“Our purpose at Newton is—and has been since our founding in 1978—to improve people’s lives through active, thematic and engaged investment which allows our clients to meet their objectives, and helps foster a healthy and vibrant world for all.” So begins the “Newton Investment Management—Purpose statement” which was ratified by Newton’s Board on September 7 and published on its UK website on September 11 and U.S website on September 15. While “purpose” is the new mantra in the corporate community, to varying degrees being urged on by the investment community, it is highly unusual to see an asset manager talking about its own purpose. This effort was led by Andrew Parry, Head of Sustainable Investment, under the leadership of Newton CEO Hanneke Smits.
It may seem surprising that a firm of Newton’s size should be at the forefront of its industry’s initiatives to frame purpose. After all, there are much bigger names in the asset management world. Compared to the likes of the four largest asset managers – BlackRock ($6.2 trillion in AUM), Vanguard ($5.0 trillion), State Street Global Advisors (SSGA, $2.6 trillion), and Fidelity ($2.5 trillion), Newton, with its $57 billion in AUM, is a boutique firm. But it is one of the eight asset managers that comprise BNY Mellon Investment Management, which ranks fifth after Fidelity with $2.0 trillion in AUM and is worth noting in that regard. It is also worth noting that it has been very responsive to a letter from asset owners to asset managers I have written about previously.
The opening sentence of Newton’s statement is followed by four pages which took months of writing and rewriting and internal consultation at all levels of the organization. When asked why Newton decided to take such a bold step, Parry explained:
“Behind the statement is a recognition by Newton that all companies are de facto social enterprises operating ultimately within environmental and social boundaries. Providing financial security for clients depends on effectively managing the potential tension between financial returns and social consequences and environmental impacts. Done well, it can help to “bring about a better world – by allocating capital to where it can be productively used for the benefit of all stakeholders.” Creating the statement was no trivial exercise, taking several months of reflection, debate, and explanation to ensure that it was not perceived as a marketing document. For the board, it was important to be able to tie Newton’s purpose to its action.”
Dealing with environmental and social issues requires active engagement with portfolio companies. As one of Newton’s research analysts put it: “Engagement is a vital part of leading by example and build strong relationships with companies.” Divestment alone will not solve these problems. Companies’ behavior needs to change. Newton seeks to do this through the integration of environmental, social, and governance (ESG) issues in security analysis and selection across all asset classes. It also engages in constructive dialogue with portfolio companies and regulators, supports its convictions in how it votes on shareholder resolutions, and collaborates with other investors and stakeholders to address system-level issues. Examples of the latter where Newton has an active role are the UN PRI, the International Corporate Governance Network, ShareAction’s Workforce Disclosure Initiative, the Transition Pathway Initiative, The Institutional Investors Group on Climate Change, and the Investment Association’s Stewardship Working Group.
Every industry depends on a social license to operate. “Earning trust—from our clients, our employees, and other stakeholders—is the cornerstone of our success.” In the investment management industry this trust is earned through transparent reporting of investment returns, fees, and charges; the environmental and social footprint of their portfolios; and information about and explanations of its voting and engagement activities.
Investment management is fundamentally a people business, and Newton is committed to promoting diversity in its people as well as in its thinking. By being inclusive and advancing equality of opportunities, it believes it is not just a better employer but also, crucially, better equipped to make well-informed decisions. It has created a variety of flexible working arrangements to meet the requirements of a diverse workforce in a changing world, and it participates in a range of schemes to increase the diversity of its workforce, including vocational training, return-to-work and returning-military programs.
Finally, Newton explains how it will hold itself to account for ensuring that its purpose statement is put into practice. Ultimately this rests with its Board—and note again that this statement has been formally endorsed by the Board. There are committees to supervise the firm’s periodic materiality analysis of financial, environmental, and social measures. For example, its climate disclosures are in line with the recommendations of the Task Force on Climate-related Financial Disclosures. The Board as a whole ensures that executive compensation is linked to this stated purpose of achieving “commercial objectives in a responsible and sustainable manner.”
Newton’s statement of purpose concludes with, “In seeking to fulfil our purpose of delivering attractive returns to our clients and fostering a healthy and vibrant world for all, we hold companies accountable not only for the financial returns they deliver, but also for their wider impact on society and the environment. We hold ourselves to the same standards we expect of those companies.” More colloquially, they are practicing for themselves what they are preaching about to their portfolio companies.
All other asset managers should follow Newton’s example. This is especially true of those that have been most vocal about the importance of corporate purpose. This starts with publishing their own board-endorsed “Statement of Purpose.” They can then credibly ask for a company-specific, stakeholder inclusive “Statement of Purpose” signed by every member of the board. A good place for them to start is with the signatories to the Business Roundtable’s “Statement of the Purpose of a Corporation” since not a single one of them has done so. More generally, the world’s largest asset managers are well-positioned to help accelerate the translation of purpose words into enacting purpose actions. The Enacting Purpose Initiative, which I have written about previously, can provide some useful guidance.
On October 1, 2020 Smits becomes CEO of BNY Mellon Investment Management. In doing so, she will join a select list of women running the largest asset management organizations in the world. When asked about her plans as she takes on this much larger role, Smits replied:
“I am delighted that Newton has published its corporate purpose statement. Among investment managers, we are not unique in having formulated such a statement, but we are among a small number of early adopters. Our statement sets out our purpose in clear terms – not just the key role we perform in helping our clients address their challenges and meet their investment objectives, but also our part as active investors in helping to foster a better world for all.
To be meaningful, purpose cannot be something merely verbalized in a document. It needs to be an ever-present organizing principle that drives all of our decision-making and activity, and underpins our culture and conduct. At Newton and BNY Mellon, we are committed to ensuring that what we say is matched by what we do.”
I applaud what Newton has done and I encourage every other asset manager to do the same. I also encourage all asset managers to request a “Statement of Purpose” from every one of their portfolio companies.