Fund Size: £1364.60m

Total screened & themed / SRI assets: £58000.00

Total Responsible Ownership assets: £737573.00

Total assets under management: £737573.00

As at: 31/12/22

Contact: sami.arouche@schroders.com

Overview

Filters

Fund information

Policy

One of the principal aims of the fund is to allocate capital in order to facilitate the United Nations’ Sustainable Development Goal (SDG) 11, Sustainable Cities and Communities. In order to achieve this aim, ESG is integrated throughout the investment process and is a key factor in determining both portfolio inclusion and the quantum of investment.

Global Cities is a data-led investment process with ESG at its core. This process filters companies in two stages:

Stage 1 analyses the location of a company’s assets and applies a rank based on four bespoke ‘Impact Scores’:

• Environmental Impact
• Transport Score
• Innovation Impact
• Economic Impact.

Specifically, ESG is considered in the environmental and transport score here – further information on these scores are detailed below. The city score determined by each impact score creates a list of companies eligible for stage 2. This list is called the Long-Term Index (LTI).

Environmental Impact score (EIS)

Each asset is assessed as to how environmentally sustainable its location is and scored according to physical, wellbeing and policy. The database is bespoke to the Global Cities team and draws on numerous data sources to quantify urban locations. For example, data from national weather services, NASA and ESA, research institutes and universities all help build a geo-spatial map of cities from an environmental perspective.

The picture below (removed as the response requires text only) from the EIS shows Air Quality data from NASA which can be geo-framed to focus on particular cities.

The Environmental score is applied to a company’s assets. A company owning assets in Stockholm will receive a better score than a company that has assets in Los Angeles (LA). Stockholm ranks higher than LA, as quantified by the EIS.

A quantified company’s EIS score results in a cross-comparison between companies as to who owns assets in the most environmentally resilient locations.

Each city is given an environmental score out of 10 (with 10 being considered the best possible score). This means, mechanically, the assets of every company are screened on the basis of ‘Environmental Impact’ in the first part of the investment process.

Transport Impact score (TIS)

Transport has two important functions that are interrelated. First, mass transit provides access to more employers; second this acts as a social leveller in poorer neighbourhoods.

Harvard University released a two-part study in 2018 looking at the impact of neighbourhoods on life chances. An area of focus was transport. Transport provides access to a wider pool of job opportunities, making it an important social leveller.

The transport score analyses data of five transport modes: sea, road, train, bus and air. A company with assets in a city with good transport will received a better score than one that does not.

Stage 2 considers the ESG and Valuation metrics of a company using Schroders’ proprietary tool CONTEXT™. The metrics provided by CONTEXT™ determines a company’s investible range.

Stage 2 focuses in two key areas:

• Establishing a maximum investment for each company
• Valuing the company.

The investable range for each company is determined by ESG analysis, utilising Schroders’ bespoke ESG tool CONTEXT™.

The valuation for each company is determined by local analysts using proprietary data sets combined with ‘traditional’ research such as, meetings with management teams and inspecting assets.

ESG Score: Integrated

The objective of the ESG score is to limit the size of exposure to any one company by identifying the key areas that could lead to any potential capital loss. This is the first part of position sizing.

Once included in the LTI any company has a theoretical maximum investment of 6%.

Our ESG assessment uses CONTEXT™ as the primary tool for comparing companies. Analyst research is combined with third party data from sources such as GRESB, BoardEx and Refinitiv Eikon, leading to differences in the calculated scores for each company.

Companies with bottom quartile CONTEXT™ scores are excluded from investment. The CONTEXT™ scores for the remaining stocks are used to size portfolio positions.

CONTEXT™ analyses a company’s sustainability through the eyes of key stakeholders. CONTEXT™ aims to determine the impact on society for the profit generated by a company.

Process

Global Cities is a data-led investment process with ESG at its core. This process screens companies in two stages:

• Takes the location of a company’s assets and applies a rank based on four bespoke ‘Impact Scores’ (environmental, transport, innovation and economic). This creates a list of companies eligible for stage 2. This list is called the Long Term Index (LTI).
• From the LTI, ESG analysis using the bespoke ‘CONTEXT™’ system for the maximum capital allocation and valuation for the position sizing within that range. The maximum investment is 8% in any company in the LTI. This quantum is then reduced by varying amounts depending on the ESG characteristics of the company. Companies with bottom quartile CONTEXT™ scores are excluded from investment.

Resources, Affiliations & Corporate Strategies

Dialshifter

This fund is helping to ‘shift the dial from brown to green’ by…

Schroders Global Cities fund is helping shift the dial from brown to green by investing in sustainable real estate, focusing on innovative and environmentally resilient cities and infrastructure. With strong governance practices, a commitment to social objectives, and rigorous exclusion criteria, the fund is driving positive change while offering a future-focused investment opportunity.

Literature

• Fund overview & literature (including factsheet)

Risk Considerations – Schroder Global Cities Real Estate

The following risks may affect fund performance:

• Capital risk / distribution policy: As the fund intends to pay dividends regardless of its performance, a dividend may represent a return of part of the amount you invested.
• Counterparty risk: The fund may have contractual agreements with counterparties. If a counterparty is unable to fulfil their obligations, the sum that they owe to the fund may be lost in part or in whole.
• Currency risk: The fund may lose value as a result of movements in foreign exchange rates.
• Currency risk / hedged share class: The hedging of the share class may not be fully effective and residual currency exposure may remain. The cost associated with hedging may impact performance and potential gains may be more limited than for unhedged share classes.
• Emerging markets & frontier risk: Emerging markets, and especially frontier markets, generally carry greater political, legal, counterparty, operational and liquidity risk than developed markets.
• Higher volatility risk: The price of this fund may be volatile as it may take higher risks in search of higher rewards.
• IBOR risk: 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.
• 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.
• Market risk: The value of investments can go up and down and an investor may not get back the amount initially invested.
• 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.
• 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: The fund has the objective of sustainable investment. This means it may have limited exposure to some companies, industries or sectors and may forego certain investment opportunities, or dispose of certain holdings, that do not align with its sustainability criteria chosen by the investment manager. The fund may invest in companies that do not reflect the beliefs and values of any particular investor.

Last amended: 02/01/24 12:29