Sustainable Portfolio Management – Annual Report 2022

Views from our Lead Portfolio Manager: In innovation we trust

22 April 2022

By Michael Topley Head of Sustainable Portfolio Management, Barclays Private Bank

Our sustainable strategies1 reached their milestone three-year anniversary in 2021. In this, our third annual Sustainable Portfolio Management Report, we highlight how our investee companies are helping to shape a more sustainable world, and share an update on how we’ve enhanced our sustainable investment approach.

Engaging and voting for change

The way we carry out investment and sustainability due diligence is constantly evolving to adapt to the ever-changing market. A number of new sustainability regulations will take effect this coming year – such as the Sustainable Finance Disclosure Regulation (SFDR), EU Taxonomy, and reporting requirements from the Taskforce for Climate-Related Financial Disclosures (TCFD) – which will increase the availability of sustainability data, and put more emphasis on investors to drive sustainable change.

Over the past year, we have enhanced our stewardship capabilities by partnering with EOS at Federated Hermes (EOS) in the UK and Jersey, to support us with voting and engagement activities.

In this report, our Head of Responsible Investing, Naheeda Rashid Chowdhury, explains how we are engaging with our investee companies and how we’ve voted on specific resolutions, as well as the outcomes of these activities.

Corporates waking up to the climate challenge

Last year also marked a significant milestone in our global efforts to address climate change, with the UN’s COP26 summit in Glasgow. In a world of increasing geopolitical tensions, world leaders demonstrated a rare commitment to multi-lateral cooperation.

But, for me, what stood out most at this event was the huge presence of the corporate sector, which was much greater than at previous conferences. This is important, as ultimately, it is business that is likely to innovate and do much of the heavy lifting when it comes to addressing climate change. At the time of the landmark 2015 Paris Agreement, approximately 50 major global companies had published carbon-reduction targets and signed up to the Science Based Targets initiative (SBTi). Today, that figure stands at more than 2,500, and reflects what we are increasingly seeing in the market2.

Companies are recognising that by improving their sustainability and ESG credentials, they can better mitigate risk, and maximise opportunities to attract talent and customers through brand and reputation enhancement. In many cases, the corporate sector is ahead of governments in terms of climate ambitions.

A number of companies held within our sustainable strategies are already carbon neutral, with some going further by removing their legacy carbon footprints3. The majority (78%) have net-zero targets in place, with only a handful of companies yet to announce robust plans to limit climate impact4. In this year’s guest article, Sir David King, who previously served as the UK government’s Chief Scientific Adviser and is the founder and chair of the Centre for Climate Repair, discusses the threats posed to our world from climate change, as well as the need for innovation.

Powering the sustainable revolution

Many of our investee companies have been at the forefront of developing and commercialising innovative solutions across a number of sustainable applications. One of our US technology companies, for instance, through a partnership with two other firms, has pioneered a carbon-free aluminium smelting process where the only bi-product is oxygen – a manufacturing process previously thought to be very difficult to decarbonise. This aluminium is now being used across a range of new products.

There has also been continued progress in our ability to produce and measure with increasing levels of precision. Our first focus article looks at how this is providing exciting new opportunities in genomic sequencing, pharmaceutical manufacturing, and the development of digital technologies thanks to the production of invisible transistors.

These new and powerful technologies, which are underpinning the fourth industrial revolution, are also the subject of our second focus article. The overlapping of several technological S-curves – including the internet of things, artificial intelligence, electric autonomous vehicles, and robotics – is driving a period of unprecedented and exponential innovation, which could fuel a sustainable revolution.

Finally, our third focus article looks at how connectivity could offer a solution to marginalisation, with the potential to improve progress towards a wide range of the UN’s Sustainable Development Goals. According to the UN, almost half of the world is still not connected to the internet5. A number of our investee companies are looking to address this by providing digital infrastructure and technologies, which should also bring the benefits of connectivity – including equitable access to healthcare, finance, education, and marketplaces.

A pivotal moment

The next decade could be humanity’s most important. Never before have we faced such an existential threat to our lives, and to the billions or trillions of potential lives of our future descendants. In pre-industrial times, our ancestors lived sustainably for thousands of years, having no alternative. Once again, living sustainably could be our only option.

Through innovation and by changing our relationship with our world, we could regain that balance with nature. If we get it wrong, the implications could be catastrophic. But if we get it right, we have the chance to restore our rich, benevolent and wonderful world for the benefit of many generations to come.

Key investment risks

ESG data risk: Some positions within the strategy may not have an ESG rating due to the nature of their asset class (e.g. government bonds, gold, hedging derivatives). Should a position not be covered by MSCI (or an equivalent provider) due to lack of coverage, the Portfolio Manager will determine the position’s equivalent rating.

Market risk: The possibility for an investor to experience losses due to factors that affect the overall performance of the financial markets. Market risk, also called “systematic risk”, cannot be eliminated through diversification, though it can be hedged against. Sources of market risk include major natural disasters, recessions, political turmoil and geopolitical tension.

Liquidity risk: The risk stemming from the lack of marketability of an investment that cannot be bought or sold quickly enough to prevent or minimise a loss.

Derivatives exposure: The use of these instruments can, under certain circumstances, increase the volatility and risk profile of the strategy beyond that expected of a strategy that only invests in equities. The strategy may also be exposed to the risk that the company issuing the derivative may not honour their obligations which could lead to losses arising.

