This report aims to provide greater insight into how we have been thinking about and assessing sustainability issues for the businesses we have considered, invested in and engaged with over the past 12 months1.
Introduction
At Skerryvore, we look to invest in quality businesses led by aligned owners and management teams with long track records of treating their stakeholders fairly. This is especially important in emerging markets, where standards of governance, regulation and capital allocation can vary widely. We value long-term thinking, appropriate regard for minority shareholder interests and a responsible approach to reinvesting capital.
When assessing quality, we consider franchise durability, financial strength, balance sheet resilience and behaviours that support long-term value creation. We often find that the highest quality companies understand how sustainable conduct can reinforce competitive advantage, including through a strong reputation. Where these qualities are present, we can be patient, while remaining disciplined on valuation. Our aim is to build portfolios that compound capital and deliver attractive absolute returns over time, rather than owning good companies at any price.
We see sustainability as an important part of business quality, not as a separate objective or a priority above investment returns. Where environmental, social and governance (ESG) factors may have a material financial impact, we assess them alongside franchise strength, alignment, and financial characteristics. This helps us build a fuller picture of risk, return and durability, strengthening our due diligence and supporting better risk-adjusted outcomes.
Our bottom-up research brings together quantitative and qualitative analysis, company disclosures, third-party data, news sources and direct engagement. Our stewardship activity, be it engagement or proxy voting, helps us monitor sustainability-related risks, understand management decisions and governance, and encourage stronger disclosure and practices.
We focus on issues that may materially affect long-term returns and aim to hold companies accountable for the commitments they make.
What’s in this Report??
Our latest bottom-up carbon emissions assessment shows encouraging progress in portfolio companies’ reporting, target setting and alignment with carbon neutrality. In Tracking Progress on Carbon Emissions: From Ambition to Accountability, we share portfoliowide insights and include a snapshot of our analysis of our ten largest holdings by weight1.
This proprietary work now also underpins our revised approach to monitoring aggregate portfolio emissions progress. In the Considering Carbon Risk section, we set out our portfolio’s current absolute and relative emissions position, explain our methodology and share why, after reviewing more opaque climate scenario models, we believe our in-house approach is more useful to our investment process. It also provides us with more constructive insights for engaging with management teams as we monitor progress towards carbon neutrality by 2050.
Finally, we summarise our engagement and stewardship activity over the past 12 months, highlighting the range of issues addressed and the work undertaken by the investment team. While Skerryvore is not an activist investor, we focus on the matters we consider most material and encourage behaviour that supports long-term shareholder value.
We hope you find this report useful, and we would be pleased to hear from you if you have any questions feedback. Please do feel free to get in touch.
