Sustainable, Responsible &/or ESG Policy:

Investment Philosophy

Our responsible investment philosophy is based on three pillars:

• Avoid: Avoid companies with damaging or unsustainable business practices
• Invest: Invest in companies that make a positive contribution to society and/or the environment
• Improve: Use influence as an investor to encourage best practice management of ESG issues through engagement and voting

This philosophy underlies the process that is applied to define the investable universe through screening, the subsequent investment analysis, stock selection and active ownership.

Responsible considerations are becoming increasingly important in the mind set of many investors. In addition, there is a growing consensus that the best long-term performance will come from those companies that take their wider responsible, environmental and social responsibilities seriously. It seeks to invest in UK companies offering attractive growth characteristics, avoiding investment in those that have harmful effects.

The CT Responsible UK Income Fund aims to generate capital growth through investments in approved UK companies. Within its responsible principles, the lead portfolio manager, Catherine Stanley, uses bottom-up company analysis within a clear portfolio construction framework to create a fund capable of generating compelling investment performance. The responsible principles mean we are largely precluded from investing in some sectors; but nevertheless, have a reasonably large number of companies to choose from.

The core tenets of our investment philosophy are as follows:

• Stable team of investment professionals
• Bottom-up, stock picking, bias to quality approach
• Focused portfolio of long-term investments

• We focus on:
  • Delivering consistent performance
  • Assessment of quality and value
  • Management meetings
  • Team approach
  • Minimising downside risk
  • Long-term mindset

• We avoid:
  • Sell-side recommendations
  • Trend and momentum investing
  • Highly speculative situations
  • Macro bets
  • Benchmark hugging

Process:

Investment Process

The team relies on bottom-up stock selection driven by fundamental analysis and absolute and relative valuation to identify high conviction stocks in the UK. The investment approach has two distinct parts:

•  Responsible screening – establishing a list of stocks which meet the appropriate responsible criteria for investment
• Investment process - managing the investment decisions and portfolio construction in line with our investment style and responsible overlay.

Responsible Screening

Positive and negative screening is undertaken to identify stocks suitable for inclusion in the fund’s investment universe.

Investment Process

The CT Responsible UK Income Fund investment process is split into three elements: Idea Generation, Company Analysis and Portfolio Construction.

Idea Generation

Across the team, the roles of fund management and research are combined. This means that all fund managers are actively involved in looking for new investment ideas. We use all of these methods to identify and develop new investment ideas. The most important are discussed in detail below:

Corporate access – Our position in the UK market gives us excellent access to company management, and we consider that management meetings are a key element of our investment process. We have developed long-term relationships with the senior management of many of the UK’s quoted companies. We have around 250 UK focused company and analyst meetings each year. As well as learning more about each specific company, these meetings also give us a stronger understanding about the markets in which these companies operate, and the strength of their competition. They are used to make qualitative and quantitative assessments of a company and it’s management.

External input - We have excellent relationships with the most useful brokers in each sector in which we invest. We do however appreciate that there are inherent biases in the broking process as brokers tend to over-emphasise the positives of a stock when they are bullish and vice versa. It should be noted that we endeavour to find the best broker analysts in each sector. We use these analysts to obtain detailed knowledge of stocks, rather than seeking their recommendations. On that basis, the majority of the research provided by our brokers will be used to verify our own investment ideas and deepen our knowledge of industries.

All third-party research services are assessed against several criteria including breadth of coverage, depth of coverage, quality of analysts, quality of sales service and the extent to which we utilise each of those components of the overall research service. Quality of the overall service is continually assessed by portfolio managers and analysts. We engage in transparent communication with all research providers with the aim of optimising the service they deliver to the investment team and making appropriate payment for that service. This approach has enabled us to maintain strong relationships with our most important research partners.

Input from other teams – Where appropriate, we have frequent discussions with the firm’s other teams and leverage off their research and information. The length of experience of the investment team in itself helps to generate investment ideas.

Company Analysis

The team undertakes its own fundamental analysis. We understand that there will be specific valuation measures that are appropriate for different sectors and we also appreciate that different valuation measures will be appropriate at different times of the investment cycle.

