Invesco Perpetual UK Smaller Companies | ESG

The Board believes that incorporating ESG considerations into investment analysis has the potential to generate alpha and mitigate risk.

Manager’s process

The Board has delegated the management of the Company’s investments to Invesco Fund Managers Limited (the ‘Manager’, ‘Invesco’)

The core aspects of the Manager’s ESG philosophy are:

• Materiality: The consideration of ESG issues on a risk- adjusted basis and in economic context. Invesco does not view ESG aspects as constraints, aside from certain restrictions driven by legal obligations in certain territories.
• ESG momentum:  Invesco believes that companies that are improving their ESG practices may enjoy favourable financial performance in the longer term.
• Engagement: Invesco takes its responsibility as active owners very seriously and sees engagement as an opportunity to encourage continual improvement. Dialogue with portfolio companies is a core part of the investment process. - the firm regularly participates in board-level dialogue and provides shareholder views on areas including management incentivisation, corporate strategy, disclosure, and capital allocation as well as wider ESG aspects.

The Board agrees with this approach in managing the Company’s assets.

The Board also supports the Portfolio Managers who incorporate ESG considerations in their investment process as part of the evaluation of investment opportunities, with identified ESG concerns feeding into the final investment decision and assessment of relative value.  The Portfolio Managers make their own conclusions about the ESG characteristics of each investment held and about the overall ESG characteristics of the Company’s portfolio, although third party ESG ratings may inform their view.  Additionally, the Manager’s ESG team provides formalised portfolio monitoring.  This is a rigorous semi-annual process where the portfolio is reviewed from an ESG perspective.

Manager’s industry engagement

Invesco is an active member and supporter of several external organisations as well as participants in various industry advocacy groups, including:

- signatory of the Principles for Responsible Investment;

- signatory of Climate Action 100+;

- partner of the Climate Bond initiative;

- supporter of the Transition Pathway Initiative (TPI);

- member of the One Planet Asset Managers (OPAM) initiative;

- signatory of the Confluence Philosophy Belonging Pledge to Advance Racial Equity.

Further details of the Manager’s ESG process including examples of how the Manager has sought to exercise effective stewardship and influence over investee companies can be found on the Company’s web page at www.invesco.co.uk/ipukscit