Fund Size: £15.15m

Total screened & themed / SRI assets: £58000.00

Total Responsible Ownership assets: £737573.00

Total assets under management: £737573.00

As at: 31/12/24

Contact: sami.arouche@schroders.com

Overview

Filters

Fund information

Policy

Stage 1: ESG

The first component of the process is based on ESG, utilising the Schroders proprietary tool, CONTEXT™ system. CONTEXT™ is a tool that considers the sustainability of a company’s business model having regard to certain measures and uses both third party data and our own estimates and assumptions and is not an industry standard measure. As a large proportion of ESG inputs into CONTEXT™ are taken from 3rd party sources, the process relies heavily on external data which adjusts capital allocation, removing any perceived bias from the process.

Given ESG is the bedrock of the process, companies with bottom quartile ESG scores, of the 350 companies in the universe, are excluded. The better the CONTEXT™ score, the more capital can be potentially attributed to a company.

Investable range is then reduced by quantum of risk associated with ESG score.

As active investors, engagements with our holdings play a key role in our investment decision making. We engage with our holdings on all ESG factors. The philosophy of the team is that there is always room for improvement and no clear finish line and each company’s progress is monitored by the Global Listed Real Asset analysts and the Sustainable Investment team. In the event that we do not see improvement in these areas, the company would get a higher risk score which will result in a reduction of exposure to the company or we will divest from the company entirely.   

Process

With regards to investment decision making, the fund utilises a unique and bespoke process .

As mentioned above, the process complies with the  three critical tenets of ESG integration: third-party data; exclusion of companies based on poor ESG scores; continuous engagement.

Stage 1: ESG

The first component of the process is based on an ESG score for each company, utilising the Schroders CONTEXT™ system. The better the ESG score, the more capital can be allocated to a company. The maximum potential investment in any holding by the fund is 8%, this quantum is then reduced depending on the company’s ESG score derived from CONTEXT™. A company with a high ESG score will have a maximum investible range close to 8% and a company with a low ESG score will have a maximum investible range much lower. The investment process has a bias of allocating larger amounts of capital to companies with higher ESG scores.

The ESG inputs in CONTEXT™ are taken from 3rd party sources and our own estimates and assumptions. As a proportion of ESG inputs into CONTEXT™ are taken from 3rd party sources, any perceived bias from the process is removed. Each company is ascribed an ESG score, companies with bottom quartile ESG scores of the 350 companies in the universe, are excluded.

Stage 2: Valuation

The second component of the process is to value the company to see what quantum of capital should be allocated to a specific company. 

We use both traditional and non traditional forms of valuation. Traditional forms of valuation includes DCF and FFO multiples. Non-traditional valuation includes geo-spatial insights. The non-traditional insight provides an informational edge, particularly important with Digital Infrastructure where location can provide an asset with clear competitive advantages. An example of this could be a data-centre close to a power source, a large population and underground fibre cables.

Upside (or downside) to the current price is then calculated by building proprietary valuation models. Depending on upside (or downside) to current price, a company will be placed into deciles relative to the rest of the investment universe: the stocks with the most upside will sit in the top decile. These stocks will have capital allocated to them at the extreme/ maximum of their investable range (as calculated with the ESG score in phase I).  Those companies placed in the second decile (second most attractively priced grouping) will have slightly less capital allocated.  This process continues for the third, fourth, fifth etc. deciles. 

Once a risk score is provided and a valuation decile apportioned to that risk score, the rankings can be sorted to provide the managers with trading signals.

Whilst the investment process is very quant driven, the fund managers are looking for strong buy and sell signals rather than following each recommendation to a precise basis point of investment.

Process Conclusion

The process uses a transparent, quant driven, two stage investment process to identify the most sustainable Digital Infrastructure companies cities with the strongest operating platforms in those markets.

• Stage 1 excludes companies with bottom quartile ESG scores based on the score ascribed by in-house proprietary database CONTEXT™.
• Stage 2 values each company and systematically highlights the correct weight of a company in the portfolio.

