Schroder International Selection Fund – Nordic Micro Cap
Xxxxxxxx International Selection Fund – Nordic Micro Cap
Samantekt
Sjóðurinn heldur hærra heildarsjálfbærniskori en MSCI Nordic Micro Cap (Net TR) index, byggt á einkunnarkerfi fjárfestingarstjóra. Þessi viðmiðun (sem xx xxxxx markaðsvísitala) xxxxx ekki xxxxxx til þeirra umhverfis- og félagslegu eiginleika sem sjóðurinn stuðlar að. Ekkert tilvísunarviðmið hefur verið tilgreint í þeim tilgangi að uppfylla umhverfis- eða félagslega eiginleika sem fjármálavaran stuðlar að. Sjálfbærniskor sjóðsins er mælt með SustainEx™, sértæku tæki Schroders sem metur hugsanleg samfélags- eða umhverfisáhrif sem útgefandi getur búið til.
Sjóðnum xx xxxxx með virkum hætti og fjárfestir að minnsta kosti tvo þriðju hluta xxxxx xxxxx í hlutabréfum og hlutabréfatengdum verðbréfum norrænna fyrirtækja í örstærð. Xxx eru fyrirtæki sem eru talin, við xxxx, meðal þeirra 10% lægstu miðað við markaðsverðmæti á hlutabréfamörkuðum í á Norðurlöndunum.
Sjóðurinn getur einnig beitt ákveðnum undanþágum. Frekari upplýsingar um xxxxx útilokanir sjóðsins er að
finna hér að neðan í hlutanum „Eftirlit með umhverfislegum eða félagslegum einkennum“.
Til að meta góða stjórnarhætti er miðlægu prófi um góða stjórnarhætti beitt. Þetta próf er byggt á gagnastýrðum megindlegum ramma, sem notar skorkort til að meta fyrirtæki þvert á flokka traustra stjórnunarfyrirtækja, starfsmannatengsla, laun starfsmanna og skattafylgni. Schroders hefur skilgreint fjölda viðmiða þvert á þessar stoðir. Fylgst er miðlægt með fylgni við prófið og fyrirtæki sem ekki standast þetta próf geta ekki verið í eigu sjóðsins, nema fjárfestingastjóri hafi samþykkt að útgefandi sýni fram á góða stjórnarhætti sem byggir á viðbótarinnsýn umfram þeirri megindlegu greiningu.
Lágmarkshlutfall eigna sjóðsins sem notað er til að ná umhverfislegum eða félagslegum einkennum er jafnt og 70%. Sjóðurinn mun fjárfesta að minnsta kosti 25% af eignum sínum í sjálfbærar fjárfestingar. Sjálfbær fjárfesting er flokkuð sem með umhverfislegt eða félagslegt markmið út frá því hvort viðeigandi útgefandi hafi hærri einkunn í eigin verkfæri Schroders miðað við viðkomandi hóp jafningja fyrir umhverfislega þætti eða félagslega þætti. Í hverju tilfelli fyrir sig samanstanda þættir af bæði „kostnaði“ og „ávinningi“. Sjóðurinn felur í sér fjárfestingar sem eru meðhöndlaðar sem hlutlausar í sjálfbærni tilgangi. Xxx felur líka í sér fjárfestingar sem ekki eru metnar með sjálfbærniverkfæri Schroders’ og stuðla því ekki að sjálfbærnismati sjóðsins.
Fjárfestingar- og eignavalsferli sjóðsins hefur verið endurskoðað og samþykkt af vöruþróunarnefnd fjárfestingarstjórans sem samanstendur af fulltrúum frá lögfræði-, regluvörslu-, vöru- og sjálfbærum fjárfestingum. Viðvarandi fylgni við umsamda sjálfbærnieiginleika er fylgst með af teymi um samræmi eignasafnsins. Xxx xx xxxxxx utanaðkomandi eftirlit á þeirri áreiðanleikakönnun.
Fjárfestingarferli fjárfestingarstjórans er knúið xxxxx xx eigin grunnvali á grunnhlutabréfum neðanfrá og upp. Sérfræðiþekking frá bæði fjárfestingateyminu og sjálfbærniteyminu veitir fjölbreytta hugmyndasköpun xx xxxxx skoðun á hugmyndum í kringum væntanlegan feril langtímavaxtar, ESG og sjálfbærnieiginleika.
