267694 EdinburghIT AR 2024 WEB - Flipbook - Page 15
THE EDINBURGH INVESTMENT TRUST PLC / STRATEGIC REPORT / 13
often leads us to companies that operate on a comparatively
light asset base. The recent purchases of Verisk, Autotrader
and Diploma are examples. We tend not to own more capital
heavy businesses, although there are some in the portfolio
that fall into this category such as Shell and Anglo American.
The data that we use to measure the portfolio’s carbon
profile supports its below average nature, although the data
in this field is changeable, especially for an index like the
UK with large companies in the extractive industries which
are themselves changing their business structures. The key
metric that we use to monitor the portfolio’s carbon profile
is its weighted average carbon intensity (“WACI”) and how it
compares with the benchmark’s WACI.
The portfolio’s WACI is derived from data published by
each holding for the amount of carbon emitted for every
one million dollars of sales, and compiled by MSCI. Thus for
a portfolio composed of high emitting companies (e.g. oil
stocks or airlines) we would expect an above index reading,
and for a portfolio with companies with lower emissions
(perhaps companies with lighter capital intensity, such as
media or digital businesses) the reading should be lower. For
Edinburgh’s portfolio at end March, the WACI was 66.8 tonnes
of carbon dioxide equivalent (“tco2e”) per million dollars of
sales, versus the index figure of 84.6 tco2e/$m. The portfolio
has had a below index level of carbon intensity throughout
the year. Note that these data are based on what is disclosed
by each holding. Some 95% + of the portfolio and index have
published their carbon data, but the sample is incomplete
because some companies do not publish a full set of data.
During the year your Company’s assets were added to
Liontrust’s commitment to the Net Zero Asset Managers
Initiative. A signatory commits to manage client assets to
support the goal of net zero greenhouse gas emissions by
2050 or sooner, in line with global efforts to limit warming to
1.5 degree Celsius. The WACI figure is important in this context
as a signatory also commits to achieving interim targets.
These are (1) by 2025 a 25% reduction in portfolio Weighted
Average Carbon Intensity (WACI) versus the WACI of the
relevant benchmark at the end of 2019, and (2) by 2030 a
50% reduction of WACI compared with the 2019 benchmark.
The current portfolio comfortably meets the 2025 objective
(the 2019 benchmark figure was 125.0) and is very close to
complying with the 2030 target. We will keep shareholders
appraised of progress against these targets and about the
carbon profile of the portfolio more generally.
OUTLOOK
As always, the focus for us remains on the bottom-up
and maintaining the flexible investment style that served
James de Uphaugh well over the preceding four years. Our
pragmatic approach leads, we believe, to the construction
of a portfolio of advantaged businesses across the range of
growth, value, and recovery opportunities. The end result is
a high conviction portfolio that should perform whatever the
economic weather.
From a macroeconomic perspective we are mindful
of changing expectations for the path of interest rate
normalisation, as inflation remains more entrenched than
expected. This period of heightened monetary policy
uncertainty coincides with a period of elevated geopolitical
risks – making a flexible pragmatic approach to managing
your portfolio important, in our view. Looking forward we
expect risks to remain high, with 2024 seeing a significant
number of elections globally – in countries accounting
for over 50% of global GDP and over 50% of the global
population – mostly notably the US, India, and the UK. China
continues to face growth headwinds as the economy seeks
to transition from an investment led to a more balanced
model with consumption led growth. With consumer
confidence in China intimately tied to the property market,
this transition is unlikely to be smooth.
With the elevated uncertainty across a range of factors, our
focus remains on owning businesses where growth is helped
by exposure to structural growth tailwinds, or where there is
a change in industry structure or company strategy which will
enable future profit growth. Our confidence in Edinburgh’s
portfolio comes from owning strong businesses, managed by
intelligent management teams executing on their business
plans to drive total shareholder returns.
IMRAN SATTAR
PORTFOLIO MANAGER
EMILY BARNARD
DEPUTY PORTFOLIO MANAGER
24 MAY 2024
