Our investments ensure that we can keep working to improve our natural world, secure a fairer future and strengthen the bonds in communities in the UK for decades to come.
The purpose of our investments is to finance all our charitable work, not only grants and social investments, but also our own actions and support.
Our investment policy is intended to provide long-term stability and liquidity to finance our work while maintaining the real value of the endowment, which was £1.172 billion at the end of 2020.
How we invest
We aim to align our investments with our charitable objectives, whilst maintaining a consistent real value for the endowment over the longer term. Our portfolio is diversified across a broad range of asset classes, geographies, investment managers and investment strategies. All of our portfolio is invested via pooled funds, which means that we invest in a large range of companies that change from day to day.
Our investment advisors, Cambridge Associates, manage the day to day running of our investment portfolio, under instruction of our Investment Committee, working with our staff.
- How we define investment risk
We define investment risk principally as the danger of failing to meet its prime objective i.e. to ensure consistent funding of the Esmée’s mission for decades to come (by preserving the real value after spending). It is exposed to both:
- uncertainty - no-one knows what the best investments will be over the next 20 years; and also to
- volatility - shorter term fluctuations in asset values.
Volatility is a threat to preserving value only if Esmée becomes a forced seller of assets at unfavourable prices.
- Long-term and independent investing
We are a long-term independent investor willing, where necessary, to be different from the crowd. It is of a size (neither too big nor too small) at which it can take advantage of the additional returns and diversification available from unusual, complex or illiquid strategies; these are not available to investors with a shorter horizon or greater focus on managing short term benchmark risk.
We are aware that our mission or our credibility may be undermined if we invest in businesses whose activities undermine our values and impact objectives. Given this, transparency is very important in identifying where conflicts may arise. We will seek to avoid narrowly focused strategies which may have meaningful exposure to such controversial areas. And we are committed to involvement in strategies with enhanced environmental, social or governance (ESG) impact.
- Alignment with our funding
We are willing to engage with businesses and asset managers to align outcomes with our grant-making priorities but will avoid excess complexity or devaluing its impact by untargeted, unrealistic or numerous initiatives.
- Strategic oversight
Our core expertise is in funding. Therefore we have chosen to seek external advice in the areas of endowment strategy, asset allocation, manager selection and due diligence. However, we retain final decision rights - it remains essential that we have both Trustee and Executive investment expertise in order to provide effective strategic oversight of the adviser(s). It is also important for all Trustees to have a broad understanding of the investment strategy and its implications.
- Climate Change and Diversity, Equity and Inclusion
Climate change and Diversity, Equity and Inclusion are key parts of Esmée’s 2020-2025 strategy. We are interested in identifying managers who are taking action in these areas and demonstrating leadership. We support initiatives which aim to increase alignment between the investment services industry and the Paris climate change accord.
We signed the funder commitment on climate change in 2019, committing to steward our investments for a post-carbon future. We recognise climate change as a high-level risk to our investments, and therefore to our mission.
We aim to be proactive asset owners by engaging on issues that are aligned with our impact goals. We work with other foundations and investors through the Charities Responsible Investment Network and look for opportunities to promote corporate and investment behaviour which is in the interests of long term shareholders. Examples include becoming joint signatories with other investors to an initiative asking global food producers to focus on sustainability in their sourcing practices and another initiative asking corporates to commit to renewable energy sources over time.
In 2021, we committed to ensuring our investment portfolio will be net zero by 2040 at the latest. Learn more about our approach to reaching net zero and our progress so far.
Working with our advisors, we are transitioning our portfolio towards ESG factors, and becoming a more challenging shareholder. We will not invest in new funds that are directly in conflict with our impact outcomes and will continue reporting, monitoring and challenging investment managers on their ESG performance.
Grant funding and social investment
We use our grant-making to fund organisations advocating for systemic change in the investment system. We are actively investing in new, innovative and alternative social and environmental models, such as land purchase initiatives, through our social investments.
Investing for ESG impact
We have a £25m allocation within our endowment that invests in funds looking to achieve enhanced environmental, social and governance (ESG) impact alongside financial return. This allocation is for funds which don’t currently fit our criteria for mainstream investments due to size, focus or risk profile.
We have a £10m allocation to impact investing, which we will use to test the potential for achieving market-like returns by investing into impact funds that align to our impact goals and which generate a measurable impact.
The Foundation is also a signatory to the United Nations’ Principles for Responsible Investment(UNPRI).
This initiative brings together an international network of investors who are committed to putting six key principles into action.
- As signatories we will
- Incorporate environmental, social and corporate governance (ESG) issues into investment analysis and decision-making processes.
- Be active owners and incorporate ESG issues into our ownership policies and practices.
- Seek appropriate disclosure on ESG issues by the entities in which we invest.
- Promote acceptance and implementation of the Principles within the investment industry.
- Work with the PRI organisation and other signatories to enhance our effectiveness in implementing the Principles.
- Report on our activities and progress towards implementing the Principles.
The PRI Initiative has quickly become the leading global network for investors to publicly demonstrate their commitment to responsible investment, to collaborate and learn with their peers about the financial and investment implications of ESG issues, and to incorporate these factors into their investment decision-making and ownership practices.
2021 Investment summary
The market value of the Foundation's investments at the end of 2021 was £1.482 billion. The portfolio’s total return of 31.1% in 2021 compared to the Foundation's long-term investment objective (RPI+4%) which was up 11.8% during the year.
Looking back over one-year, three-year, five-year and since-inception, the performance of the portfolio against our long-term investment objectives is as follows:
|Annualised performance over||Actual return %||Target return (RK RPI +4%) %||Over/(Under) performance %|
|Since inception (2000)||8.1||7.0||1.1|
You can find out more in our 2021 Annual Report.