Resources, Affiliations & Corporate Strategies

Fund level resources:

The principal resource to establish the ESG credentials of any company is the in house proprietary database known as CONTEXT™ (we outline below a summary of the database)

• CONTEXT™ provides a systematic framework for analysing a company’s relationship with its stakeholders and the sustainability of its business model, allowing us to identify market wide trends and insights. It is designed to support our investors’ understanding of the sustainability of companies’ business models and profitability, and provides structured, logical and wide-ranging data to support our analysts’ views. This consistent structure makes information sharing easier and allows us to identify market wide trends and insights. The database incorporates both internal and external data sources. 

The team also have access to a suite of Schroders developed internal research-based and quantitative ESG investment tools which provide a framework for our investors to incorporate ESG factors into their analysis. We have outlined the flagship tools below:

• SustainEx™ scientifically combines measures of both the harm companies can do and the good they can bring to arrive at an aggregate measure of each firm’s social and environmental impact, allowing investors to target their ESG investments effectively. It quantifies the extent to which companies are in credit or deficit with the societies to which they belong, and the risks they face if the costs they externalise are pushed into companies’ own costs.

• Our Country Sustainability Dashboard aims to provide a lens through which to analyse the sustainability of sovereign GDP growth. By assessing the ESG risks and opportunities that have historically driven growth, as well as those that may be influential in the future, it aims to provide investors with a long-term view of countries’ GDP growth as well as an indication as to whether the market is pricing in country sustainability factors across various asset classes.

The Real Asset team is supported by the Sustainable Investment team. This team has been embedded as part of our overall investment process. The Sustainable Investment team is further details below when explaining our firm level resources.

The two teams combine to speak to management teams about specific issues such as remuneration, board diversification, sustainability policies etc.

Firm level resources:

Our Sustainable Investment Team

Sustainability is fundamental to our investment principles at Schroders and we have an experienced and well-resourced Sustainable Investment team, who are embedded within our Investment function. As at March 2023, the team comprises over 50+ dedicated ESG professionals with over 400 years’ combined investment experience. We are a global team, spread across four regional hubs in London, Paris, Singapore and New York, aiming to ensure that sustainability is embedded through our global investment teams and client functions.

The team is led by Andrew Howard, Global Head of Sustainable Investment who is also a member of our Group Management Committee.  As team head, he oversees our approach to ESG integration, active ownership, our sustainability research and tools, and our reporting and product strategy.

Our Sustainable Investment team sits alongside investment teams rather than operating in a silo, which facilitates regular dialogue with our analysts and portfolio managers. It is organised into three pillars: 1) Sustainable Investment Management, incorporating integration, thematic research and models and data, 2) Active Ownership, encompassing engagement and voting and 3) Product, which entails our client, product and solutions activities. We also have regional sustainability specialists in Europe, Asia and North America, who work closely with our regional investment desks and clients globally. We outline their key responsibilities and areas of focus below.

• Sustainable investment management

Our Integration team works with our investment teams to integrate our proprietary ESG tools and research into their investment processes. They are also responsible for the annual review and integration accreditation of all our investment desks.

Our Research team is responsible for conducting research into our key thematic areas and working in collaboration with investors to help them understand how these themes impact their portfolios.

Our Models and Data team is responsible for the maintenance and evolution of our suite of proprietary tools. They are also responsible for ESG data, ensuring we harness sustainability data effectively from both conventional and unconventional sources.

• Active ownership

Our Engagement team partners with investors to have dialogue with the companies in which we invest, seeking to understand how prepared they are for a changing world and pushing them towards more sustainable practices. The team track the progress of these engagements and hold companies to account.

Our Corporate Governance team is responsible for voting in line with our Voting Policy and Principles.

• Product

Our Product team is responsible for all the externally-facing aspects of our sustainability strategy. This includes our suite of products and solutions, client engagement and our engagement with regulators and industry bodies. We also have regional specialists who help our clients around the globe to achieve their sustainability objectives.