Útilokun tiltekinnar starfsemi, atvinnugreina eða hópa útgefenda eru skráð undir hlutanum „Eftirlit með umhverfislegum eða félagslegum einkennum“, auk fjárfestingartakmarkanna sem xxxxx um sjóðinn, xxxxx mæld innan ramma fjárfestingastjórans um samræmi við eignasafn.
Fjárfestingarstjóri sækir upplýsingar um fyrirtæki sem fjárfest er í frá opinberum fyrirtækjaupplýsingum og fyrirtækjafundum, frá miðlaraskýrslum, iðnaðarstofnunum og rannsóknarstofnunum, hugveitum, löggjafa, ráðgjöfum, frjálsum félagasamtökum og fræðimönnum.
Hægt er að nota rannsóknir þriðju aðila, en innri sérfræðingar okkar mynda sér eigin sýn á hvert þeirra fyrirtækja sem við greinum.
Fjárfestingarstjórinn gerist áskrifandi að utanaðkomandi ESG rannsóknaraðilum þar á meðal; MSCI ESG rannsóknir, Bloomberg, Refinitiv, Sustainalytics og Morningstar, sem er háð reglulegri endurskoðun og breytingum.
Þótt þriðju aðilarnir sem afhenda langflest gagnanna sem notuð eru hafi verið valdir vandlega, geta gagnavillur átt sér stað. Til að bregðast við þessu fylgist sérstakt ESG gagnastjórnunarteymi með virkum hætti með villum og leysir gagnafyrirspurnir. Þetta felur í sér náið samstarf við þriðja aðila gagnaveitendur og stjórnun og eftirlit með gagnaleiðréttingum.
Takmarkanir á aðferðafræði og gögnum fjárfestingarstjórans stafa aðallega af gagnavillum, aðgengi að gögnum, sérstaklega skorti á gögnum sem tilkynnt er um frá fyrirtækinu í sumum tilvikum og gagnamati eins og lýst er í kaflanum sem ber yfirskriftina „Gagnaheimildir og vinnsla“.
Þar sem gögn eru ekki tiltæk mun Schroders hafa samskipti við fyrirtæki til að hvetja þau til að birta gagnapunkta sem vantar.
Sum af okkar eigin verkfærum leiðir til þess að gildi vantar þar sem við á. Líkönin okkar nota venjulega úrval af aðferðum til að meta gildi sem vantar þar sem við á og eru sæmilega öflug.
Þar sem gögn fyrir mælikvarða eru ekki nægjanlega tiltæk til að hægt sé að draga traustar ályktanir, tökum við xxx mæligildi ekki með í verkfærunum okkar.
Kóðun og eftirlit með takmörkunum á fjárfestingaráhættu fyrir einstaka sjóði og umboð viðskiptavina er á ábyrgð teymis fjárfestingarstjóra eignasafnsfylgni innan sjálfstæðu fjárfestingarinnar Áhættuaðgerð.
Gögnin í fylgniramma eignasafns mynda grunninn að eftirliti með áhættumörkum og vísbendingum og nýjustu upplýsingar um uppbyggingu eignasafns (svo sem eignaúthlutun, geira og landastöðu) og áhættumælingar eru auðveldlega aðgengilegar fyrir fjárfestingaráhættu okkar, fylgni eignasafns og fjárfestingateymi.
Við teljum virkt eignarhald xxxx xxx áhrif sem við getum beitt stjórnendum til að tryggja sjálfbæra starfshætti í þeim eignum sem við fjárfestum í. Við stefnum að því að knýja fram breytingar sem munu vernda og auka verðmæti fjárfestinga okkar og við erum staðráðin í að nýta vægi fyrirtækis okkar til að breyta því hvernig fyrirtæki starfar til xxxx xxxxx. Við teljum að þetta sé mikilvægur þáttur í hlutverki okkar sem ráðsmenn fjármagns viðskiptavina okkar og hvernig við hjálpum viðskiptavinum að ná langtíma fjárhagslegum markmiðum sínum í samræmi við trúnaðarábyrgð okkar.
