The Schroders British Opportunities Trust, which will invest in high-quality, high-growth public and private UK companies in the £50m-£2bn equity value range, today raised just £75m of its intended £250m in its initial fundraising round.
This is despite UK smaller companies trusts not having a good time of late, with the failure to launch of Tellworth British Recovery & Growth and Sanford DeLand’s UK Buffettology Smaller Companies Trust, and investor interest in the UK low.
However, the Schroders trust’s managers, head of equities Rory Bateman and head of UK and European private equity Tim Creed, said there is still a “fantastic opportunity” to invest in British businesses and support the recovery from Covid-19.
A key element the managers are looking for in British businesses is sustainability: “We want to ensure when we engage with companies and we talk about new equity being injected into the business, it comes with strings attached around ESG – the company’s willingness and ability to integrate ESG further into what they’re doing and also make changes to what they’re doing,” Bateman said.
“We’re implying that if businesses do not change the way they’re behaving, and we feel it’s a significant ESG issue then we simply won’t invest in the company.”
Schroders was recently given an ‘advanced’ level of commitment to ESG rating by Morningstar, and Bateman said it remains the firm’s “number one priority”.
“Schroders has been on a very long journey with regards to sustainability and purpose, we have ESG integrated into every one of our portfolios on the equity division and that’s something we’ve been driving at over the past three years,” he said.
The Schroders British Opportunities Trust, which begins trading next week, will invest in companies that achieve at least one of the UN Sustainable Development Goals (SDGs) or sub-goals and will assess companies’ business models using Schroders proprietary framework, CONTEXT, as well as external ESG frameworks.
“There are two ways to look at [the SDGs],” Creed said. “The first way, which a lot of people do, is to take a broad approach say, for example, this company is in education therefore it supports quality education, but it also has a good number of male and female staff therefore it supports gender equality, it also works with democracy because it’s helping to educate people.
“Our approach is to look more thoroughly, for example we have a business that helps train children with dyslexia, which means it doesn’t just score on quality education, but a specific sub-goal on the training of children between the ages of six and 14 on numeracy.
“We can do it both ways but we have to work out how do people want to hear the story? Some people want to hear the first story, which is useful for marketing, but we want to really live the improvement of society and you can do that if you’re more precise.”
Schroders has a team of 22 sustainability analysts who help the managers analyse and engage with companies on sustainability. “These guys are not tree huggers,” Bateman said, “they are very well versed and educated into the commercial reality of ESG. They help us help the companies.”
At a portfolio level, the trust will use Schroders’ SustainEx, which provides the portfolio with a sustainability score. “The problem with [external providers] is they often conflict,” Bateman said, adding, “people are greenwashing by just taking the external metrics and getting a good MSCI score and that’s just not the way we see it.”
Time will tell whether appetite will grow for this trust or other British investment opportunities, but for many, sustainability remains high on the agenda.