Each sector has been assigned to a nominated fund manager who acts as a sector specialist. This makes them the point of focus for external counterparties, and ensures that they are the centre of excellence for team discussions on that sector. We endeavour to meet a company’s management before investing. The fund manager will consider a number of factors when looking for an investment and making stock selection decisions from the fund’s universe. Some examples are listed below.

• Strength of the business position
  • Pricing power
  • Competitive position
  • Sustainability of earnings
  • Product quality
  • Aspects of positive contribution to society.
  • ESG factors

• Strength of financial position
  • Ability to fund own growth
  • Balance sheet
  • Quality of accounting
  • Ability to withstand stress

• Quality of management
  • Strategy
  • Ability to execute strategy
  • Experience and track record
  • Approach to risk

In addition, we also consider market sentiment, technical factors and look for catalysts that will impact a company’s share price (either positively or negatively). We conduct valuation analysis and look for a disconnection between the market’s valuation of a stock and the value that is implied by our own analysis.

Investment ideas of interest to the team will be discussed in an investment meeting. These occur three times a week, but they can also be organised on an ad-hoc basis when required.

ESG Process

The Fund employs the Invest, Avoid, Improve philosophy which underlies the process that is applied to define the investable universe through screening, the subsequent investment analysis, stock selection and active ownership.

• Avoid investments in companies with activities that harm society or the environment;
• Invest in companies that demonstrate responsible business practices, and support those whose activities make a positive contribution to society and the environment; and
• Improve: use our influence as an investor to encourage companies in their efforts to improve their management of ethical and ESG issues through engagement and voting.

We believe prudent management of ESG issues can have an important impact on the creation of long-term shareholder value and improve the risk and return profile of our clients’ portfolios.

The investment team considers ESG factors directly in the analysis of the business model and in the assessment of management quality, risk and sustainability. We believe prudent management of ESG issues can have an important impact on the creation of long-term shareholder value and improve the risk and return profile of our clients’ portfolios. We are focused on identifying companies which meet the responsible criteria with proven business models, delivering consistent returns and cash flows, where management team members have proven themselves to be responsible capital allocators with high standards of corporate social responsibility.

The investment process is structured so that companies which are considered for investment by the investment team must have been screened by the Responsible Investment team for inclusion in the acceptable universe. If a company is approved for investment, it would be analysed by the investment team.

The Responsible Investment team is responsible for data provider selection and for building ESG analytics reports that filter and analyse MSCI data in a way we believe is best suited to assess the different ESG characteristics that might affect our investment portfolio. One example of such an ESG Analytics report is our ESG Risk Tool, which is updated monthly and combines MSCI ESG indicators with our in-house ESG database on voting and engagement activities.

In addition, the investment team receives quarterly reports tailored to the Responsible UK Equity Fund. These highlight the best and worst ESG scores, and the largest changes in score over the previous quarter.

Both the Responsible Investment team and the portfolio management team may undertake engagement with a company if our analysis suggests a material issue. Results of this analysis and engagement are discussed and recorded. 

Our team uses this information as well as our own analysis of E, S and G factors when assessing investments, sustainability and ESG scores in our notes, write up and engagements.

We do not believe in using a direct linkage to valuation with a score from MSCI ESG as these ratings can be inaccurate, especially in the case of small cap stocks. We use our analysis of ESG factors to decide whether a business has a strong or weak ESG profile and attribute between +/- 5% to the valuation based on whichever method of valuation is being used. As businesses get better at articulating their approach to ESG, and indeed in their actions, some of this becomes commoditised, so careful consideration of the realities relating to specific stocks is required.

Portfolio construction

The fund is run as a growth style portfolio. We think about risk through all stages of the investment process including portfolio construction. Position sizing reflects risk, conviction and diversification considerations.

Sell discipline

Positions and price movements are monitored on a daily basis, as well as developments for portfolio companies. In addition, performance and attribution reports are examined on a monthly basis.

There are four main reasons for us to instigate our sell discipline:

• Changes to or broken investment thesis
• Loss of confidence in business model or management
• Valuation stretched
• Better or cheaper alternative found

Responsible Bonds

The CT Responsible UK Income Fund allocates 0% - 20% of assets to Investment Grade Credit. This allocation is managed by the UK Credit team, led by Rebecca Seabrook, who also manages the CT Responsible Sterling Corporate Bond Fund. This exposure can help the CT Responsible UK Income Fund to meet its growth and income targets whilst adhering to its responsible criteria requirements.