Nánari upplýsingar um nálgun okkar við virka eignarhaldsstefnu eru aðgengilegar almenningi: xxxxx://xxxxxxx.xxxxxxxxx.xxx/x/0000xx0xx00x0x0x/xxxxxxxx/xxxxxxxxx-xxxxxxxxxx-xxxxxxxxx.xxx.
No sustainable investment objective
This financial product promotes environmental or social characteristics, but does not have as its objective sustainable investment.
The Investment Manager’s approach to investing in issuers that do not cause significant harm to any
environmental or social sustainable investment objective includes the following:
– Firm-wide investment exclusions apply to Schroders funds. These relate to international conventions on cluster munitions, anti-personnel mines, and chemical and biological weapons and a list of those companies that are excluded is available at xxxxx://xxx.xxxxxxxxx.xxx/xx/xxxxxxxxxxxxxx/xxxxxx-xxxxxxxxx/xxxxx- exclusions/. Firm-wide exclusions also apply to companies generating more than 20% of their revenue from thermal coal mining.
– The Fund excludes companies that derive revenues above certain thresholds from activities related to tobacco and thermal coal.
– The Fund excludes companies that are assessed by Schroders to have breached one or more ‘global norms’ thereby causing significant environmental or social harm; these companies comprise Schroders’ ‘global norms’ breach list. Schroders’ determination of whether a company has been involved in such a breach considers relevant principles such as those contained in the UN Global Compact (UNGC) principles, the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights. The ‘global norms’ breach list may be informed by assessments performed by third party providers and by proprietary research, where relevant to a particular situation. In exceptional circumstances a derogation may be applied in order to allow the Fund to continue to hold a company on Schroders’ ‘global norms’ breach list, for example where the stated investment strategy of the Fund may otherwise be compromised. Any such company cannot be categorised as a sustainable investment.
– The Fund may also apply certain other exclusions in addition to those summarised above.
Further information on all of the Fund’s investment exclusions is to be found further below in the “Monitoring of environmental or social characteristics” section.
Environmental or social characteristics of the financial product
The Fund maintains a higher overall sustainability score than the MSCI Nordic Micro Cap (Net TR) index, based on the Investment Manager’s rating system. This benchmark (which is a broad market index) does not take into account the environmental and social characteristics promoted by the Fund.
The Fund invests at least 25% of its assets in sustainable investments, which are investments that the Investment Manager expects to contribute towards the advancement of one or more environmental and/or social objective(s).
For more information on how the sustainability score is measured please refer to the “Methodologies for environmental or social characteristics” section.
Investment strategy
The sustainable investment strategy used by the Investment Manager is as follows:
The Fund is actively managed and invests at least two-thirds of its assets in equity and equity related securities of micro-sized Nordic companies. These are companies which, at the time of purchase, are considered to be in the bottom 10% by market capitalisation of the Nordic equities market.
The Fund may invest up to 10% of its assets in eligible unlisted transferable securities. Portfolio construction is based on fundamental research, with a bias towards investing in companies that the investment manager considers are well-managed, entrepreneurial businesses that can grow in the long term.
The Fund may also invest up to one-third of its assets directly or indirectly in other securities (including other asset classes), countries, regions, industries or currencies, Investment Funds, warrants and Money Market Investments, and hold cash.
The Fund may use derivatives with the aim of reducing risk or managing the Fund more efficiently.
The Fund maintains a higher overall sustainability score than the MSCI Nordic Micro Cap (Net TR) index based
on the Investment Manager’s rating criteria.
The Fund may also apply certain other exclusions. Further information on all of the Fund’s exclusions is to be found further below in the “Monitoring of environmental or social characteristics” section.
In order to assess good governance practices, a central Good Governance Test is applied. This test is based on a data-driven quantitative framework, which uses a scorecard to assess companies across the categories of sound management structures, employee relations, remuneration of staff, and tax compliance. Schroders has
defined a number of criteria across these pillars. Compliance with the test is monitored centrally and companies which do not pass this test cannot be held by the Fund, unless the Investment Manager has agreed that the issuer demonstrates good governance based on additional insights beyond that quantitative analysis.
The Investment Manager applies governance and sustainability criteria when selecting investments for the Fund.
The strategy aims to identify issuers demonstrating good or improving sustainability credentials. This involves:
– The inclusion of issuers that demonstrate stable and improving sustainability trajectories, and issuers
demonstrating good governance based on the Investment Manager’s sustainability rating methodology.
