Utilico Emerging Markets Trust | ESG

Utilico Emerging Markets Trust’s (“UEM”) investment objective is to provide long-term total return through a flexible investment policy that permits it to make investments predominantly in infrastructure, utility, energy and related sectors, mainly in emerging markets.

UEM has appointed ICM Investment Management Limited and ICM Limited (together “ICM”) as its joint portfolio managers to deliver investment performance.  In conjunction with looking at the financial, macro and political drivers when making an investment, UEM has asked ICM to take into consideration environmental, social and governance (“ESG”) risks and opportunities, integrating the relevant information into the investment process. This is applied as standard to all investments made; however, ICM does not necessarily decide to, or not to, make an investment on environmental and social grounds alone.

The UEM Board believes that ESG is a way to identify and review the long-term drivers of an investment that are not found within the financial accounts. These “extra” non-financial disclosures therefore may not always be easy to understand given they are not openly reported, and especially considering the markets in which UEM operates in do not often have this information openly or consistently disclosed. ICM will actively ensure therefore where possible, that each “E”, “S”, and “G” is considered as part of its investment process.

Through its investment managers, ICM, UEM has two approaches to responsible investing: ESG Incorporation and Active Ownership:

ESG Incorporation

• Negative Screening: ICM has strong views that it will not knowingly invest in (and not necessarily limited to) tobacco, firearms, nuclear weapons, as well as companies associated with serious violations of human rights, severe environmental damage, gross corruption or serious violations of individuals’ rights or ethical norms. ICM does not passively screen on ESG criteria or rely on third-party ratings / ESG data providers to assess a company’s approach to ESG. Instead ICM will look for sound investments based on a bottom-up approach, where there are strong financial fundamentals, and attributes such as political stability, economic development, an acceptable legal framework and an encouraging attitude to foreign investment.  

• Integration: ESG is fully incorporated across all investments and given the nature of UEM’s investment opportunities, ICM has developed its own framework to assess a company’s ESG criteria. Each ICM analyst answers a list of questions covering material ESG factors that are relevant for each sector. Each question is ascribed a yes / no and a 1-10 response, with each question within each “E”, “S”, and “G” category being prescribed a weighting. The weighting that is applied to each question can vary depending on which sector the company operates in and depending on the materiality of the issue for the sector.

• ESG risk factors are considered as part of the broader investment process so that the ESG integration criteria does not automatically exclude investments. These factors are also not necessarily the key determinant in the final investment decision making process. If an analyst believes that the investment return outweighs the ESG risk (which should be correctly reflected in the company’s valuation) then potentially the investment can be made.

• The ICM investment team travels extensively, visiting where possible, investment opportunities, which gives the team a face-to-face opportunity to ask management teams what they perceive to be the key operational, social and environmental issues as well as a chance to see assets operating first hand.

Active Ownership

Engagement: UEM is a long-term investor and therefore engagement by investment managers with management teams is and will remain paramount to investing:

• Face to face engagement: where possible, ICM will travel extensively meeting investment company management teams, questioning them on their ESG policy and where possible helping them improve their ESG disclosure and implementation.
• Strong communication channels: given that UEM has a long term investment objective and ICM typically meets management teams face to face before investment, a good rapport is usually built with the investment companies. Therefore, email, phone or written communication can simply be employed to the appropriate company member. With a dedicated ESG engagement email account, we are able to diligently track communication.

Proxy Voting: Through proactively voting UEM can encourage / improve good corporate governance. UEM’s investment managers vote on all available shareholder resolutions whether through physical attendance at a shareholder meeting, or via proxy and voting will be in line with the following principles:

• Board of Directors - to be suitably skilled, diverse and independent.
• Remuneration policies – sensible and long-term focused.
• Capital allocation – disciplined and value accretive.
• Respect for minority shareholders interest – e.g. use of related party transactions, voting rights and royalties etc.
• Strong corporate culture reflecting the interest of the wider stakeholders.

ICM uses the ProxyEdge system for voting. ICM’s Operations department as well as each investment analyst will receive notifications with regards to the holding within the portfolio. The investment analyst will then be responsible for recommending how proxies relating to securities held in the portfolio should be voted, and the Operations team will ensure that the investment analyst has voted before the voting deadline. With regards to the voting decision, the ICM investment team will ensure the above principles are taken into consideration.

ICM is a signatory to the United Nations-supported Principles for Responsible Investment, which is an international network of investors working together to implement its six aspirational principles.

This policy document is intended for information purposes only. Nothing contained within this policy document constitutes investment, legal, tax or other advice and it is not to be relied on in making an investment or other decision. You should obtain relevant and specific professional advice before making any investment decision. Past performance is not indicative of future returns.