefore, for the past 3 years we have produced a range of educational material for our partners to use with clients.

Case Study: Our COP 26 campaign consisted of a range of educational content for our Partners and clients around net zero and involved our Investment Director & Head of Responsible investment attending the conference in Glasgow. This led to over 30,000 views of content within our COP 26 hub, which was the second most viewed education campaign for us last year.


 

International Energy Agency (IEA) Report

We recognise the Environmental Audit Committee wanted feedback from firms specifically on the IEA May 2021 report. Given our net zero 2050 commitment, we welcome reports from credible institutions, backed by empirical evidence and extensive research, such as the document created by the IEA. 

We recognise the Intergovernmental Panel on Climate Change (IPCC) research highlights that there are many pathways to reach net zero 2050, therefore, any scenario is going to be based on a range of assumptions. However, what is clear, is the current global policy response is not aligned with limiting warming to 1.5 degrees above pre-industrial levels as put forward by the IEA. We also recognise the IEA report is a top-down indication of the pathway to net zero, whereas bottom up, this might not be exactly how the transition is playing out through specific company actions and decision making, but also due to unforeseen global events that may disrupt that pathway.

We believe taking a top-down view is useful, such as the IEA’s report or looking at pathway scenario analysis, as it can help provide direction and an indication of the large-scale structural change needed, of which investors need to be aware of, given the risks and opportunities this creates. But at the same time, we do place great value on taking a bottom-up view as well, company by company, sector by sector and having a more nuanced conversation with our fund managers around the practicalities and consideration of companies’ responses to climate change.

The model SJP employs means that whilst we set an ambitious and strategic direction for responsibly considering climate related risk and opportunity, we believe that individual investment decisions sit best with our external fund managers. This means that we have not applied a wholesale top-down policy around areas such as fossil fuels or standard assets, as our fund managers are best placed to make this judgment and consider the companies on a case-by-case bottom-up basis. However, we are strongly of the belief that targets need to be met and we reserve the right to explore a more interventionist approach if the direction of progress from our funds does meet our expectations.

Yours faithfully,

 

Robert Gardner

Director, Investment Management

July 2022