Schroders Capital Global Innovation Trust | ESG

The Board delegates responsibility for taking Environmental, Social and Governance (ESG) issues into account when assessing the selection, retention and realisation of investments to its Portfolio Manager, Schroder Investment Management Limited, and monitors its application.

The Board expects the Portfolio Manager to engage with investee companies on social, environmental and business ethics issues and to promote best practice. The Board also expects the Portfolio Manager to exercise the Company’s voting rights in consideration of these issues.

In addition to the description of the Portfolio Manager’s integration of ESG into the investment process below, a description of the Portfolio Manager’s policy on these matters can be found on the Schroders website at www.schroders.com/en/sustainability/corporate-responsibility/. The Board receives reports from the Portfolio Manager on the application of its policy.

Schroders is compliant with the 2020 UK Stewardship Code and its compliance with the principles therein is reported on its website. The Board notes that Schroders has long recognised both the importance of examining the impacts of social and environmental trends on the companies they invest in, and the role investors can play in helping to address those challenges. That philosophy is reflected in their management of the Company and plans to develop the portfolio. 

Schroders has long recognised both the importance of examining the impacts of social and environmental trends on the companies that they invest in, and the role investors can play in helping to address those challenges. Schroders’ Private Equity investment team, Schroder Adveq, has over 20 years’ experience applying environmental, social and corporate governance (ESG) factors in investment achieving the highest (A+) rating under UN Principles for Responsible Investing (2020 UN PRI Assessment Report). That philosophy is reflected in their management of the Company and plans to develop the portfolio.

Schroders believe that companies do not operate in a vacuum; their long-term success is directly tied to their ability to adapt to social and environmental trends shaping their industries. For instance, their abilities to attract and retain talent, to build strong customer relationships or to adapt to changing regulations are vital to their competitiveness. All are complicated by workers’ growing expectations that their employers’ values match their own, the growing importance consumers attach to environmental features or product sustainability and the growing pressures governments face to reign back corporate excesses. The challenges vary from company to company and industry to industry, as do the features the Portfolio Manager looks for in companies, but the principles and the importance they attach to them are consistent.

The same structural trends are also reshaping industries, driving growth in some markets and shrinking others, as capital moves to industries and technologies that will help solve social and environmental challenges.

In 2015, the United Nations launched its Sustainable Development Goals (SDGs) defining the biggest challenges facing global societies. These challenges comprise 17 discrete goals, each targeting distinct threats and underpinned by a comprehensive range of metrics to help policy makers quantify progress. They have galvanised the worldwide focus of policy makers, companies and investors.

Schroders has committed to integrating UN SDGs into enhanced ESG reporting across its private equity portfolios. However, Schroders believe their approach is more conservative than most others because the link between an investment and an SDG may only be acknowledged when the company’s business model specifically addresses one of the 169 targets which underly the 17 goals.

Furthermore, the portfolio managers believe in taking a more proactive approach towards SDGs’ adoption and intend to use the 17 goals and 169 targets to foster self-reflection within portfolio companies and expedite the adoption of internal policies to ensure simultaneous contribution to multiple goals. They believe that such an approach embodies the spirit of the SDGs, and goes beyond a pure asset allocation consideration, towards a value-added contribution. As the portfolio managers progress with the repositioning of the portfolio, the Company intends to improve disclosures in relation to engagement activities on this topic.

While not all the companies within the existing portfolio have SDGs embedded in their business models, many have. The Company’s focus on early-stage innovative businesses, addressing some of the biggest challenges facing global societies, leaves a considerable proportion of the portfolio aligned to those goals. As an illustration of the Company’s current positioning in relation to SDG’s, the Top 10 holdings section of this Portfolio Manager’s review in the most recent Annual Report includes the relevant goals and underlying targets associated with each of the largest holdings. The portfolio managers consider this the first step towards embedding sustainability within the Company’s investment philosophy and over time establishing a leading position in this critical area.

As the portfolio managers progress with the process of transitioning the portfolio, they intend to take a progressive approach to improving the Company’s sustainability profile. Initially, this will take the form of three initiatives:

(1) Continuing to engage with the Board on the details of more actively endorsing sustainability within the Company’s investment policy;

(2) Disclosing where appropriate the SDGs associated with our first new investments since their appointment as Portfolio Manager; and

(3) Reporting on engagement with portfolio companies regarding topics such as diversity, corporate governance and climate change. 

The Company looks forward to communicating progress on these initiatives over the months and years ahead.