What we do has a real-world impact
At Brightwell, we firmly believe that integrating sustainability into the investment process contributes to better investment outcomes through long-term value creation and better management of downside risks.
We implement this via the overall investment strategy and asset allocation, the design of our investment mandates and the selection and ongoing monitoring of investment managers. Given the ever-increasing regulation in this area, we recognise the importance of collaborating and innovating with investment managers on this journey.
Our approach is to positively influence the way business is conducted as we seek to reduce negative externalities and mitigate future costs. Our clients are universal owners reliant on a well-functioning system. The interconnected systemic risks we face today – such as climate change, nature related risks and social unrest – have the potential to undermine the economies and markets that we rely on to achieve the investment outcomes our clients need.
This underpins the following sustainability statement and implementation beliefs:
Sustainability statement
“We seek to support long-term value, reduce risk and contribute towards better client, colleague and member outcomes to deliver sustainable retirement solutions.”
At Brightwell, we have a long history of incorporating sustainability considerations into the investment decision making and supporting clients in this way.
Sustainability is embedded throughout our investment activities as we focus on developing our expertise and provide solution to industry and world challenges. We partner both with our clients and investment managers, collaborating for the long-term, with the aim of delivering sustainable retirement solutions.
Our sustainable investment approach is informed by three key beliefs:
Long-term horizon
Pension schemes have a long-term investment horizon.
This provides both a responsibility and an advantage which we believe will produce better investment outcomes.
ESG integration
Integrating financially material environmental, social and governance factors into asset, manager and security selection processes helps to make better informed investment decisions. We believe that in any investment process, the application of ESG factors should be:
- integrated throughout the investment process;
- consistent with the wider investment approach; and
- evidenced in both internal and external reporting.
Stewardship
Exercising ownership rights, collaborative engagement, as well as active management of physical assets on behalf of clients can improve long-term risk adjusted returns and create sustainable long-term value.
Our approach to sustainability
Our approach to sustainability designed to provide outcomes that are meaningful to our clients, their members and wider society. We measure environmental, social and governance factors in relation to our investments on an ongoing basis with data from our fund managers and external ESG data specialists. The goal of this is to help assess sustainability risks and opportunities, as well as deliver on various stakeholder outcomes.
These outcomes include:
- Investment outcomes
The interconnected systemic risks we face today have the
potential to undermine the financial system we rely on to
achieve the investment outcomes our clients need. Integration
of sustainability may help to reduce the risk of permanent
capital loss and it also may provide investment opportunities.
We must protect the system, through global efforts and
collaboration, to reduce the likelihood of large negative future
financial impacts - Client & regulatory expectations
Our clients are universal owners reliant on a well-functioning
system. The risk of not considering sustainability is significant
from an investment, fiduciary and reputational perspective.
There are growing regulatory expectations and requirements
which need to be met. - Positive real-world Impact
We firmly believe that how and where we invest matters, and
this is a responsibility we have always taken very seriously. What
we do has a real-world impact, and we can positively influence
the way business is conducted to reduce negative externalities.
Our scale and governance mean we can be bold, nimble and
take a leading position in areas where we feel we can make
a difference
Implementing sustainability – our 5 pillar approach
Sustainability themes
We focus our efforts and act where we believe the largest risks and opportunities are for our clients’ investments. For instance, well run companies that are aware of and mitigate potential risks as far as practicable should lead to better investments. At present, we believe the following are themes that are most material to client portfolios.
Over time these will evolve and they require ongoing assessment and critical challenge. There are of course broader sustainability themes we are also managing through considered monitoring and measurement of managers’ investment approaches and outcomes, as well as continual challenge and monitoring of material and emerging sustainability threats.
These outcomes include:
- Climate change
The implications of climate change are systemic and apparent, with extraordinary weather events including flooding, drought, storms, and wildfires increasing in frequency, with significant financial and human consequences.
Climate change is likely to financially impact our clients through the value of their investments (e.g. through the impact of stranded assets, new regulation, high costs due to carbon pricing, extreme weather events disrupting supply chains). But it also provides opportunities through investments in new technologies (e.g. increasing resource efficiency, shifting from fossil fuels to renewable energy).
We help clients understand how climate change could affect their pension scheme and provide solutions to better insulate them from its effects. We encourage setting net zero goals where appropriate, setting out climate action plans clients commit to and report on annually.
We believe that reducing exposure to carbon emissions over time through asset allocation, effective stewardship and collaboration, will help manage investment outcomes for clients and reduce the impact of future climate risks and may offer opportunities for investors.
2. Natural capital
Climate change has dominated sustainable investment conversations to date but it’s becoming increasingly apparent how interconnected all sustainability topics are. A key interdependency is how the climate depends on nature.
Biodiversity loss, ecosystem degradation and the associated value at risk are all important considerations. Key challenges we’re facing such as freshwater provision, sustainable agricultural, regional conflicts, and migration due to resource shortages are likely to be exacerbated by biodiversity loss and ecosystems degradation. The consequences of which will affect supply chains, availability of resources and therefore growth of most sectors around the world, with costs likely to increase in the not-so-distant future.
What makes natural resources particularly challenging however is the link between the reliance on them and businesses through their supply chains which are notoriously complex. The effects are likely to be felt gradually over a longer period of time, rather than a one-off short dramatic event.
We believe the effects of biodiversity loss are no adequately reflected by the market and therefore present both a large risk and opportunity for investors.
3. Inequality
Within the broad area of inequality sits issues such as human rights, modern slavery, as well as diversity, equity and inclusion (DE&I), and the use of artificial intelligence.
There are growing expectations around these key issues, whether from our clients and their members, governments and wider society or colleagues. There is growing visibility in part due to developing understanding of investors’ responsibilities and the real-world outcomes of ignoring inequality. There is regulation on human rights and the UN Guiding Principles which we and our investment partners look to employ.
We believe systemic inequality has the potential to destabilise the financial and social systems within which our clients invest and benefit from. Increased inequality is likely to lead to reduced economic growth through greater financial and social instability, and reduced output. Having an awareness of inequality and addressing inequalities such as developing DE&I practices is an ethical and business imperative to have a licence to operate.
We believe that by seeking to prevent and mitigate inequalities, as far as we can, that could impact the economic and financial system that we rely on to generate the investment outcomes, this should lead to better risk management and a narrower range of investment outcomes for our clients.
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