Monks Investment Trust | ESG

Governance and Sustainability

The Company's Manager's investment approach - long-term, bottom-up stock picking and research - marries well with a thoughtful approach to Environmental, Social and Governance (ESG) considerations. Understanding the complexities that individual businesses face is critical as the Manager seeks to assess the impact of ESG factors on the sustainability of investee companies. A dedicated Governance and Sustainability analyst supports the portfolio managers in their engagement with investee companies, and undertakes a range of thematic portfolio analyses which helps to inform and direct engagement priorities. Areas of past focus have included climate change, tax and executive compensation. More can be found about these assessments, and the Manager's broader approach, within the Monks Stewardship Report on the Company's page of the Manager's website. 

Governance and Sustainability

We believe that the building blocks of our investment philosophy - bottom-up stock-level research and long-termism - chime with an increasing focus on stewardship and ESG. We understand that businesses operate in a complex and dynamic world where their activities may have positive and negative impacts. There are no shortcuts. We believe that getting to know companies on a case-by-case basis is essential as we seek to understand their unique circumstances and assess material factors that may influence their sustainability. This directly impacts our assessment of holdings within the Monks portfolio. For example, CRH, a supplier of building materials, is one of the biggest contributors to the portfolio's carbon footprint. In its case, we believe that a strong climate strategy is complementary to its long-term ambitions and can strengthen its competitive advantage. We have had numerous productive discussions with the management and the board, who have been receptive and responsive to feedback. We welcomed the company's new and more ambitious decarbonisation target, which is industry-leading and has been validated by the Science-Based Targets initiative (SBTi). Conversely, we recently sold Ubisoft, the French gaming business, following a misconduct crisis and a deal to allow Tencent to acquire shares at levels that appeared to favour the founders at the expense of minority shareholders.

The Board believes that it is in the shareholders’ interests to consider environmental, social and governance (ESG) factors when selecting and retaining investments and has asked the Managers (Baillie Gifford & Co Limited as AIFM and Baillie Gifford & Co as portfolio manager) to take these issues into account.

The Managers’ approach to investment is based on identifying and holding high quality growth businesses that enjoy sustainable competitive advantages in their marketplace. To do this it looks beyond current financial performance, undertaking proprietary research to build up an in-depth knowledge of an individual company and a view on its long-term prospects. This includes the consideration of sustainability factors (environmental, social and/or governance matters) which it believes will positively or negatively influence the financial returns of an investment.

Whilst consideration is given to sustainability matters, there are no restrictions on the investment universe of the Company, other than as stated within in its Objective & Policy. Baillie Gifford & Co can invest in any companies it believes could create beneficial long-term returns for investors.

More detail on Baillie Gifford’s approach to sustainability can be found in its ESG Principles and Guidelines document, available publicly here.

The Company’s Managers are signatories to the United Nations Principles for Responsible Investment and the Carbon Disclosure Project, and are also members of the International Corporate Governance Network. Baillie Gifford also became a supporter of the Taskforce on Climate-related Financial Disclosures (‘TCFD’) in May 2020 and published its firm-wide TCFD-aligned report in June 2022 here. The Company's own TCFD report can be found on the Company's webpage of the Managers' website. It explains the managers’ approach to addressing climate-related risks and opportunities through the investment process and describes a current view of how they may impact the portfolio. It also includes data and metrics to provide useful additional information. The Managers’ annual Stewardship Report, which explains how the 2020 UK Stewardship Code has been applied, can be found on the Managers’ website here. The Company's Managers have outlined in the Statement of Climate-Related Intent and Ambition their commitment in relation to the investments they make for clients and their commitment to reducing emissions in their firmwide operations.  

The Company considers that it does not fall within the scope of the Modern Slavery Act 2015 and it is not, therefore, obliged to make a slavery and human trafficking statement. In any event, the Company considers its supply chains to be of low risk as its suppliers are typically professional advisers. A statement by the Managers under the Act has been published on the Managers’ website here.

Having regard to Monks being an externally-managed investment company with no employees, the Board considers the Company’s key stakeholders to be: its existing and potential new shareholders and debenture stockholders; its externally-appointed managers (Baillie Gifford); other professional service providers (corporate broker, registrar, auditors and depositary); lenders; wider society and the environment.

Whilst the Company’s operations are limited, as third party service providers conduct all substantive operations, the Board is aware of the need to consider the impact of the Company’s investment strategy and policy on wider society and the environment. The Board considers that its oversight of environmental, social and governance (‘ESG’) matters is an important part of its responsibility to all stakeholders and that proper consideration of ESG factors sits naturally with Monks’ longstanding aim of providing a sustainable basis for adding value for shareholders.

The Managers believe that a company cannot be financially sustainable in the long run if its approach to business is fundamentally out of kilter with changing societal expectations. The Managers consider a number of potential adverse impacts in the context of its focus on long term investment performance. The Managers expect all holdings to operate in accordance with the principles and standards set out in the United Nations Global Compact. When a company’s performance on any material issues is significantly below what is expected, making it a material risk to the long-term performance of their business, and potentially society as a whole, the Managers will engage with management with the aim of improving the relevant policies and management systems. More detail on Baillie Gifford’s due diligence approach to consideration of principal adverse impacts can be found in its Principal Adverse Impacts Due Diligence document.

The Board supports the Managers’ Long-term Perspective as set out in their Core Investment Beliefs and regularly reviews Governance Engagement Reports, which document the Managers’ interactions with investee companies on ESG matters. The Managers do not exclude companies from their investment universe purely on the grounds of ESG factors. A positive engagement approach is employed whereby matters are discussed with management with the aim of improving the relevant policies and management systems and enabling the Managers to consider how ESG factors could impact long-term investment returns.

The Managers believe that ‘active ownership’ is as important as selecting the right investments in the first instance. The Managers have adopted a set of guidelines to provide an insight on its approach to voting and engagement. More detail on these guidelines can be found here.

The Board has given discretionary voting powers to Baillie Gifford & Co. The Managers vote against resolutions they consider may damage shareholders’ rights or economic interests and report their actions to the Board. A summary of votes can be found in the Company’s Proxy Voting Disclosure Report, available publicly here.