Resources, Affiliations & Corporate Strategies:

Responsible Investment Team

We have a dedicated in-house Responsible Investment (RI) team, one of the most experienced and established teams of its kind. The award-winning 40+ member team supports our clients, our investment teams and our overall business through expertise across ESG thematic research, ESG integration, ESG policy, client reporting and thought leadership content. Beyond these core activities, the team also supports a plethora of activity from representation on responsible investment industry groups, public policy contribution, ESG thought leadership, ESG product development, portfolio level ESG analytics, screening for specialist ESG portfolios and reporting on active ownership activities. Active ownership is a key aspect of our RI work, and within the team there are more than 20 professionals focused on engagement and voting activity.

The RI team works hand in hand with our research and investment professionals to enrich their understanding of key sustainability trends as they relate to specific sectors and issuers, collaborating to highlight risks and opportunities within industries and sectors, informing investment decisions across asset classes.

The RI team was awarded ‘Best ESG Research Team’ at the 2018, 2019 and 2020 Investment Week Sustainable & ESG Investment Awards, ‘Best ESG Reporting – Asset Manager: Large’ at the 2019 Environmental Finance Awards, and ‘Best ESG Research: Fixed Income’ at the 2020 Environmental Finance Awards. We were also awarded ‘Best ESG Fund House’ at the 2022 ESG Clarity Awards.

Responsible Investment Advisory Council

The Council is a six-member committee of experts, who are leaders in their fields and bring international experience across responsible investment, ethical, environmental, and social issues. Their primary role is to provide advice on the ethical criteria for our specialist Responsible strategy range. The Responsible Investment team is also able to draw on their expertise in informing our broader engagement and responsible investment approach.

The Council’s president is the Most Reverend Justin Welby, Archbishop of Canterbury. The Chair, who heads the quarterly meetings, is Howard Pearce, formerly Head of Environmental Finance and Pension Fund Management at the UK’s Environment Agency Pension Fund (EAPF).  More detail on the Council can be found here.

Affiliations & Memberships

We make efforts to promote responsible investment in multiple ways, including participation in speaking engagements, industry working groups, responsible investment conferences and collaborative initiatives.

A list of key responsible investment memberships and affiliations for Columbia Threadneedle Investments is shown below.

• Environmental

Climate Action 100+

Climate Action 100+ is an investor initiative launched in 2017 to ensure the world’s largest corporate greenhouse gas emitters take necessary action on climate change. We are a member of the investor coalition, leading 8 and supporting 38 engagements.

Date of joining: CTML: 2017, TAML: 2021

Transition Pathway Initiative (TPI)

A PRI sponsored initiative; this is an asset-owner led initiative which assesses companies' preparedness for the transition to a low carbon economy. It is supported by London School of Economics, a research driven initiative on high emitting sectors carbon transition and strategic/management commitment to address climate transition.

Date of joining: CTML: 2020, TAML: 2021

Net Zero Asset Managers Initiative

Founder signatory of this international group of asset managers committed to supporting the goal of net zero greenhouse gas emissions by 2050 or sooner, in line with global efforts to limit warming to 1.5 degrees Celsius; and to supporting investing aligned with net zero emissions by 2050 or sooner.

Date of joining: CTML: 2020, TAML: 2021

Carbon Disclosure Project (CDP)

Non-profit organisation that runs the global disclosure system for investors, companies, cities, states and regions to manage their environmental impacts. We are member of the investor coalition, leading and supporting several engagements.

Date of joining: CTML: 2000, TAML: 2005

Carbon Trust

We partner this organisation that supports companies to accelerate towards Net Zero. From target setting, Net Zero pathways, assurance and footprinting, to policy advice, strategy setting and programme delivery.

Date of joining: 2010

Task Force on Climate-related Financial Disclosures (TCFD)

We have committed to producing reporting as part of TCFD, an organisation that was established in December 2015 with the goal of developing a set of voluntary climate-related financial risk disclosures.

Date of joining: CTML: 2020, TAML: 2022

Sustainability Accounting Standards Board (SASB)

ESG standard setter (Member Standards Advisory Group & sub-groups). SASB guides the disclosure of financially material sustainability information by companies to their investors.

