Why has the fund’s name changed?
Yes, the fund’s name has changed – it is now called the Global SMID Equity Engagement Fund. However, this change does not reflect any shift in our strategy. The objectives remain the same, and our process is unchanged. The fund continues to pursue its dual goals: generating investment returns and delivering environmental and social impact.
We are still focused on identifying investments that offer both strong return potential and meaningful impact. Shareholder engagement remains our key mechanism for achieving environmental and social outcomes.
At its core, we continue to view the United Nations Sustainable Development Goals (UN SDGs) as the global roadmap for achieving sustainable development. Importantly, this is not a zero-sum game – it represents an opportunity to create shareholder value.
In short, it’s a new name for the same fund.
What are some highlights from the 2024 Annual Report?
We hope investors in the Fund enjoy reading the 2024 Annual Report. It’s a comprehensive document that offers transparency into our activities over the past year. While writing the report, I was particularly struck by the United Nations’ own 2024 review, which revealed that one in three UN Sustainable Development Goal (SDG) targets are currently stalled or regressing. This underscores the urgent need to accelerate progress.
Reflecting on our own efforts in 2024, we’re proud of the many constructive and positive dialogues we had with companies in the portfolio – all of which are detailed in the report. That said, we also recognise the need to raise our own ambitions, and it’s clear that a collective step-up is needed across the board.
Half of our engagement actions last year focused on the “S” – the social dimension – which has been a consistent priority for us over several years. In particular, we emphasised the importance of providing decent work and supporting employees’ financial, physical, and mental wellbeing.
Mental health emerged as a key theme in 2024, following the challenges of the Covid-19 pandemic and the ongoing cost-of-living crisis, which have significantly impacted lower-paid workers in the companies we invest in. We’re very pleased with the responses we received from companies on this issue.
Finally, the climate transition remains a central focus, as it does for many others. We continue to engage with companies that play a role in building a low-carbon or net-zero economy. The report highlights our success in driving emissions reductions and supporting companies as they position themselves for long-term success.
While the report is extensive, we hope it provides meaningful insight into the actions we took in 2024 – and those we’ll continue to pursue throughout 2025.
It’s been a challenging period for sustainability. Will the tide turn, and is engagement still feasible?
There’s no doubt that it has been a difficult time for sustainable investments, with shifting political sentiments and some regulatory developments either stalling or regressing.
However, we take comfort in the fact that investors have largely remained committed to their sustainability goals. In many cases, we’ve seen those commitments deepen rather than diminish.
Companies clearly recognise the urgency of the energy transition, and governments are increasingly focused on energy security and resilience. Often, this leads to a prioritisation of local – and therefore renewable – energy sources. Companies are responding to this shift by investing in areas that will position them for long-term success. That includes transforming production processes, driving innovation, and improving how they communicate their strategies to the market. Understanding why and how these efforts will succeed is crucial as the global economy pivots toward net zero.
What mattered before still matters now. Sustainability remains highly relevant. For us, as a sustainable investment strategy focused on the transition potential of the economy, the opportunities today are greater than ever.
How feasible do you think engagement with these companies is going forward?
Engagement in the US has been at the centre of discussion this year, and we are very conscious of the evolving political backdrop and regulatory developments too. We are certainly very mindful of that as we take our business forward.
That said, we have seen very little change and we continue to get a very receptive audience from those US companies in which we are invested. We continue to meet with management teams, boards of directors, and all folks throughout the business.
The agendas that we are speaking to companies about have not changed either. Some of the language has changed by improving company filings and the conversations we are having, but, for us, the overall agenda remains the same as it was before.
Fundamentally, we have always developed our engagement agendas by understanding what matters for that individual business. It was not a ‘one-size-fits-all’ framework. It was not demanding targets for the sake of demanding targets. It was about understanding that a particular business has a particular business model, a particular geographic footprint, and from that flows a series of risks and opportunities from a sustainability perspective.
Therefore, our agenda was always company specific and was always orientated towards shareholder value creation. That remains true today. So, that language changed, but if you remain focused on the things that matter to the business and in particular value creation opportunities, things continue as they always did.
What are the structural drivers for the portfolio?
Firstly, political sentiment – as we have touched on – has shifted and even reversed in certain jurisdictions, but, fundamentally, the regulatory developments over this period have continued to be, in aggregate, a net imposition on corporates and investors. So, that means enhanced transparency, enhanced disclosure, and enhanced ability as investors; to be able to discern good from bad and evidence the improvements that companies are making. For us, that is a good thing and that direction of travel is continuing.
Then, taking a step back, the energy transition is also a structural tailwind that is not going away for our strategy. We have always been underweight fossil fuel energy, but we have always been overweight the uses of energy and indeed the enablers of the energy transition itself. So, we think that position does very well for the period to come, both from the perspective of reducing economy wide emissions, but also seeing the inherent growth that should come from embracing those opportunities across the economy.
Then, if we pivot to the social piece and in particular, decent work, we have always understood that there is a strong evidential relationship between good human capital management and corporate performance. The scrutiny from NGOs as well as wider interested parties means that focus around decent work now also captures upstream supply chain workers too, so that the importance of those relationships continues to grow.
Those companies that continue to manage those relationships, both for the direct workers and indirect workers, will be those that have more resilient business models and therefore success in the period ahead. The other element on the social side is the disruption that is coming from the rapid pace of technology, which means the importance of healthy relationships and healthy corporate cultures has never been more important.
Corporates need to know how to navigate this rapidly disruptive period. It is important that they are investing in upskilling and reskilling their workers and capitalising by making sure that they are drawing talent from the broadest talent pool possible. Those that navigate that successfully will come out the other side with resilient business models, while also optimising their productivity and innovation. Those will be the successful companies in the periods ahead.
So regulatory, environmental, and social – there are many tailwinds that a transition-orientated strategy such as ours, for which engagement is accelerating the realisation of those opportunities within those businesses should be those that succeed.
Why Global SMID – and why us?
We believe that global small and mid-cap companies (SMID) offer the greatest potential for both investment returns and engagement returns. From an engagement point of view, you get greater access to management, and, for us, engagement is only really going to be successful if you have engageable and collaborative management teams.
By having access to global SMID companies, because you have better access to management, you can have more of an impact through that engagement directive, whilst also having that positive social environmental impact from an investment point of view. Global SMID also offers a range of exciting and attractive business models, which also offer some idiosyncratic opportunities while also offering growth potential.
So, if we package that up together, you not only get some strong structural tailwinds and attractive businesses, but you also have, through engagement, the opportunity to really drive that transition, whether that be for positive social or environmental impact.
We have talked about the long term. What about for the next 12 months?
Well, if we look at what happened at the start of this year, it was incredibly volatile. We expect the short-term behaviour of the market to settle down once a clearer understanding of the policy backdrop materialises.
But, as investors, we are incredibly constructive on the global opportunity. If we look at valuations, they are incredibly attractive now. Global SMID is trading at below its ten-year average and at a discount to the broader index (at around about 30%), and that price dislocation has made some really exciting opportunities for us as active managers to be able to get into those companies that we believe will have strong growth potential going forward, but also [those companies] where we can, through engagement, really drive that transition to deliver social and environmental impact.
Looking forward to the next 12 months, there are, as I mentioned, several tail winds. Given the way that the portfolio is positioned as a core global SMID portfolio, with an engagement thesis attached to it, it is a constructive area for us to be able to deliver some strong returns and engagement impact too.
