The thematic environmental equity strategy applied an upward revision to its Clean Energy thematic allocation focussing on offshore wind. This revision reflected a view, based on stakeholder engagement and field-trip analysis, that the potential for accelerated global growth of offshore wind was under-appreciated in the equity market due to the significant reduction in associated cost of energy, improved access to ‘green’ infrastructure finance and powerful convergence of political and economic incentives.

Increased allocation to offshore wind within thematic environmental equity strategy.

The UK Value Team's ESG evaluation process resulted in the decision not to invest in a number of companies which otherwise performed well on their valuation screens in 2019. For example, the Team chose not to invest in an online clothes retailer which provides consumer credit to customers, charging relatively high rates of interest. One factor which influenced this decision related to the risk of increased regulatory scrutiny on consumer lending practices in the UK, with a focus on borrowers' ability to repay. In the Team’s  view, this 'S' factor in relation to customers presented a risk to the long-term sustainability of the company's financial performance.

The UK Value Team made the decision not to invest in the company in question. 

The fund manager of our Asian Equity Income Strategy held an initial meeting with a Hong Kong listed conglomerate which was not held in the portfolio but which our analysis indicated was potentially an attractive investment opportunity. The company is family-controlled and one element of the discussion focused on the group's approach to corporate governance. Pre-investment research by the GS Team indicated that the Board composition lagged best practice in several areas relating to independence but otherwise the group appeared to be a well-managed business. We articulated our view that improved governance standards could lead to an increase in the company's market valuation.

The Asian Equity Income Strategy did not invest in the group following the meeting but placed the company on a watch list where it will be monitored for indications of improved corporate governance that may influence whether there is a decision to ultimately invest.

The UK Value team decided to exit their position in an oil and gas major, a long-term holding and one of two oil and gas holdings in the portfolio. They reached this decision based on their view that the oil and gas sector as a whole faces a profound challenge in adapting to the energy transition and that the other oil major is better placed to manage the transition effectively, due to the greater operational flexibility it has developed in the years since a previous crisis. This decision was taken by the fund managers and was the result of a deep process of analysis in collaboration with the GS Team. The UK Value team's climate change research was informed by engagement with the management and board of each company, including an assessment of each company's decarbonisation strategy, collaborative engagement with other IIGCC members, sell-side research, data from Transition Pathway Initiative and crucially their own deep sector knowledge and understanding of each company from an investor perspective.

The UK Value Team sold the relevant oil and gas holding. This decision had the second order effect of reducing the portfolio's exposure to the sector and its overall carbon intensity.