ESG Policy

Policy as at:


Set out below is the approach the manager of Capital Gearing Trust, CG Asset Management, applies to responsible investing and ESG considerations and which are reported to the Board.

CG Asset Management ("CGAM")

CGAM manages investments on behalf of a wide range of clients, including wealth managers, independent financial advisors, private investors, family offices and charities. Wealth protection sits at the heart of everything we do; our objective is to preserve and over time to grow our clients real wealth. CGAM manages two families of funds. The first group invests exclusively in inflation linked government bonds. The second group invests across a range of asset classes with the objective of delivering positive returns regardless of the financial market backdrop. Capital Gearing Trust sits within this latter group.

CGAM's approach to ESG

1. Be honest

No greenwashing, no PR-lead initiatives, no jargon.

2. One firm, one rule

CGAM does not have an ethical fund range (and by implication an unethical fund range). Our standards apply to all the funds we manage.

3. Ethics, not mathematics

Securing appropriate data is essential to all aspects of investment decision making, including judgements around sustainability. However data has to be interpreted within a specific context. There is no formula that can be applied in a uniform way to every situation; we emphasise judgement over simplistic 3rd party quantitative scoring.

4. Engagement over disinvestment

When investors have the influence to effect change it is most valuable to encourage positive transition rather than pursuing disinvestment.

5. Targeted, not scatter-shot

Whilst supporting positive transition might be the optimal strategy, effective engagement is time consuming. As a small firm we must focus our efforts where they will have the most impact rather than taking a generalist approach.

6. Driven by Governance

Improved governance leads to improved social, environmental and financial outcomes. Investors have multiple direct mechanisms to influence governance, so our engagement activities invariably focus on governance, even when the ultimate objective is positive social or environmental change.

7. Integration, not separation

CGAM is a small firm and the entire team is collectively responsible for stewardship activities with the ultimate responsibility lying with the chief executive. We prefer to have a truly integrated approach embedded into our investment decision making process to Responsible Investment and ESG, rather than have a non-integrated, standalone team.

ESG approach by asset class

1. Direct Government Securities

A significant majority of the assets held by Capital Gearing Trust are invested in direct holdings of securities issued by governments including bonds, bills and cash. As CGAM’s capacity to influence governments is extremely limited, our primary approach is to exclude sovereigns that do not maintain high ESG standards.

In order to help assess these criteria we consider indices compiled by a range of NGOs[1] and require sovereigns, at a minimum, to achieve strong rankings in at least four out of five of these criteria. In addition to using third party indices we also overlay our own subjective assessments which typically leads to material additional exclusions.

Index Criteria                                                                                                       
World Bank governance effectiveness index Top quartile
World press freedom index Good or satisfactory
Global freedom score Free rating
UN Human development index Very high human development rank
Net zero by 2050 statement Statement of intent by 2050 or earlier

2. Direct Corporate Credit and Preference Shares

Capital Gearing Trust holds small quantities of direct credit and preference share holdings issued by corporate issuers. Given our small participation in the market and therefore limited influence, CGAM’s primary approach is to exclude corporate issuers who are primarily engaged in the following activities[2]:

Exclusion Area Exclusion sub Area Threshold*
Controversial weapons Anti-personnel mines, cluster munitions, chemical weapons 0%
Tobacco Manufacture or marketing <5%
Thermal Coal Coal mining or coal based energy production <5%
Oil sands or arctic drilling Production <5%
Gambling Services <5%
Adult entertainment Production or broadcasting <5%
Firearms Manufacture <5%
Predatory lending Services <5%

3. Listed Closed-Ended Funds, Investment Trust REITs and Property Companies

CGAM has a long history of active engagement in the London market for listed closed ended funds and other collective investment companies including REITs. In this priority area for engagement we seek to achieve positive transition so do not employ systematic exclusions. Listed investment companies are fundamentally different to operating companies and typically have the following features:

  • they hold a broad portfolio of securities on behalf of their shareholders;
  • external investment managers, rather than executive management teams;
  • no employees or customers; and
  • a board of directors to represent shareholder interests and concerns.

Given the prominent role that directors play in investment companies CGAM frequently undertakes activities that aim to influence boards and ultimately improve governance.

The techniques employed vary based on the specific scenario but include those listed below (see table). As well as engagement in the sector, CGAM places particular weight on providing primary capital to high impact investment companies with an environmental or social focus. In our assessment by providing primary capital, via IPO sponsorship or follow on fund raisings, investors have a greater impact than by simply trading securities in the secondary market.

Activist Engagement Technique Frequency of Employment
Management Engagement Continuous
Board Engagement Continuous
Shareholder co-ordination Frequent
Voting against significant resolutions Frequent
Raising ESG matters in fund reporting Frequent
Amplification through press engagement Periodic
Replacing directors to improve governance Periodic
Publishing open letters Periodic
Publishing research incorporating ESG views Periodic
Threatening to requisitioning meetings Periodic

4. Exchange Traded Funds (‘ETFs’)

Capital Gearing Trust holds exchange traded funds. ETFs are listed collective funds which typically track an index and provide low cost, efficient access to a broad portfolios of securities. CGAM does engage directly with their approved panel of ETF providers to encourage improved stewardship standards. However CGAM’s capacity for effective engagement is limited and therefore consider exclusions where there are suitable ETFs available. Typically this is via ESG screened ETFs which is a dynamic and growing sector. The programme of identifying and conducting due diligence on these products is ongoing.

[1] The World Bank – Governance Effectiveness index, Reporters without Boarders – World Press Freedom Index, Freedom House – Global Freedom Score, UN – Human Development Index, Net Zero by 2050 statement.

[2] We do not invest directly in companies with primary activities in these areas, although we cannot always identify immaterial non-core activities. As a result we employ a revenue threshold in certain areas.