Date of joining: 2018

Science Based Targets initiative (SBTi)

The SBTi is a partnership between CDP, the United Nations Global Compact, World Resources Institute (WRI) and the Worldwide Fund for Nature (WWF). Guides companies to set science-based targets to mobilize the private sector to take urgent climate action.

Date of joining: 2020

Impact Investing Institute

Focuses on the development of outcome related investment, to encourage more investment made with the intention to generate positive, measurable social and environmental impact alongside a financial return. TAML is a Founding supporter and member of the Advisory Council and working group for the Green+ Gilts

Date of joining: 2020

Institutional Investor Group on Climate Change (IIGCC)

IIGCC works with business, policy makers and investors to help define the investment practices, policies and corporate behaviours required to address climate change. A member of the RI team serves on the Board. We lead and support several engagements.

Date of joining: 2001

IIGCC's Global Investor Statement

A joint statement coordinated by the seven Founding Partners of The Investor Agenda to all world governments urging a global race-to-the-top on climate policy and warns that laggards will miss out on trillions of dollars in investment if they aim too low and move too slow.

Date of joining: 2009

IIGCC’s Investor Position Statement on Transition Planning

Signatory of this investor statement by 56 leading investors calling for the implementation of new corporate governance measures to ensure shareholders can hold companies to account in achieving net zero emissions commitments.

Date of joining: 2021

Ceres Land Use and Climate WG (Biodiversity)

Ceres works with the most influential capital market leaders to advance innovative solutions to the climate crisis and achieve a zero emissions future where people and the planet can prosper.

Date of joining: 2020

Cerrado Manifesto SoS

Public statement committing to halt deforestation in the Cerrado, adopt sustainable land management practices and mitigate financial risks associated with deforestation and climate change. It is endorsed by global FMCG companies and institutional investors.

Date of joining: 2021

ChemScore

Benchmark created by NGO International Chemical Secretariat (ChemSec). It ranks the world’s top 50 chemical producers on their work to reduce their chemical footprint.

Date of joining: 2021

Nature Action 100

Founding member of investor-led collaborative engagement programme to engage with companies and policymakers on nature.

Date of joining: 2022

Taskforce for Nature-related Financial Disclosures

As a forum member, we support the taskforce aiming to develop and deliver a risk management and disclosure framework for organisations to report and act on evolving nature-related risks.

Date of joining: 2020

Sustainability Policy Transparency Toolkit (SPOTT)

SPOTT scores palm oil, tropical forestry, and natural rubber companies annually against over 100 sector specific ESG indicators to benchmark their progress over time. As an investor supporter we express need for enhanced transparency.

Date of joining: 2019

Investor Policy Dialogue on Deforestation

Collaborative investor initiative set up to engage with public agencies and industry associations on the issue of deforestation. The goal is to coordinate a public policy dialogue on halting deforestation. We are a member of the Advisory Council, leading/supporting engagements going forward.

Date of joining: 2021

ShareAction Chemicals Working Group

Investor group focused on engagement with the chemicals sector on decarbonisation.

Date of joining: 2021

• Social

Global Network Initiative (GNI)

Member of this initiative seeking to safeguard freedom of expression and personal privacy against government restrictions. The protections are facilitated by a coalition of companies, investors, civil society organisations, academics, and other stakeholders.

Date of joining: CTML: 2008, TAML: 2002

Interfaith Centre on Corporate Responsibility (ICCR)

Coalition of over 300 global faith- and values-based institutional investors. We are members of the Food Justice and Racial Equity workstream.

Date of joining: 2020

ICCR's Investor Alliance on Human Rights (IAHR)

Part of the ICCR, IAHR provides a collective action platform to facilitate investor advocacy on a full spectrum of human rights and labour rights issues.

Date of joining: 2020

ICCR's Investors for Opioid and Pharmaceutical Accountability (IOPA) Part of the ICCR, IOPA addresses the fallout of the opioid crisis and other business risks by seeking accountability and mitigating further risk at pharmaceutical companies through comprehensive shareholder reforms.

Date of joining: 2021

ShareAction Good Work Coalition

Investor engagement initiative aimed at driving up standards in the workplace. Engagement focus on labour standards, living wage standards, accreditation, transparency of the FTSE350, extension to DEI with a focus on ethnic diversity.

Date of joining: 2021

ShareAction Healthier Markets Investor initiative aimed at improving children's health by increasing access to affordable, healthy food.