The Investment Manager may also engage with companies to encourage transparency, the transition to a circular economy with lower carbon emissions intensity and responsible social behaviour that promotes sustainable growth and alpha generation.
The primary sources of information used to perform the analysis are the Investment Manager’s proprietary tools and research, third-party research, meetings with company management and expert networks. The Investment Manager also performs its own analysis of publicly available information provided by the companies, including information provided in company sustainability reports and other relevant company material.
More details on the Investment Manager’s approach to sustainability and its engagement with companies are
available on the webpage:
xxxxx://xxx.xxxxxxxxx.xxx/xx-xx/xx/xxxxxxxxxx/xxxx-xx-xx/xxxxxxxxxxx-xxxxxxxxx/xxx-xxxxxxxxxxx-xxxxxxxxxx- policies-disclosures-voting-reports/disclosures-and-statements/
The Fund maintains a higher overall sustainability score than its investment universe, based on the Investment
Manager’s rating system.
The Investment Manager ensures that at least:
– 90% of the portion of the Fund’s NAV composed of equities issued by large companies domiciled in developed countries; fixed or floating rate securities and money market instruments with an investment grade credit rating; and sovereign debt issued by developed countries; and
– 75% of the portion of the Fund’s NAV composed of equities issued by large companies domiciled in emerging countries; equities issued by small and medium companies; fixed or floating rate securities and money market instruments with a high yield credit rating; and sovereign debt issued by emerging countries,
is rated against the sustainability criteria. For the purposes of this test, small companies are those with market capitalisation below €5 billion, medium companies are those between €5 billion and €10 billion and large companies are those above €10 billion.
The investment strategy guides investment decisions based on factors such as investment objectives and risk tolerance.
Proportion of investments
The planned composition of the Fund’s investments that are used to meet its environmental or social characteristics are summarised below.
#1 Aligned with E/S characteristics includes the investments of the financial product used to attain the environmental or social characteristics promoted by the financial product.
#2 Other includes the remaining investments of the financial product which are neither aligned with the environmental or social characteristics, nor are qualified as sustainable investments.
The category #1 Aligned with E/S characteristics covers:
- The sub-category #1A Sustainable covers sustainable investments with environmental or social objectives.
- The sub-category #1B Other E/S characteristics covers investments aligned with the environmental or social characteristics that do not qualify as sustainable investments.
#2 Other
30.00%
Social 1.00%
#1B Other E/S characteristics 45.00%
Investments
#1 Aligned with E/S characteristics 70.00%
Other environmental 1.00%
#1A Sustainable 25.00%
Taxonomy-aligned 0.00%
#1 Aligned with E/S characteristics includes the minimum proportion of the Fund’s assets used to attain the environmental or social characteristics, which is equal to 70%. The Fund commits to maintain a higher overall sustainability score than the MSCI Nordic Micro Cap (Net TR) index, and so the Fund’s investments that are scored by Schroders’ proprietary sustainability tool are included within the minimum proportion stated in #1
on the basis that they will contribute to the Fund’s sustainability score (whether such individual investment has a positive or a negative score). Also included within #1 is the minimum proportion of assets that are invested in sustainable investments, as indicated in #1A. The minimum proportions stated apply in normal market conditions. The actual proportion stated in #1 is expected to be higher.
For more information on how the sustainability score is measured please refer to the “Methodologies for environmental or social characteristics” section.
#2 Other includes cash which is treated as neutral for sustainability purposes. #2 also includes investments that are not scored by Schroders’ proprietary sustainability tool and so do not contribute towards the Fund’s sustainability score. As #1 states a minimum proportion that is in practice expected to be higher, the proportion stated in #2 is expected to be lower.
Minimum safeguards are applied where relevant to Money Market Investments and other investments by restricting (as appropriate) investments in counterparties where there are ownership links or exposure to higher risk countries (for the purpose of money laundering, terrorist financing, bribery, corruption, tax evasion and sanctions risks). A firm-wide risk assessment considers the risk rating of each jurisdiction; which includes reference to a number of public statements, indices and world governance indicators issued by the UN, the European Union, the UK Government, the Financial Action Task Force and several Non-Government Organisations (NGOs), such as Transparency International and the Basel Committee.
