Schroder Income Growth Fund | ESG

The Company delegates to its Manager the responsibility for taking environmental, social and governance (“ESG”) issues into account when assessing the selection, retention and realisation of investments. The board expects the Manager to engage with investee companies on social, environmental and business ethics issues and to promote best practice.

The board expects the Manager to exercise the Company’s voting rights in consideration of these issues. In addition to the description of the Manager’s integration of ESG into the investment process and the details in the Strategic Review on pages 11 to 15 of the 2020 Annual Report, a description of the Manager’s policy, and its engagement with investee companies on these matters, can be found on the Schroders website at https://www.schroders.com/en/sustainability/corporate-responsibility.

The board notes that Schroders believes that companies with good ESG management often perform better and deliver superior returns over time. Engaging with companies to understand how they approach ESG management is an integral part of the investment process. Schroders is compliant with the UK Stewardship Code and its compliance with the principles therein is reported on its website. The board has received reporting from the Manager on the application of its policy.

As managers of the Company, we are stewards of capital, focusing on the long-term prospects of the assets in which we invest. We analyse each investment’s ability to create, sustain and protect value to ensure that it can deliver returns in line with our shareholders’ objectives. We view ourselves as responsible investors. Responsible investment considers companies’ citizenship and their contribution to society in the context of achieving investment objectives.

We appreciate that many shareholders want to use their investment to support more responsibly run businesses, and that many investors have concerns over specific activities to which they do not want their investment exposed.

We adopt an approach of integration

As a result of the above, we choose to adopt the model of Environmental, Social and Governance ( ‘ESG’) integration. Our investment approach explicitly considers ESG factors as a source of adding value. In our view, ESG and industrial trends are intrinsically linked. Today, companies face competitive pressures from a wider range of sources, on a larger scale and at a faster pace. We identify the key ESG issues of each company we invest in, and analyse and examine the management of these in order to determine the risk profile of an investment. This helps inform our assessment of both upside opportunity and downside protection.

To us, effective ESG integration means conducting a rigorous bottom up examination of a company’s ESG performance and incorporating that analysis into investment decisions rather than outsourcing that analysis to third parties.

Extensive engagement with portfolio companies

As part of our process, we meet with company management teams in advance of investing, as well as meeting with the management of all portfolio companies at least once a year. In many cases we meet with them more than this, as well as engaging with board members. In addition, we will attend meetings with the majority of management teams of companies in the FTSE 350 over the course of a year as we regularly review the investment cases of companies not held in the portfolio. Our work here is aided by our internal resource of 17 dedicated ESG analysts. We have always taken pride in our level of engagement with companies. Our brand, as well as extensive analytical resource affords us the ability to regularly engage with companies on all aspects of corporate strategy, including ESG matters. 

20 years of ESG integration

Our policies on sustainability are based on what we have learned from more than 20 years of integrating ESG analysis for our clients. The chart above shows a number of milestones hit over the last 20 years of ESG integration at Schroders.

Dedicated team of ESG specialists

As a result of the above, we are fortunate to have access to a dedicated team of 17 ESG specialists. Their role is to research ESG themes within sectors, as well as to analyse and engage with individual companies on these issues. We engage with the output of this team regularly to allow us to integrate these factors into our investment process.

Internal accreditation

In 2019 Schroders rolled out an internal ESG accreditation process. The managers of the investment trust achieved Schroders’ Integrated accreditation status in 2019. The award submission detailed the manager’s use of Schroders proprietary tools CONTEXT and SustainEX to deepen our ESG analysis.