For us, sustainability is a core part of our firm-wide strategy and is fundamental to our ultimate objective which is to achieve better outcomes for our clients. The Sustainable Investment team work in partnership with many teams around Schroders including our investment teams, Investment Insights Unit, Product Governance and client teams. We also have a number of dedicated sustainable equity and credit analysts who are embedded within our investment desks, along with 50+ Sustainability champions across investment globally.

Source: Schroders, as at 31 March 2023,

What is more, Schroders is a member, participant or signatory to a number of reputable industry organisations in which we share know-how and collaborate on various industry initiatives. Please find a sample list below. A full list is available on our website: 

https://www.schroders.com/en/sustainability/active-ownership/industry-involvement/ 

• UN Principles for Responsible Investment (PRI) - Achieving an A+ rating for six consecutive years
• Financial Reporting Council (FRC)
• CDP
• Climate Action 100+
• United Nations Global Compact (UNGC)
• Coalition for Climate Resilient Investment
• Investment Association Corporate Governance and Engagement Committee
• Investment Association Sustainability and Responsible Investment Committee
• Asian Corporate Governance Association (ACGA)
• Investor Forum
• European Sustainable Investment Forum (EuroSIF)
• Institute of Business Ethics (IBE)
• International Corporate Governance Network (ICGN)
• Pensions and Lifetime Savings Association (formerly the National Association of Pension Funds)
• SWESIF 
• Eumedion
• Green Bond Principles (GBP)
• GRESB
• Net Zero Asset Managers Initiative
• Responsible Investment Association of Australasia (RIAA).

For further details on our industry involvement, please refer to pages 44-47 of our 2022 annual sustainable investment report.

Dialshifter

Our organisation is helping to support the Paris Climate Agreement and the Race to Net Zero by…

• Working in partnership with asset owner clients on decarbonisation goals, consistent with an ambition to reach net zero emissions by 2050 or sooner across all assets under management;
• Setting an interim target for the proportion of assets to be managed in line with the attainment of net zero emissions by 2050 or sooner; and
• Reviewing our interim target at least every five years, with a goal of ratcheting up the proportion of assets covered until 100% are included, as efforts to structurally decarbonise economies play out.

Literature

• Fund overview & literature (including factsheet)
• Fund ESG
• Schroders ESG Policy

Marketing material for professional clients only. The following risks may affect fund performance:

Risk Considerations – Schroder Digital Infrastructure Fund

• Real Estate and Property Risk: Real estate investments are subject to a variety of risk conditions such as economic conditions, changes in laws (e.g. environmental and zoning) and other influences on the market.
• Sustainability Risk Factor: The fund applies sustainability criteria in its selection of investments. This investment focus may limit the fund's exposure to companies, industries or sectors and the fund may forego investment opportunities that do not align with its sustainability criteria. The fund may underperform other funds that do not seek to invest based on such criteria. As investors may differ in their views of what constitutes sustainability, the fund may invest in companies that do not reflect the values of any particular investor.
• Currency risk: The fund may lose value as a result of movements in foreign exchange rates.
• Liquidity risk: In difficult market conditions, the fund may not be able to sell a security for full value or at all. This could affect performance and could cause the fund to defer or suspend redemptions of its shares.
• Operational risk: Operational processes, including those related to the safekeeping of assets, may fail. This may result in losses to the fund.
• Performance risk: Investment objectives express an intended result but there is no guarantee that such a result will be achieved. Depending on market conditions and the macro economic environment, investment objectives may become more difficult to achieve.
• IBOR: The transition of the financial markets away from the use of interbank offered rates (IBORs) to alternative reference rates may impact the valuation of certain holdings and disrupt liquidity in certain instruments. This may impact the investment performance of the fund.
• Derivatives risk: Derivatives may be used to manage the portfolio efficiently. The fund may also materially invest in derivatives including using short selling and leverage techniques with the aim of making a return. A derivative may not perform as expected, may create losses greater than the cost of the derivative and may result in losses to the fund.

Last amended: 28/06/24 05:03