In addition, new counterparties are reviewed by Schroders’ credit risk team and approval of a new counterparty is based on a holistic review of the various sources of information available, including, but not limited to, quality of management, ownership structure, location, regulatory and social environment to which each counterparty is subject, and the degree of development of the local banking system and its regulatory framework. Ongoing monitoring is performed through a Schroders’ proprietary tool, which supports the analysis of a counterparty’s management of environmental, social and governance trends and challenges. Any significant deterioration in the profile of the counterparty in Schroders’ proprietary tool would lead to further analysis and potential exclusion by Schroders’ credit risk team.
Monitoring of environmental or social characteristics
The sustainability score of the Fund is measured by SustainEx™, Schroders’ proprietary tool that provides an
estimate of the societal or environmental impact that an issuer may create.
The exclusion of certain activities, industries or groups of issuers listed below, as well as the investment limits applicable to the Fund, will be measured within the Investment Manager’s portfolio compliance framework. Exclusions and limits are coded into this framework to seek to ensure that pre-trade compliance correctly flags the securities that should not enter the portfolio. Securities excluded based on revenue thresholds are evaluated quarterly by the Sustainable Investment team using MSCI’s revenue data.
The coding and monitoring of investment risk restrictions for individual fund and client mandates is the
responsibility of the Investment Manager’s Portfolio Compliance team within the independent Investment Risk function.
The data in the portfolio compliance framework forms the basis for monitoring of risk limits and indicators, and the latest information on portfolio structure (such as asset allocation, sector and country positions) and risk metrics is easily available to our investment risk, portfolio compliance and investment teams.
Excluded Activity | Criteria |
Thermal Coal Mining Maximum Percentage of Revenue | 10% |
Thermal Coal Power Generation Maximum Percentage of Revenue | 30% |
Exclusion Criteria Environmental exclusions
Social exclusions
Excluded Activity | Criteria |
Tobacco Production Maximum Percentage of Revenue | 10% |
Tobacco Value Chain Maximum Percentage of Revenue | 25% |
Bespoke Schroders exclusions
Excluded Activity | Criteria |
Schroders Controversial Weapons Curated List1 | All |
Schroders’ ‘Global Norms’ Breach List | All |
Methodologies for environmental or social characteristics
The Fund promotes the following characteristic: it maintains a higher overall sustainability score than the MSCI Nordic Micro Cap (Net TR) index, based on the Investment Manager’s rating system. As stated above, the sustainability score is measured by SustainEx™, Schroders’ proprietary tool that provides an estimate of the potential societal or environmental impact that an issuer may create. It does this by using certain metrics with respect to that issuer, and quantifying the positive (for example by paying ‘fair wages’) and negative (for example the carbon an issuer emits) impacts of each of those metrics to produce an aggregate measure expressed as a notional percentage of sales of the relevant underlying issuer. The overall sustainability score aggregates the effect of sustainability indicators including but not limited to greenhouse gas emissions, water
1Schroders controversial weapons screening covers cluster munitions, anti-personnel mines, and chemical and biological weapons. Full details of the criteria and company names are available via the following link: xxxxx://xxx.xxxxxxxxx.xxx/xx/xxxxxxxxxxxxxx/xxxxxx-xxxxxxxxx/xxxxx-xxxxxxxxxx/
usage, and salaries compared to the living wage. An issuer may be a company or a sovereign. The Investment Manager monitors compliance with this characteristic by reference to the weighted average sustainability score of the Fund in SustainEx™ over the previous six month period.
As part of the Fund’s investment processes, the SustainEx™ score, and the drivers of that score, are reviewed at the overall fund level. Schroders proprietary tools, including SustainEx™, may not cover all of the Fund’s holdings from time to time, in which case the Investment Manager may use alternative methods to assess relevant holdings in the Fund. In addition, certain types of assets (such as cash and certain equivalent securities such as gilts) are treated as neutral and are therefore not considered by our proprietary tools.
The Fund also invests at least 25% of its assets in sustainable investments, which are investments that the Investment Manager expects to contribute towards the advancement of one or more environmental and/or social objective(s). The Investment Manager monitors compliance with this characteristic by reference to the sustainability score of each asset in Schroders' proprietary tool. Compliance with this is monitored daily via our automated compliance controls.
