267694 EdinburghIT AR 2024 WEB - Flipbook - Page 24
22 / STRATEGIC REPORT / THE EDINBURGH INVESTMENT TRUST PLC
PRINCIPAL RISKS AND UNCERTAINTIES / CONTINUED
PHYSICAL AND TRANSITIONAL CLIMATE CHANGE
Globally, climate change effects are already emerging in the
form of changing weather patterns. Extreme weather events
could potentially impair the operations of individual investee
companies, potential investee companies, their supply
chains and their customers. Legislative changes are driving
an economic adjustment towards a low-carbon economy.
There are considerable risks to the value, business model and
operations of investee and potential investee companies due
to stranded assets and how investors, financial regulators
and policymakers respond to climate concerns. The Portfolio
Manager takes such risks into account, along with the downside
risk to any company – whether in the form of its business
prospects, market valuation or sustainability of dividends –
that is perceived to be making a detrimental contribution to
climate change. Further details on the Portfolio Manager’s
process for considering climate risk relating to each portfolio
holding are supplied in the s.172 statement on page 26. The
Company invests in a broad portfolio of businesses with
operations spread geographically, which should limit the
impact of location-specific weather events.
Climate change related risks are regularly monitored by the
Manager and reviewed by the Board as required, together
with any new guidance.
OTHER RISKS
The Company is subject to laws and regulations by virtue of
its status as an investment trust and is required to comply
with certain regulatory requirements that are applicable to
listed closed-ended investment companies. The Company
is subject to the continuing obligations imposed by the UK
Listing Authority on all companies whose shares are listed on
the Official List.
The Manager reviews compliance with investment trust tax
conditions and other financial and regulatory requirements
on a daily basis with any issues being immediately brought
to the attention of the Board.
The Company may be exposed to other business, strategic
and political risks in the future, as well as regulatory risks
(such as an adverse change in the tax treatment of investment
companies), credit, liquidity and concentration risks. The
risk control summary report allows the Board to consider all
these risks, the measures in place to control them and the
possibility of any other risks that could arise.
The Board ensures that satisfactory assurances are received
from the service providers. The Manager’s compliance
officers produce regular reports for review by the Company’s
Audit Committee.
Additionally, the depositary monitors stock, cash, borrowings
and investment restrictions throughout the year. The
depositary reports formally once a year and also has access
to the Company Chair and the Audit Committee Chair if
needed during the year.
Please see Note 16 on page 71 to read more about risk
management and financial instruments.
EMERGING RISKS
The Board has put in place robust procedures to assist with
identifying emerging risks that arise from existing risks or
from new situations. Failure to identify emerging risks may
cause reactive rather proactive actions. The experience and
knowledge of the Board is invaluable in consideration of
emerging risks, as are updates and advice received from the
Board’s key service providers such as the Company’s Manager,
Broker, Company Secretary and Auditor. The Association of
Investment Companies (“AIC”) also provides regular updates
and draws members’ attention to forthcoming industry and/
or regulatory issues.
There are currently a growing number of risks as a result of
emerging geopolitical factors that may translate into greater
stock market risk, as well as heightened macro-economic
changes in inflation, interest rates and energy costs, the everevolving global regulatory and trade environments and a risk
of re-emergence of a global pandemic. Geopolitical factors
include the continuing war in Ukraine, the conflict in Israel
and Gaza, political elections this year in many countries and
global supply chain issues. Whilst these risks currently exist,
their extent and long-term impact are yet to emerge but they
are regularly assessed by the Manager and the Board.
