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The Scott Trust Limited (Guardian Media Group)

PRI reporting framework 2018

You are in Strategy and Governance » ESG issues in asset allocation

ESG issues in asset allocation

SG 13. ESG issues in strategic asset allocation

New selection options have been added to this indicator. Please review your prefilled responses carefully.

13.1. Indicate if your organisation executes scenario analysis and/or modelling in which the risk profile of future ESG trends at portfolio level is calculated.

13.3. Additional information. [OPTIONAL]


SG 14. Long term investment risks and opportunity

14.1. Describe the process used to identify short, medium and long-term risks and opportunities that could have a material impact on your organisation and its activities.

Manager selection and monitoring focusses on identifying managers that will comply with our investment policy and the time horizons within it. We recognize that material ESG (and other) issues present risks on multiple time horizons. Sustainable investment strategies aim to reduce these risks. We therefore consider risks over different time horizons and the external manager's approach to considering these risks when allocating and monitoring assets. Alignment with our beliefs aims to reduce risks, as our organization is focused on sustainable business activities. This is made clear in our Statement of Investment Principles.

 

Monitoring considers manager level attributes (e.g. how they integrate ESG and engage with corporates to mitigate risk) and monitoring of underlying holdings and the risks these exposures represent (ESG ratings). Detailed monitoring is done on other risk factors beyond ESG. Our consultant assists 

14.1 CC. Describe the processes used to determine which climate-related short, medium and long-term risks and opportunities could have a material impact on your organisation and its activities.

The sole purpose of the Scott Trust and its endowment is to secure the financial and editorial independence of the Guardian in perpetuity. We believe that climate risks and opportunities are material to this purpose across multiple time horizons. Our own unique media platform has done much to determine these risks and our beliefs are fundamental to our view on climate risk.

Our investment policy, divesting from fossil fuels over the medium term while re-investing in solutions to a low carbon economy aims to mitigate these risks and benefit from opportunities. We track climate related risk across our investment portfolio, for example carbon emissions, environmental ratings, and exposure to fossil fuel reserves. This gives clear risk exposures which we expect to fall over time. We actively seek managers giving us exposure to opportunities - one long-time horizon example is a private fund investing in renewable infrastructure

Identifying managers not actively thinking about climate risks and opportunities is a key process. We then seek to replace them with leading managers integrating these and other ESG considerations. We have been doing this materially since we developed a clear climate risk policy in 2015.

14.2. Some investment risks and opportunities arise as a result of long term trends. Indicate which of the following you act on.

14.2a cc. Please describe how you define “short”, “medium” and “long term”, and describe your material climate-related issues over these time horizons.

Definition
Description of material climate-related issues
Short term
          Less than five years
        
          Divestment of fossil fuels, re-investment in low carbon solutions.
        
Medium term
          Five to ten years
        
          Opportunities: e.g. ten year private renewable infrastructure funds. Threats to traditional energy demand and high emission business models. Disruption from climate change and extreme weather events
        
Long term
          Periods of at least ten years, encompassing multiple economic and market cycles
        
          Widespread materiality of climate change risks and opportunities (Direct and indirect) across all asset classes.
        

14.3. Indicate which of the following activities you have undertaken to respond to climate change risk and opportunity

other description

          Our various campaigns have publicly urged fossil fuel divestment and highlighted investment opportunities in areas such as solar power.
        

14.4. Indicate which of the following tools you use to manage emissions risks and opportunities

14.4a CC. Please provide further details on these key metric(s) used to assess climate related risks and opportunities.

Metric Type
Coverage
Purpose
Metric Unit
Metric Methodology
Metric Trend
Limitations / Weaknesses
Carbon footprint (scope 1 and 2)
          We have assessed the carbon footprint across external managers where we have visibility in underlying holdings and data
        
          Monitor progress on lower portfolio emissions and identify risks in individual strategies
        
          Weighted Average Carbon Intensity, or Carbon Emissions per $ million invested
        
          Third party analytical tools to assess holdings.
        
          The metric has trended down during reporting period as we have invested in low carbon products.
        
