Adam Frost is Head of Environmental, Social and Governance Research at Sarasin and Partners. Through working as a strategy consultant with McKinsey and private equity investor (with Apax Partners) Adam gained solid experience in strategy and investment. After studying for an MBA he worked for BP for 5 years where he helped to establish BP's JV with Rio Tinto for carbon capture and storage and managed investments across the renewable energy business. Can you tell us a bit about your role and responsibilities?
My role is fascinating as it spans three areas. The first is a responsibility for ‘due diligence’ on how we encounter environmental, social and governance factors. This involves designing a working methodology in conjunction with colleagues on the management side, then the research analysts help us to apply that methodology.
The second area is responsible for is looking at how we manage our stewardship responsibilities. As owners of companies we look particularly at governance and engagement.
Thirdly, I work with clients who want to invest in a socially responsible way, look at their various requirements, and keep them updated on how the fund is managed.
Is there a typical day?
Every day is completely different, which is what makes it so interesting. There is a lot of variety; one day I might be speaking with the chief executive of one of the US’s largest private prison companies on how to reduce sexual abuse, the next I might be discussing socially responsible investment with one of the largest charities in the UK, or talking to a large oil company about respecting shareholder rights.
Why do you think ESG (Environmental Social Governance) research is important?
It’s important for a number of reasons. ESG factors can have a material investment impact both negatively and positively. If you consider Walmart, Sino Forest, Olympus, Lehmans and BP, for example, here is a very clear catalogue of companies which have not managed these issues well, causing significant investment risks which cannot be ignored.
As well as just avoiding risks, ESG analysis provides another lens to look through when trying to identify well managed companies, and those which will outperform.
Do you have set ESG criteria for judging companies with?
We have a clear methodology which looks at legality, investment materiality and the products and practices of a company.
Generally, a company’s products are fairly apparent but its practices are often a little more complex. As such, we ask two main questions: firstly, is this company persistently and knowingly causing significant environmental or social harm? And, secondly, is there any prospect of our engagement helping the company to improve its performance? There has been a shift in the last 100 years away from ethical investing (which is about avoiding issues) to responsible and socially responsible investing (which is about engaging with them). This demonstrates recognition of the power of investors and of the opportunity to be more active than passive.
Can you give me an example of good ESG?
A good example of a company that integrates sustainability principles throughout its business is the bank Standard Chartered. It truly lives up to its brand promise of “Here for good” as indicated by its initiatives ranging from “Seeing is believing” which, since 2003, has reached 25 million people with essential eye care to the bank’s focus on reducing it’s own carbon footprint and paper consumption. In our judgment these are indicators of a management team who are really focusing on how their business is managed. And this focus applies more broadly to the core of the operations: Standard Chartered has generated record operating profit for nine consecutive years. This translates to strong investment performance – the company has outperformed the main FTSE index and the index of its peers.
At Sarasin & Partners we have developed a responsible investment methodology that is transparent and integrated with our overall investment processes to help us identify when ESG issues could pose material investment risks and offer opportunities.
How does your work influence your personal life?
Historically there has been a separation between business and society, and in particular investment people have said, ‘OK I’ve got my investment and have invested into various companies and this will fund my pension’. However, people are realising that the way in which companies generate profits has a bearing on their own life. For example: if you are a charity that promotes peace, then to invest in companies that manufacture armaments may make a good profit but will undermine your principles. Increasingly, individuals are recognising this as well.
Our quality of life is determined in large part by the activities of companies, as well as governments. I have a 4 month old baby, which makes me think even more about the next generation, what kind of life my daughter is going to lead, what kind of world she is going to live in, and the extent to which the things that I do professionally and through the companies we invest in will influence that.
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