INTERVIEW
THE INVESTOR
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23
Canyouexplainyour approach to
ethical investing?
The core of our approach has always been
bottom-up, doing proprietary research so
that we can understand the mechanics of
the company.Corporate governance has
always been an important part of what we
look at in a company.The ethical screening
is looked at on top of that;we take the same
approach as we do in our fundamental
company research but it is carried out by
our Socially Responsible Investment (SRI)
team. So it is very much fundamental
corporate governance analysis balanced
with ethical criteria.
Historically, religious and charitable
organisations had specific elements they did
not want exposure to (known as‘negative
screening’).This is always likely to be a part
of the market but the approach has evolved,
just as the description of ethical investing
has evolved to encompass titles like SRI.
Ethical investing has nowmoved towards
corporate citizenship; ethical risk factors
are more important in today’s climate and
are increasingly being incorporated into
mainstream investment,which is part of
what we do on a daily basis.
Howdoes theprocess of
screening companieswork?
Our SRI team, headed by Cindy Rose,
includes four analysts.They will also work
with the investment research teams,who
are in daily contact with the companies
on a global basis, perhaps asking them to
raise some SRI-based questions at company
meetings.The SRI analysts also carry out
their own visits.Those on our buy list will
have been screened by our SRI team, so
will have been pre-approved.
Which ismore important – the
ethical or the investment case?
The investment case is the first aspect we
look at but certain elements within SRI –
such as corporate governance – are now
mainstream business issues.There has been
a blurring of the boundaries; things once
considered softer SRI areas are getting
more and more mainstream. For example,
the environment and the increase in
legislation in this area, labour practices and
health and safety.These are all fundamental
to how companies conduct themselves.The
investment case has to be there, but we will
be overlaying that with the ethical criteria
to hopefully get the best of both in the
companies we put into the portfolio.
Theoriginof ethical investment
was innegative screening. Does
this typeof ethical investing still
haveaplace?
Negative screening will always
be important to some investors.
There are some things that our
fund will not invest in, such as firms
that earn the bulk of their income from
alcohol, weapons, tobacco and
gaming. But that means we will not
be prevented from investing in, for
example, an energy company simply
because it has forecourt shops which
sell tobacco.
Engagementwithcompanies is
an important part of Aberdeen’s
ethical approach. Canyouexplain
howthisworks?
It is an evolving process.We hope to see
companies, from an SRI perspective,
adapting their policies, addressing the
risk areas and ensuring they have a handle
on the key issues facing the business. For
example,with mining companies we want
to be sure that they understand what the
key risks are – such as health and safety,
labour issues or the environment – and
have the systems to address them.Do they
have key performance indicators in these
areas? How are they linked to management
performance criteria? For example, Swire
Pacific, a Hong Kong-based conglomerate,
has over the past 10 years been bringing
more and more of these factors into the
culture and fabric of the business.We hope
to see that in companies as the boundaries
between ethical and ordinary investment
become more blurred.
Do investorshaveanobligation to
encouragecompanies to improve
their behaviour?
We engage with companies on a daily
basis so that we can understand the
structure of the business, its strategy and
its corporate governance systems.Our SRI
team also engages with them so that it can
understand their processes and policies.
We’re not trying to change the behaviour
of the companies we invest in;we invest in
companies which we are comfortable with
at the outset.
Viewpoint
JamieCumming, AberdeenAssetManagement
The fund manager on how his team screens companies to ensure they meet
their criteria for ethical investment, and the investments they steer clear of
We invest in
companies which we
are comfortable with
at the outset
Brendan McNeill