Date of joining: 2021

Access to Medicine Foundation

Member of the investor coalition, leading and supporting several engagements. Independent, non-profit organisation working to stimulate and guide the pharmaceutical industry. Produces the Access to Medicine Index, Antimicrobial Resistance Benchmark, Access to Vaccines Index.

Date of joining: 2021

Investor Action on Antimicrobial Resistance (AMR)

A coalition between the Access to Medicine Foundation, the FAIRR Initiative, the Principles for Responsible Investment and the UK Government Department of Health and Social Care to galvanise investor efforts to address global AMR. We are leading and supporting engagements.

Date of joining: 2021

Investor Initiative for Responsible Care

Collaborative engagement group coordinated by UNI Global Union focused on working standards and quality of care in the listed nursing care sector.

Date of joining: 2022

Workforce Disclosure Initiative (WDI)

Disclosure body. We are Signatory, member of the Advisory Group; leading/supporting several engagements. Investor initiative aimed at improving corporate transparency and accountability on workforce issues. Provide companies and investors with comprehensive and comparable data.

Date of joining: CTML: 2021, TAML: 2020

Global Investor Collaboration on Farm Animal Welfare & Global Investor Statement on Farm Animal Welfare

Engagement collaboration with BBFAW (Business Benchmark on Farm Animal Welfare), member of the investor coalition, supporting and leading several engagements.

Date of joining: 2021

Platform Living wage Financials

Coalition of financial institutions that encourages and monitors investee companies to address the non-payment of living wage in global supply chains. We are chair of the Platform's Garment Working Group; member of the Food, Retail and Agri working group.

Date of joining: 2020

Find it, fix it, prevent it

Engagement collaboration. Member, leading on engagements. Investor led initiative targeting UK-listed companies to demonstrate commitment to eradicating modern slavery from their supply chains.

Date of joining: CTML: 2020, TAML: 2021

KnowTheChain

Engagement collaboration. Member of the investor coalition, supporting several engagements. KnowTheChain is a resource for companies and investors to understand and address forced labour risks within their global supply chains.

Date of joining: 2021

Access to Nutrition Index

Engagement collaboration. Member of the investor coalition, supporting several engagements. Independent, non-profit organisation producing the Access to Nutrition Index. Benchmark evaluates the world's largest food and beverage manufacturers' policies and performance related to the world's most pressing nutrition challenges: obesity and undernutrition.

Date of joining: 2021

Human Capital Management Coalition (US)

Engagement collaboration. Member of the coalition of investors to elevate human capital management. Engages companies and other market participants with the aim of understanding and improving how human capital management contributes to the creation of long-term shareholder value.

Date of joining: 2021

Investors for Racial Justice

Member of this information sharing network and engagement collaboration.

Date of joining: 2020

Votes Against Slavery 2022

Member of this investor collaboration engaging with FTSE 350 companies on their compliance with the Modern Slavery Act 2015. We joined the collaboration for the 2021 campaign.

Date of joining: 2021

• Governance

International Corporate Governance Network (ICGN)

Member of investor led organisation advancing the highest standards of corporate governance and investor stewardship worldwide in pursuit of long-term value creation.

Date of joining: CTML: 2007, TAML: 2017

Investment Association (IA)

Member of UK industry body; facilitates the monitoring and responding to ESG policy and regulatory changes impacting our activities.

Date of joining: CTML: 2000, TAML: 1998

Corporate Governance Forum

European focus - UK based asset management governance teams. Informal discussion on companies and industry issues.

Date of joining: 2012

Global Institutional Governance Network (GIGN)

US/Global focus - Global asset management governance teams. Discussions on companies and industry issues.

Date of joining: 2012

Council of Institutional Investors (CII)

Member of this non-profit organisation promoting effective corporate governance policies.

Date of joining: 1996

Investor Forum

Member and proactive collaborator with the Forum, which helps investors to work collectively to escalate material issues with the Boards of UK-listed companies.

Date of joining: 2005

Asia Corporate Governance Association

Member of independent, non-profit membership organisation dedicated to working with investors, companies and regulators in the implementation of effective corporate governance practices throughout Asia.

Date of joining: CTML: 2004, TAML: 2010

Asia Research & Engagement (ARE)

Engagement collaboration. Organisation that structures, implements and assembles investor collaborative engagement programmes across Asia. Performs in-depth industry and company research that provides strategic insight into key ESG issues to underpin engagement work.