As part of its broader assessment, the Investment Manager also considers the following:
CONTEXT
Context is a proprietary ESG research tool which provides a systematic framework for analysing a company’s relationship with its stakeholders and the sustainability of its business model. Comprising over 260 metrics across over 13,000 companies, it is designed to support the Investment Manager’s understanding of the sustainability of companies’ business models and profitability, and provides structured, logical and wide- ranging data.
The tool enables analysts to select the most material ESG factors for each sector, weight their importance and apply relevant metrics. Analysts are then able to compare companies based on the metrics selected, their own company assessment scores or adjusted rankings (size, sector or region), with the flexibility to make company specific adjustments to reflect their detailed knowledge. The tool is fully integrated within Schroders’ global research platform, which is readily accessible across investment desks and geographies.
External Research
The Investment Manager uses information from several external ESG research firms, but only ever as one input into the Investment Manager’s own company assessments to be questioned, examined and built on. External data providers are used to challenge or endorse the proprietary view of the Investment Manager.
The Investment Manager’s Sustainable Investment team has extensive networks within its respective field. Information is drawn from publicly available corporate information and company meetings, from broker reports, industry bodies, and research organisations, think tanks, legislators, consultants, Non-Governmental Organisations and academics; wherever it is felt the information would add value to the Investment Manager’s analysis.
Through this process, the Investment Manager aims to evaluate the relevance and materiality of a range of ESG factors on future earnings growth and as potential risk factors for a company.
Data sources and processing
In order to assess and understand the potential impact of sustainability risks and opportunities, Schroders has developed a range of proprietary tools. These tools rely on data that is available at the level of the underlying investment holdings.
The Investment Manager draws information on investee companies from publicly available corporate information and company meetings, from broker reports, industry bodies, and research organisations, think tanks, legislators, consultants, Non-Governmental Organisations and academics.
Third party research may be used, however our internal analysts form a proprietary view on each of the companies we analyse. Financial analysts may also use third-party research to support their assessment of ESG issues when analysing companies, in addition to consulting with our in-house ESG specialists. Through this process, we aim to evaluate the relevance and materiality of a range of ESG factors on the sustainability of future earnings growth and as potential risk factors for a company.
The Investment Manager subscribes to external ESG research providers including; MSCI ESG research, Bloomberg, Refinitiv, Sustainalytics and Morningstar, which is subject to periodic review and change.
Whilst the third parties that deliver the vast majority of the data used have been chosen carefully, data errors may occur. To address this, a dedicated ESG Data Governance team pro-actively monitors for errors and resolves data queries. This involves close collaboration with the third-party data providers, and managing and tracking data corrections.
Where data is not available, Schroders will engage with companies to encourage them to disclose the missing data points. This additional information will be used alongside data from conventional and unconventional data sources that feed into our proprietary tools.
Some of our proprietary tools infer missing values where applicable. Our models typically employ a range of techniques to estimate missing values where appropriate and reasonably robust. For example, in one tool, where reported values are missing for companies, we fill using metric-specific rules such as filling with the industry peer group 60th percentile where higher values are considered negative and the peer group 40th percentile where higher values are considered beneficial (which is a conservative approach).
Where data for a metric is not sufficiently available to form robust conclusions, we do not include that metric in our tools.
Whilst there may be some data estimation, it tends to be a marginal amount at the portfolio level with regard to our assessment of the sustainability characteristics of each company. The proportion of estimated data may vary over time.
Limitations to methodologies and data
Limitations to the Investment Manager’s methodology and data mainly arise from data errors, data availability, specifically the lack of company reported data in some cases and data estimation as detailed in the section titled “Data sources and processing”. Due to the range of data sources and due to combining both qualitative and quantitative elements involving a degree of subjectivity and judgement from the investment manager, we believe that these data limitations do not in aggregate materially impact our attainment of the environmental or social characteristics of the Fund.
Due diligence
The Fund’s investment and asset selection process has been reviewed and approved by the Investment Manager’s Product Development Committee that includes representatives from the Legal, Compliance, Product and Sustainable Investment functions. Ongoing compliance with the agreed sustainability characteristics is monitored by the Portfolio Compliance Team. There are no external controls on that due diligence.