          Lack of disclosure from some external managers on all holdings. Lack of data for companies in private equity investments.
        

14.6. Additional information [Optional]

During the period we conducted analysis monitoring both fossil fuel exposure and examining the carbon footprint of underlying holdings held via external managers, to track divestment progress and better understand emissions risk in the portfolio. We made considerable progress improving these metrics across asset classes.

14.7 CC. Describe your risk management processes for identifying, assessing, and managing climate-related risks.

Please describe

As per SG 14.1 CC, consideration of climate change risk is fully intregrated in the overall risk management of our endowment.

14.8 CC. Describe your processes for prioritising climate-related risks.

Divest from fossil fuels over the medium term. This prioritises climate risk in all manager selection and monitoring decisions.

More boradly, we use our unique journalistic platform to prioritise climate-related risks in many areas.

14.9 CC. Do you conduct engagement activity with investee companies to encourage better disclosure and practices around climate-related risks?

Please describe

  • We are members of the Institutional Investors Group on Climate Change (IIGCC) and support their engagement activities with companies.
  • As a large climate-aware asset owner, with a high profile and public divestment policy, we pro-actively work to promote better practices and disclosure in our investment managers. For example we have seeded new climate aware funds promoting better practices around climate-related risks. In doing so we aim to exert pressure down the value chain to the corporates these large managers engage with.
  • This is done extensively though our media platform - the Guardian and Observer websites and apps. Please see the detail provided in SG 10.3.

14.10 CC. Describe how you use data from climate-related disclosures.

  • We have used data to help create new climate-aware products. For example, during the reporting period, data made us aware of the climate risks in two hedge funds with significant energy holdings. Our engagement led to the creation of new share classes avoiding this exposure.
  • We have used positive data to select managers providing solutions. We recently used data around emissions a new environmentally themed European private equity manager. More generally, we have consistently selected new managers with lower climate risk.
  • Improved disclosure data allows us to find new innovative solutions. For example we used better climate data to tilt our passive global equity exposure. Working with a manager focusing on climate-aware products, the solution reduces emissions by 50% versus the world index, removes all exposure to fossil fuels and balances this divestment with investment in climate solutions: the product has a +100% tilt towards green revenues (alternative energy, energy efficiency, green buildings, pollution prevention, sustainable water).
  • On the other hand we have used fossil fuel and emissions data to sell investments not climate aligned and re-invest in strategies such as the examples above.

SG 15. Allocation of assets to environmental and social themed areas

New selection options have been added to this indicator. Please review your prefilled responses carefully.

15.1. Indicate if your organisation allocates assets to, or manages, funds based on specific environmental and social themed areas.

15.2. Indicate the percentage of your total AUM invested in environmental and social themed areas.

21.7 %

15.3. Specify which thematic area(s) you invest in, indicate the percentage of your AUM in the particular asset class and provide a brief description.

Area

Asset class invested

% of AUM
% of AUM
% of AUM

Brief description and measures of investment

During the period we committed to a new public equity clean energy thematic strategy. We were a key anchor investor for this new fund and had input into the design on key ESG issues.

We also committed to a low carbon emission and fossil fuel free passive equity strategy that tilts towards green revenues (alternative energy, energy efficiency, green building, pollution prevention & sustainable water)

This is in addition to a private commitment to a renewable power infrastructure fund.

Asset class invested

% of AUM

Brief description and measures of investment

Key global equity investments integrating ESG and focussing on sustainable business models have as a result substantial allocations to the global health sector, where health provision is regarded as a core long term theme. These allocations are therefore well above any comparative benchmarks.

          Specialist sustainable public equities investing
        

Asset class invested

% of AUM

Brief description and measures of investment

Allocations within both developed and emerging market public equities are made to managers fully integrating environmental and social sustainability research in the core of their investment process. Such allocations were increased during the period by selecting new managers with such proactive ESG integration.

For example, a new allocation was made during the period to a sustainably themed global equity fund run by a boutique 100% dedicated to sustainable investing and engaged long term ownership.

In addition to the figure above, other managers deeply integrate ESG without being overtly thematic.


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