Schroder Income Growth Fund | ESG

Our approach
In the Manager’s view, environmental, social and governance (“ESG”) factors and industry trends are intrinsically linked. The Manager identifies the key ESG issues of each company it invests in and analyses and examines the management of these to determine the risks and opportunities of an investment. A range of inputs to help identify these including proprietary analysis done by the team based on information published by the companies themselves, output from proprietary internal tools, work done by internal analysts as well as input from external providers such as MSCI or Sustainalytics. The Manager conducts a rigorous bottom-up examination of a company’s ESG performance and incorporates that analysis into investment decisions rather than outsourcing to third parties. In exploring new investment ideas the Manager may engage with management teams to better understand their business, corporate strategy and their alignment with shareholders. Once invested, the Manager will engage on identified issues.

Extensive engagement with portfolio companies
Regular engagement with the board, executive management, investor relations and sustainability professionals of a portfolio company is a key feature of the Manager’s approach. The Manager meets with the management of all portfolio companies at least once a year, in many cases, more frequently. These engagements are led by the investment team in most instances as they have the knowledge of, and relationships with, the companies. The Manager also benefits from engagements led by other Schroders’ teams. The Manager is not afraid to be robust with management teams where needed. To achieve the goals with engagements, the Manager works closely with Schroders’ Sustainable Investment team, consisting of over 40 dedicated specialists. Engagement is usually directly with management teams and, where necessary as a form of escalation, the team will use voting rights against management to encourage change. Once the Manager engages with companies, its findings will be documented in its proprietary tool called ActiveIQ, which helps keep track of the progress made and monitor the success of previous engagements with the company. The Manager reviews engagement progress quarterly and where an engagement may be stalling, the Manager will discuss next steps and how to take this forward. 

Our voting record
The table below shows the number of company meetings and resolutions the Company voted on in the last one and three years.

Where the Manager votes against management on behalf of the Company, in most cases this has been to oppose the re-election of a director or to oppose the remuneration report. The Manager will oppose the re-election of a director for several reasons including ‘over-boarding’, where it believes a director holds too many board positions at once so are unable to dedicate sufficient time to each. In the case of remuneration, the Manager pushes for management teams to have firm alignment with shareholders.

Our engagement in action
A key area of the Manager’s engagement in recent years has been encouraging companies to reassess their capital allocation priorities given widespread depressed share prices in the UK equity market. The Manager has seen several companies in the last 12 months that it has engaged with heavily over the years to demonstrate value in their portfolio. QinetiQ is one such example. They provide essential defence services to the UK Ministry of Defence and its allies, including military training, cyber security and equipment testing. Their shares de-rated over the last two years due to spending delays in the US caused by continuing resolutions on the Federal budget deficit. This resulted in deferral of QinetiQ’s revenue and raised concerns around their US focused acquisition strategy. The Manager believed that the cheap share price and negative sentiment at QinetiQ meant that capital could be more effectively allocated to share repurchases rather than any further acquisitions. Acquisitions have been a key part of QinetiQ’s strategy. The Manager therefore engaged with the executive team and the Chairman to share its views and they followed that with an announcement in their January 2024 trading update that they were starting a £100 million buy back programme. At their full year results in May, they then formally de-emphasised the merger & acquisition component of their growth strategy and announced a change of chief financial officer. The Manager was pleased with this outcome and so its voting actions have not changed. However, the Manager continues to monitor progress in QinetiQ’s US business and the management team’s ongoing capital allocation decisions.

Climate related disclosures
On 30 June 2024, the Company’s AIFM produced a product level disclosure consistent with the Task Force on Climate-Related Financial Disclosures for the period 1 January 2023 to 31 December 2023. This can be found here: rep_11_78535_1718725281612.pdf