Currency risk: An investor will be exposed to currency fluctuations between their domestic currency, a fund’s holding currency, and the local currency of an investment.

Interest rate risk: An investor will be exposed to interest rate risk. Changes in interest rates will impact the performance and/or value of instruments. Interest rates tend to change suddenly and unpredictably.

Inflation: Inflation will reduce the real value of your investments in the future.

Taxation and tax relief: Levels of taxation and tax relief are subject to change.

Returns are not guaranteed: Past performance is not an indication of future performance. The value of investments, and any income, can fall as well as rise, so you could get back less than you invested. Neither capital nor income is guaranteed.

Related articles


Sustainable Portfolio Management

In this year’s report, we focus on some of the exciting new technologies that could meaningfully improve sustainability outcomes, from precision manufacturing and measurement, to genomic sequencing, to digital infrastructure. And we’re delighted to feature an article from Sir David King on the strategies urgently needed to ensure climate repair.

For Accredited Investors in Singapore

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Please note that the sustainable strategies referenced in this report are not available to Private Clients in India. For more information, please contact your local office, or visit our Important information page.

The communication is:

(i) Has been prepared by Barclays Private Bank (Barclays) and is provided for information purposes only and is subject to change.  It is indicative only and not binding.  References to Barclays means any entity within the Barclays Group of companies, where “Barclays Group” means Barclays and its affiliates, subsidiaries and undertakings.

(ii) Is not research nor a product of the Barclays Research department. Any views expressed in this communication may differ from those of the Barclays Research department. All opinions and estimates are given as of the date of this communication and are subject to change. Barclays is not obliged to inform recipients of this communication of any change to such opinions or estimates.

(iii) Is general in nature and does not take into account any specific investment objectives, financial situation or particular needs of any particular person.

(iv) Does not constitute an offer, an invitation or a recommendation to enter into any product or service and does not constitute investment advice, solicitation to buy or sell securities and/or a personal recommendation.  Any entry into any product or service requires Barclays’ subsequent formal agreement which will be subject to internal approvals and execution of binding documents.

(v) Is confidential and is for the benefit of the recipient. No part of it may be reproduced, distributed or transmitted without the prior written permission of Barclays.

(vi) Has not been reviewed or approved by any regulatory authority.

(vii) This communication is a marketing communication for the purposes of the relevant conduct of business requirements applicable to the communication.

Any past or simulated past performance including back-testing, modelling or scenario analysis, or future projections contained in this communication is no indication as to future performance. No representation is made as to the accuracy of the assumptions made in this communication, or completeness of, any modelling, scenario analysis or back-testing. The value of any investment may also fluctuate as a result of market changes.

Barclays is a full service bank.  In the normal course of offering products and services, Barclays may act in several capacities and simultaneously, giving rise to potential conflicts of interest which may impact the performance of the products. 

Where information in this communication has been obtained from third party sources, we believe those sources to be reliable but we do not guarantee the information’s accuracy and you should note that it may be incomplete or condensed.

Neither Barclays nor any of its directors, officers, employees, representatives or agents, accepts any liability whatsoever for any direct, indirect or consequential losses (in contract, tort or otherwise) arising from the use of this communication or its contents or reliance on the information contained herein, except to the extent this would be prohibited by law or regulation. This communication is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful for them to access. Law or regulation in certain countries may restrict the manner of distribution of this communication and the availability of the products and services, and persons who come into possession of this publication are required to inform themselves of and observe such restrictions.

You have sole responsibility for the management of your tax and legal affairs including making any applicable filings and payments and complying with any applicable laws and regulations. We have not and will not provide you with tax or legal advice and recommend that you obtain independent tax and legal advice tailored to your individual circumstances.

This report contains certain information (the “Information”) sourced from MSCI ESG Research LLC, or its affiliates or information providers (the “ESG Parties”). The Information may only be used for your internal or personal use, may not be reproduced or disseminated in any form and may not be used as a basis for or a component of any financial instruments or products or indices.

Although they obtain information from sources they consider reliable, none of the ESG Parties warrants or guarantees the originality, accuracy and/or completeness, of any data herein and expressly disclaim all express or implied warranties, including those of merchantability and fitness for a particular purpose.

None of the MSCI information is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such, nor should it be taken as an indication or guarantee of any future performance, analysis, forecast or prediction. None of the ESG Parties shall have any liability for any errors or omissions in connection with any data herein, or any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.

For United Arab Emirates (Excluding Dubai International Financial Centre and Abu Dhabi Global Market) Residents Only

This document and the information contained herein, does not constitute, and is not intended to constitute, a public offer of securities in the United Arab Emirates and accordingly should not be construed as such. The Products are only being offered to a limited number of investors in the UAE who (a) are willing and able to conduct an independent investigation of the risks involved in an investment in such Products, and (b) upon their specific request.  The Products do not relate to UAE domiciled securities and have not been approved by or licensed or registered with the UAE Central Bank, the Securities and Commodities Authority or any other relevant licensing authorities or governmental agencies in the UAE.  The document is for the use of the named addressee only, who has specifically requested it without a promotion effected by Barclays and should not be given or shown to any other person (other than employees, agents or consultants in connection with the addressee's consideration thereof).