Our business takes the form of investment in the intellectual property rights of proven hit Songs of cultural importance.
While music copyrights do not have any significant environmental or corporate governance implications, per se, being abstract legal entitlements rather than corporate or physical entities, we seek to ensure that the conduct of our business and the promotion of our Songs is undertaken in a manner consistent with best practice in ESG.
This is because our activities have a high profile and our actions, as custodians of these musical assets, can have an impact across society and the musical community.
Which is why our ulterior motive is at the heart of our stated purpose: to use the importance of our unparalleled Catalogue and financial clout as influence to improve the Songwriter’s position in the economic equation. What is good for Songwriters is good for all of our stakeholders. This ethos flows into wider ESG issues, too.
Our ability to continue to grow our business and be successful is entirely contingent on our integrity and behaviour. As a consequence, our responsible investment policy is constantly evolving. As a first mover in our asset class, we seek to set the benchmark for responsible investment in music assets for others to measure themselves against.
We view key decisions as those that are material to our success and sustainability, but also as those that are materially significant to any of our key stakeholders or that have a material impact on our community or environment. In making a decision, we consider the outcome based on our understanding from our stakeholder engagement activities, as well as the need to maintain a reputation for high standards of business conduct.
We invest in a culturally diverse range of Songs, with a particular emphasis on supporting music from African- American heritage. The Company has adopted a responsible investing policy and legal due diligence is undertaken to make sure the Company acquires assets from reputable sources.
Whilst there is still more to do, we are committed to demonstrating continued and transparent progress regarding our ESG impacts.
The EU Sustainable Finance Disclosure Regulation (SFDR) is a regulatory framework which applies to us in our capacity as a self-managed investment trust. We have therefore made the following sustainability-related disclosures in accordance with Articles 6(1) of SFDR.
The Company is not considered to be an ‘ESG financial product’ since it does not promote and does not maximise portfolio alignment with Sustainability Factors (as defined in SFDR). The investments underlying this financial product do not take into account the EU criteria for environmentally sustainable economic activities as these assets falls outside their scope. Nevertheless the Company is exposed to sustainability risks due to the nature of the assets in which it invests, but these risks are not material:
Sustainability Risks are integrated into our investment decision making and risk monitoring to the extent that they represent potential or actual material risks and/or opportunities for maximizing long-term risk adjusted returns for our Shareholders. The Investment Adviser considers sustainability risks as part of its broader analysis of potential investments and the management of the current portfolio. The factors considered will vary depending on the Catalogue in question, but we are always seeking to invest in Songs that have a positive social purpose.
The returns generated by our investments are exposed to varied Sustainability Risks, most of which are deemed minimal.
The culture and success of the music industry are founded on relationships. We are very much part of this and we welcome it. We have various groups of stakeholders with whom we have close and direct relationships fundamental to our existence, they include our Shareholders, our service providers, our Advisory Board, the Songwriting community and the publishers, administrators and PROs. There are many others who we recognise as well, even though we may not engage with them directly – prime amongst these are the millions who listen to music. Our Investment Adviser is at the heart of our engagement work and is responsible for the day-to-day interactions with all of our stakeholders.
Hipgnosis places great importance on its relationships with its Shareholders, as they provide us with the resources to make the acquisitions necessary to build our portfolio and so support Songwriters and performers. We undertake both direct and indirect engagement activities with this group and this is covered in more detail in the Corporate Governance Report.
Following the acquisition of HSG, Hipgnosis Songs Fund now has 39 employees. None of the employees are classified as senior executives as they do not report directly to the Board of the Company. The Board has delegated responsibility for these employees to the Investment Adviser, consistent with their policies and procedures.
Additionally, we operate through, and work closely with, a number of third-party service providers, including the Investment Adviser, Administrator, Company Secretary, Corporate Brokers, lawyers and our other professional advisers. The quality and timeliness of their service provision is critical to the success of the Company, as is their adherence to best practice ESG requirements. Our ESG policies are shared with our suppliers.
The Investment Adviser manages the vital input of our Advisory Board. Our Investment Adviser also enables us to engage with the writers and composers of Songs acquired to update them on management activity around the Catalogues, explore creative projects, create new interpolations and discuss new commercial opportunities. An example of this is placing Songwriters, who are included in our portfolio, in the recording studio together to collaborate and create new compositions.
The Investment Adviser also has regular communication with Publishers and Administrators and the PROs who administer the payment of royalties due to a Songwriter or recording artist in respect of a Song, either directly from the end user or from royalty collection agents, in order to assess that the royalties paid through are accurate and delivered in a timely manner.
The Investment Adviser has procedures in place that enable them to identify any under/over payments of revenue and work quickly to resolve this with the Publishers, collection societies and PROs; there have been multiple occasions where we have returned millions of Dollars which we weren’t entitled to.
We want to help the communities on whom our success is based
While the Company’s purpose is to give our Shareholders a strong, reliable and uncorrelated return on investment, we also have an ulterior motive which is to use the importance of our unparalleled Catalogue and financial clout as a platform and leverage for the Songwriting community and to take Songwriters from the bottom of the economic equation to the top.
Without the Songwriter there would be no music, however, as individuals their voices have frequently not been heard nor their contribution financially recognised.
The principles of copyright protection are generally well established and the concept and value of making it economically feasible for “creators to create” is widely recognised. This is very much at the heart of our advocacy but Copyright protection is not enough, the important societal role of the Songwriter also needs to be recognised by apportioning them a far more significant share of the economic pie.
