Schroder UK Mid Cap Fund | ESG

The Company delegates to Schroder Investment Management Limited (the "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. A description of the Manager’s policy 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. In 2019 Schroders retained its A+ rating from the UN Principles for Responsible Investment (PRI) for its overall ESG approach. The Board has received reporting from the Manager on the application of its policy.

Internal accreditation

In 2019 Schroders rolled out an internal ESG accreditation process. As part of this, the portfolio managers achieved Schroders’ Integrated status in 2020. This means that sustainability is a building block of the investment process and can be clearly evidenced. Schroders policies on sustainability are based on what they have learned from more than 20 years of integrating ESG analysis for clients

External benchmarking

The Company has been given a Morningstar Sustainability Rating (“Globe” rating) of 5, out of a maximum of 5. This means that it is in the top 10% of Morningstar’s UK Equity Mid/Small Cap global category. This fund-level rating evaluates how much ESG risk is embedded in a fund relative to its Morningstar peer group, i.e. the risk of something going wrong in an ESG context.

Under the widely accepted premise that the world is transitioning to a more sustainable economy, Morningstar’s view is that a risk-based evaluation as the best available technique to assess the ESG characteristics of a fund.

The Manager believes that, as external research on mid cap companies is limited in scope and often in quality, this provides an opportunity to deliver excess returns to shareholders. Detailed analysis of company reports and accounts, company meetings and visits, ESG analysis and engagements and the use of industry experts are all a vital part of the Manager’s research process. It is the application of experience to these varied inputs, coupled with an extensive global in-house analytical resource that the Board believes gives the team the potential to deliver attractive revenue.

As part of the process, the portfolio managers 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 they meet with them more than this, as well as engaging with board members. In addition, they will attend meetings with most management teams of companies in the Company's dynamic Benchmark over the course of a year as they regularly review the investment cases of companies not held in the portfolio. The Manager believes it is just as important to understand why you don’t hold something as it to know why you do.

Schroders has always taken pride in their level of engagement with companies. Its brand, as well as extensive analytical resource affords the portfolio managers the ability to regularly engage with companies on all aspects of corporate strategy, including specific ESG/sustainability matters.

Schroders has access to a dedicated team of 17 ESG/Sustainability specialists. Their role is to research ESG/Sustainability themes within sectors, as well as to analyse and engage with individual companies on these issues. The portfolio managers engage with the output of this team regularly to ensure that these factors inform the investment process.