Ecofin Global Utilities and Infrastructure | ESG

The Company does not have a UK sustainable investment label under the FCA's Sustainability Disclosure Requirements ("SDR") as it does not meet the criteria required for applying such a label.

The Company's board believes that analysis of sustainability and environmental, societal, and governance ("ESG") factors and an active approach to stewardship are essential elements of the investment management process and contributors to superior financial returns over the longer term. 

The principles are set out in the Company’s annual report, which details the approach to sustainability, ESG and stewardship pursued by the Investment Manager on behalf of the Company.

Ecofin's approach

The Ecofin team has wide-ranging expertise across infrastructure, water & environment, and the energy transition, managing portfolios designed to deliver strong risk-adjusted returns as well as a positive impact on the environment and society.

Understanding sustainability profiles and mitigating ESG risks is a core part of our philosophy and investment process and has been central to the delivery of attractive risk-adjusted returns. 

Analysis of ESG issues is integrated into the life cycle of our investment activities, including due diligence and ongoing portfolio management.

Analysis is stock specific

• Each company is assessed individually to determine its sustainability profile;
• We invest in companies with improving profiles and strive to avoid major ESG-related risks; and
• We take a forward-looking view and seek to maximise portfolio returns by identifying stocks with the greatest rate of improvement.

The Company's investment universe is not restricted according to sustainability criteria, allowing us to invest in companies with strong sustainability credentials and companies with legacy asset portfolios but a clear trajectory to significantly improve their emissions profile. We study the sustainability credentials of each company considered for inclusion in the portfolio, and analyse specific environmental, social and governance risks insofar as they would be expected to have a material impact on shareholder returns.

Engagement

• Constructive engagement during site visits and frequent calls and meetings with management; dialogue helps to ensure mutual understanding and response from management if we raise issues/concerns; and
• Engagement and proxy voting are integral parts of our active management of portfolios; case-by-case assessment for decisions relating to proxy voting, corporate actions and events. 

The investment team's frequent contact with industry management teams ensures we develop and maintain a strong reflection on the risk and reward of various investments.

This allows us to complement quantitative models and analysis with a qualitative assessment of each company's managerial actions concerning both strategic and sustainability decisions.

We also believe that shareholders can contribute strongly to the dialogue with a company through proxy voting. We vote on every resolution for every company's general meeting or proxy, and always vote in the best interest of shareholders, irrespective of the company's recommendation. This is especially true for any item that could impact sustainability or ESG considerations in a negative way, such as matters that could affect corporate governance and climate change, reduce the protection of minority holders' interests, or lead to management compensation being misaligned with the interests of shareholders. Progress is tracked against our objectives. In exceptional instances, we write to a company's board to express our views.

The portfolio's carbon emissions performance

The Ecofin team partners with Carbon Analytics to verify and measure carbon emissions for portfolio companies. The Company's portfolio screens well in terms of carbon footprint (i.e. tonnes of CO2 emitted per megawatt hour of electricity generation): electricity generators in the portfolio generally have CO2 emissions which are below the average emissions of their relevant electricity grids and the average of companies included in the global utilities index.

We do not set firm limits on fossil fuel exposure and invest in companies transitioning to better growth and sustainability profiles (rather than permitting only 'clean' stocks).