As we mark the 25th anniversary of the Responsible Global Equity Strategy, there are two natural urges: to look back at the journey so far, and to look forward to the future with renewed purpose.
Over the last quarter century, our sense of what it means to be a leading responsible Strategy has evolved enormously.
In the early days, our emphasis was firmly on screening, safeguarding client’s ethics and assets by excluding companies that breached certain screens. Over time, the Strategy has broadened its responsible approach, proactively seeking out companies that are providing sustainable solutions to the most profound social and environmental challenges, and then engaging extensively with these companies to upgrade their ESG profiles.
Our emphasis is now evenly distributed across these 3 pillars – avoiding, investing, improving.
But investing is not about nostalgia. The past is useful because it teaches, and 2022 has doled out lessons that were often harsh, but always instructive. We saw the spectre of runaway inflation return, CPI peaking at levels not seen since the 80s. This dramatic inflation was triggered by unique circumstances: supply-chain disruptions rooted in lockdowns without precedent, energy prices stoked by European war, and covid stimulus programmes that were the largest in recorded history.
Such extraordinary circumstances triggered correspondingly radical action from central banks, the Fed engaging in one of the fastest hiking cycles ever, going from near zero rates in March 2022 to 500bps a little over a year later.
These macro events drove markets, often swamping company fundamentals. Rising discount rates drove a rotation out of growth and into value; the Energy sector led all others as oil ripped through $100 per barrel; weapons companies bounced, ominously benefitting from a geo-political chill that pushed up global military expenditure to record levels. And in 2023, Silicon Valley Bank, which we owned, mismanaged its duration risk as rates soared, and fell victim to a bank run that led to its closure.
We are not a team given to complacency, but these factors created severe performance headwinds and have been a humbling experience, making us hungrier than ever to drive performance for clients.
2022 may have been challenging, but one of the salutary lessons from the past is the remarkable ability of humans and corporations to innovate out of challenges. As 2022 came to an end, we saw a striking example of this, the surfacing of one of the most potentially transformative technologies in decades: language generative AI.
Exploding into the public consciousness via OpenAI’s ChatGPT, AI offers awesome possibilities, and will create enormous economic value, but it is something which will require responsible shepherding, both by regulators and by shareholders. It is exactly the sort of space where our Strategy can add value.
The English playwright John Heywood is credited with the famous epigram, Rome was not built in a day. Less well known is the second half of the epigram: but they were laying bricks every hour. Over the next quarter century, we can’t guarantee success on any one day, but we can promise hour by hour to continue to take the small steps; the search for companies, the analysis, the engagement work, all necessary in the long-term to build a successful Strategy that innovates and leads from the front.