Engagement policies
We consider active ownership to be the influence we can apply to management teams to ensure sustainable practices in the assets in which we invest. We aim to drive change that will protect and enhance the value of our investments and we are committed to leveraging the weight of our firm to change how a company is
operating for the better. We believe this is an important aspect of our role as stewards of our clients’ capital
and how we help clients meet their long-term financial goals in line with our fiduciary responsibilities.
Our active ownership priorities reflect the combined perspectives of our fund managers, investment analysts and sustainability specialists across the firm, supported centrally by the Sustainable Investment team. As a result, we are able to take a common approach across investment desks.
We focus on sustainability issues which we determine to be material to the long-term value of our investee holdings. When material and relevant, we believe that companies that address these factors, where lacking, will drive improved financial performance for our clients. These issues reflect expectations and trends across a range of stakeholders including employees, customers, and communities, to the environment, suppliers and regulators. By strengthening relationships with that range of stakeholders, business models become more sustainable. The governance structure and management quality that oversee these stakeholder relationships are also a focus for our engagement discussions. In addition, we seek to reflect the priorities of our clients.
Based on this process, we identify six broad themes for our engagement: climate, natural capital & biodiversity, human rights, human capital management, diversity & inclusion and governance.
Our themes are underpinned by additional cross-cutting thematic priorities. We also increasingly recognise the interconnectedness of ESG themes, such as the “just transition”, which recognises the social dimension of the transition to a resilient and low-carbon economy. We seek to reflect this interconnectedness in our engagements with companies.
How we engage
We identify three key methods for practicing active ownership:
1. Dialogue: We speak with companies to understand if and how they are preparing for the long-term sustainability challenges they face.
2. Engagement: We work with companies to help them to recognise the potential impact of these challenges and to help them take action in the areas where change may be required.
3. Voting (where applicable): We use our voice and rights as shareholders to make sure these changes are effected.
These forms of active ownership can take place directly with companies, led by our fund managers, investment analysts and Sustainable Investment team; they can also take place in collaboration with other groups.
Engagement is therefore a component of the portfolio’s investment strategy, both from an environmental and
social perspectives.
We recognise that effective engagement requires continuous monitoring and ongoing dialogue. Where we have engaged repeatedly and seen no meaningful progress, we will escalate our concerns. Decisions on whether and how to escalate are based on the materiality of each issue, its urgency, the extent of our concern and whether the company has demonstrated progress through previous engagements. We identify a number of methods to escalate our engagements, such as meeting or otherwise communicating with non-executive directors or the chair of the Board, publicly stating our concerns, withholding support or voting against management and directors (where applicable) up to divesting partially or fully.
Our approach to active ownership focusses on achieving real-world outcomes and achieving change. When determining when to engage and setting an objective for the engagement, we consider:
1. Materiality: We seek to focus our engagement on the most material sustainability threats and opportunities to the company.
2. Regional context: The materiality of issues and the expectations we have of companies vary by country and region; for example, differing socio-cultural factors, regulatory maturity and resource constraints. Where possible we reference country or regional initiatives, regulations and leading practice from peers in our dialogue with companies.
3. Realistic outcomes: We consider both leading practice and what could realistically be achieved by the company in the next few years, including considering the size of the company.
4. Ability to monitor progress: We use objective, measurable metrics or indicators that can be used to assess company performance on an issue.
5. Length of engagement: We aim to set short- to mid-term objectives – that can often be achieved over a 12- to 24-month period depending on the intensity of the engagement – but with a longer-term vision in mind.
We aim to set pre-defined SMART (specific, measurable, achievable, realistic and time-bound) engagement objectives. We regularly monitor progress against the engagement objectives, at least annually, and at a frequency that is appropriate for the priority of the engagement and materiality of the issue or holding. That said, we recognise that the length of time to achieve an objective will vary depending upon its nature, and that key strategic changes will take time to implement into a company’s business processes. A measurable outcome from our engagement upon completion of an objective could take a range of forms, including additional disclosure by a company, influencing the company strategy on a particular issue, or a change to the governance of an issue.
Further details on our approach to active ownership policy is publicly available: xxxxx://xxxxxxx.xxxxxxxxx.xxx/x/0000xx0xx00x0x0x/xxxxxxxx/xxxxxxxxx-xxxxxxxxxx-xxxxxxxxx.xxx.
Designated reference benchmark
No reference benchmark has been designated for the purpose of meeting the environmental or social characteristics promoted by the financial product.