- Trust's board has established 'sustainable and responsible investing criteria'
- Exclusionary appetite among shareholders of UK equity income trusts is unclear
Dunedin Income Growth Trust (DIG) may become the first UK equity income trust to introduce a formal change in policy to focus on environmental, social and governance matters, if approved by a shareholder vote on 10 June 2021.
The trust’s board has established ‘sustainable and responsible investing criteria’ which, if approved, set out a number of companies to be excluded from the trust, such as those with significant revenue streams from tobacco or weapons manufacturing.
The board is also proposing an environmental focus, to exclude companies involved in thermal coal extraction, as well as companies in the oil and gas sector that do not have a significant revenue contribution from natural gas or renewable alternatives. The trust will target carbon intensity at least 20 per cent lower than its benchmark FTSE All-Share index.
The proposal comes as investment trusts are increasingly focussed on sustainable investing. Baillie Gifford was formally appointed to manage the rebranded Keystone Positive Change Investment Trust (KPC) in February, which adopted a responsible investing focus, while Liontrust’s 'Sustainable Future' funds team is launching an investment trust next month.
Dunedin Income Growth has already been investing with a focus on ESG principles, which has led to it having underweight exposure to oil and gas, mining and tobacco, compared with its benchmark index. But if the proposal is approved analysts at brokerage Numis say about 8 per cent of the portfolio at the year-end (representing 16 per cent of the fund’s income) will no longer fit the trust’s mandate.
While the types of companies that the trust will exclude have historically been popular among income funds, the board believes the proposed changes are "consistent with investing in companies that can pay growing, reliable dividends over many years."
Despite the rise in sustainable investing, the appetite among shareholders of UK equity income trusts for an exclusionary approach is not clear. Last year, for example, the shareholders of Temple Bar Investment Trust (TMPL) rejected a proposal from its board to adopt an ethical mandate.
For investors who are interested in ESG, Ryan Hughes, head of active portfolios at AJ Bell suggests it may be preferable to find a fund with an explicit focus on ESG rather than applying it as an overlay to an existing strategy “as it provides a much clearer picture and demonstrates commitment to the approach right through the investment process.”
Shareholders are not permitted to attend the AGM on 10 June, but the trust will hold an online presentation on 25 May after which investors can send in their postal votes.
