BNY MELLON INVESTMENT MANAGEMENT

THE ADVANTAGES OF ACTIVE SUSTAINABLE INVESTING OVER PASSIVE

Andrew Parry, Head of Sustainable Investment at Newton Investment Management explains why he believes in the virtues of active management.

of articles highlighting the virtues of active management in providing some protection from plummeting market indices. We believe there is good reason for this; the ability to avoid those industries at the centre of the storm and to have the flexibility to hold cash to provide ‘dry powder’ for reinvestment in unfairly sold-off (but attractively-priced) companies when conditions ease, are both legitimate tools in the active manager’s armoury which are unavailable to their passive counterparts.

In our view, it is the duty of active managers to respond dynamically to the current market threats by taking bold and well-researched positions away from the index if necessary; by its very nature, an index can only reflect yesterday’s successes and not tomorrow’s winners.

This is especially important in the world of environmental, social and governance (ESG) investing, because the way active

managers build portfolios can have a material influence on differing relative performance outcomes – even when their defensive characteristics as a whole come to the fore, as we’ve already seen in the current Covid-19 I n times of crisis, you will see a slew

The ability to avoid industries at the centre of the storm and to have the flexibility to hold cash to provide ‘dry powder’ for reinvestment are legitimate tools in the active manager’s armoury

crisis. A truly active manager, however, uses ESG inputs to identify compelling bottomup ideas with strong business models where the construction of the index bears little relation to the allocation of the assets. In the bear market of 2020, we suspect it will be the active ESG managers who will outperform those that prefer to seek virtue in the index construction itself.

At Newton, ESG plays an integral role in all of our portfolios. As active managers, we have the opportunity to drive company improvement through engagement. In this current crisis, we would argue that it is more important than ever to invest in active sustainable strategies; by doing so, investors are choosing to invest in a smaller number of well-researched stocks that have been evaluated and selected because of attributes that can help them to deliver the desired outcomes that investors had set out to achieve over the longer term, regardless of any near-term disruption.

We also believe that it is crucial for companies to clearly define their approach to responsible investment, so that investors can make better-informed decisions over what works best for them.

As active investors, we try to avoid any potential confusion by distilling our approach into three broad categories: We offer ethical investments to those wishing to screen out certain sectors, and have been integrating ESG alongside conventional financial analysis for many years, to help pinpoint risks beyond those identified in a company’s financial statements. More recently, we added sustainable investment, which adopts the fundamental principles captured by our integrated ESG approach, and then amplifies the responsible investment requirements by placing greater emphasis on positive societal outcomes. n

THE VALUE OF INVESTMENTS CAN FALL. INVESTORS MAY NOT GET BACK THE AMOUNT INVESTED. INCOME FROM INVESTMENTS MAY VARY AND IS NOT GUARANTEED.

For Professional Clients only. This is a financial promotion and is not investment advice. Any views and opinions are those of the investment manager, unless otherwise noted. This is not investment research or a research recommendation for regulatory purposes. For further information visit the BNY Mellon Investment Management website. www.bnymellonim.co.uk. MAR000965.