Date of joining: 2021

Pre-Emption Group (PEG)

Members of the UK Capital markets group that sets guidelines on the application/dis-application of pre-emption rights in UK capital issuance.

Date of joining: 2016

30% Club UK Investor Group

Campaign for greater representation of women on company boards. Member of the investor coalition, leading and supporting several engagements.

Date of joining: 2021

30% Club France Investor Group

Member of this investor-led group aiming to boost the number of women in board seats and executive leadership of companies in the SBF 120 index.

Date of joining: 2021

30% Coalition (US)

Campaign for greater diversity on company boards. Member of the investor coalition, leading and supporting several engagements.

Date of joining: 2021

Women in Finance Charter

First asset manager signatory to the UK charter committing to support the progression of women into senior roles in the financial services sector, set targets and publicly report on progress against these targets to support transparency and accountability.

Date of joining: 2016

Eumedion

Member of this non-profit organisation aiming to promote good corporate governance and sustainability policies at Dutch listed companies and to promote engaged and responsible shareholding by its members.

Date of joining: 2009

• Environmental, Social & Governance

Principles for Responsible Investment (PRI)

Global responsible investment association, membership is a pre-requisite for many clients. TAML & BMO GAM are Founding Signatories to the UN supported PRI. CTML, formerly known as BMO GAM EMEA, was part of BMO GAM at the time of becoming a signatory. BMO GAM EMEA business was acquired by Ameriprise Financial, Inc. in 2021. CMIA became a signatory in 2014.

Date of joining: CTML & TAML: 2006, CMIA: 2014

UK Stewardship Code

Set of principles for asset owners and managers. We are signatories of the 2020 code.

Date of joining: 2012

Investor Stewardship Group (ISG)

Members of the network of investors and asset managers formed to promote good practice in stewardship and corporate governance, specific to the US.

Date of joining: 2018

Investment Company Institute (ICI)

US Industry body; facilitates the monitoring and responding to ESG policy and regulatory changes impacting our activities.

Date of joining: 2019

UK Sustainable Investment and Finance Association (UKSIF)

Network focused on the UK sustainable investment market, pre-requisite for FNG certification. A member of the RI team chairs the Policy Committee.

Date of joining: CTML: 2000, TAML: 2020

Taiwan Stewardship Code

Signatory to the Taiwan Stewardship Code, which is based on a ‘comply or explain’ approach.

Date of joining: 2022

Japan’s Stewardship Code

Signatory to Japan’s Stewardship Code, which is maintained by Japanese Financial Services Agency, based on a ‘comply-or-explain’ approach where signatories comply with the principles of the code or explain why they do not comply.

Date of joining: 2022

Global Real Estate Benchmark (GRESB)

Member of this organization whose data facilitates our ability to track trends in corporate environmental and social risk management performance as it relates to property.

Date of joining: 2013

London Stock Exchange

Members of the LSE’s Primary Markets Group, advising on primary market issues.

Date of joining: 2012

The Big Exchange

TAML is a founding partner and members of the Impact Committee.

Date of joining: 2019

Global Impact Investing Network (GIIN) Member of this leading non-profit dedicated to increasing the scale and effectiveness of impact investing

Date of joining: 2020

FAIRR Collaborative investor network that focuses on ESG risks and opportunities around animal agriculture.

Date of joining: 2021

Investor Tailings Safety Initiative & Investor 2030 Mining Agenda We are the founding supporter of this initiative and will co-lead on some of the corporate engagements.

Date of joining: 2021

Centre for Audit Committee and Investor Dialogue Network initiative that enables investors, audit committee members and auditors to discuss issues of common interest.

Date of joining: 2013

International Capital Markets Association (ICMA)

The development of green, social and sustainability bond principles relevant to our fixed income investments in an RI context. Members of the Social Bond Working Group and members of working groups on the SDGs and on impact reporting.

Date of joining: 2016

Source: Columbia Threadneedle Investments, as at March 2023. Includes memberships held by CMIA, TAML, CTML and other group affiliates. CMIA = Columbia Management Investment Advisors, LLC; TAML = Threadneedle Asset Management Limited; CTML = Columbia Threadneedle Management Limited.