Our advocacy on the part of the Songwriting community has served to make us a preferred buyer for that community, which is also in the best interest of our Shareholders.
The impact of our advocacy is being felt at every level. As an industry, the US Copyright Royalty Board (CRB) rejected an appeal from certain streaming companies aimed at reducing the 44% increase in payments proposed under CRB III. Additionally, our leadership and advocacy on behalf of the songwriting community has resulted in a change of tone and messaging from both the record music labels and the DSPs. This is best demonstrated by the joint industry proposals for the CRB IV settlement which will provide 5 years of stability from 2023 to 2027 at the highest rates ever paid to Songwriters.
In the UK, whilst we were disappointed that the Competition and Markets Authority declined to take steps to address the market failure which it recognised in its market study of the music industry, we are pleased that the Department of Culture, Media and Sport and the Intellectual Property Office have recently both announced industry working groups intended to resolve some of the challenges faced by Songwriters. We continue to engage with ministers, politicians, officials and other interested parties to promote the interest of Songwriters.
Additionally, we have dedicated significant time, money and resources to supporting the Songwriting community. Led by Merck Mercuriadis, this includes work with The Ivors Academy, which nurtures new Songwriting talent and advocates for the Songwriters and The Nashville Songwriters Association International, which works at the highest levels of the US Congress and Senate on the same themes.
Both in public and in private, Hipgnosis and the senior management of our Investment Adviser have established themselves as credible, informed and reasonable advocates for change. We continue to engage across government and with regulators to make the case for and on behalf of Songwriters.
Given the alignment of interests between Songwriters and Hipgnosis Songs Fund’s Shareholders, our campaigning, where successful, will deliver value accretion for the fund’s Shareholders.
Our Investment Adviser and its Advisory Board
We fully endorse our Investment Adviser and its Advisory Board, who believe that any company must reflect the values and best interests of the communities it benefits from.
They are active in using their influence as a catalyst for an end to all discrimination including sex, ethnicity, background, mental health or other discriminatory lenses. We endorse their strong Anti-Racist, Anti Gender and pro LGBTTQQIAAP approach and we welcome social change organisations and programmes which struggle for equality such as the Black Lives Matter Foundation (the charitable foundation within the BLM movement) and the Black Music Action Coalition.
We support the actions taken by our Investment Adviser to promote #blacklivesmatter initiatives and calls to action. Almost all Hipgnosis trade advertising in the last three years has highlighted #blacklivesmatter and sent an important message to the wider music industry that the issue was not confined to a few weeks in June of 2020 but in fact needs to be part of our daily lives.
We support the actions taken by our Investment Adviser to promote the important achievements of the We Are Family Foundation founded by Advisory Board Member, Nile Rodgers, which has created programmes promoting cultural diversity while nurturing and mentoring the vision, talents, and ideas of young people. We support the actions taken by our Investment Adviser to support the work of Earth Percent who provide a simple way for the music industry to support the most impactful organisations addressing Climate Change initiatives.
We support Merck Mercuriadis in joining Richard Branson, Mike Novogratz, Arianna Huffington and other business leaders in the Responsible Business Initiative For Justice to bring an end to the death penalty which has taken the lives of many innocent people of colour purely on the basis of racial and socio-economic injustices. Further to this we continue to support the contributions of former HSM Advisory Board Member, Jason Flom, founding board member of the Innocence Project, in his work for criminal justice reform and his advocacy for those who have been wrongfully convicted and imprisoned.
We are proud to support Nordoff Robbins, whose ground-breaking work uses music as therapy to enrich the lives of people with life limiting illnesses, disabilities and feelings of isolation. Hipgnosis has been involved for the third year in a row with the annual Christmas Carol Service, a key highlight of Nordoff Robbins’ fundraising calendar. Our Investment Adviser once again stepped in with a significant donation to create a fantastic experience at St Luke’s Church in Chelsea with Nile Rodgers & CHIC. Merck Mercuriadis and Andrew Wilkinson were the Executive Producers for the event and Nile stepped in at the last minute as The Who were unable to make it. The Who will instead perform to benefit the charity this summer. Both events are expected to raise a combined £200,000, approximately doubling the sum usually raised by this Christmas event.
Our Investment Adviser contributes to the talent of tomorrow via one of the UK’s leading educational establishments in the performing and creative arts, The BRIT School, where Merck Mercuriadis, Nile Rodgers and Paul Burger are all very active. Next year Nile’s Night will be launched in conjunction with the Ivor Novello Awards to raise money that will be shared between The BRIT School, the We Are Family Foundation and the Ivors Academy.
We are delighted that our Investment Adviser has supported Songwriters Hall of Fame, chaired by Nile Rodgers, and their work celebrating and developing writing talent as well as MusiCares, which helps music people in times of need. Given the Song is the currency of the music business and we believe the Songwriter should be appreciated, applauded and celebrated above all, we were delighted the Investment Adviser sponsored the Song of the Year Category at the 2022 A&R Awards for the third year in a row, as well as sponsoring the Songwriter of the Year award. This year our Investment Adviser has also supported the Elton John Aids Foundation mission to end the Aids epidemic; Music To Life, which builds on the strong historical legacy of social movements’ intentional use of music to educate, recruit, and mobilise; and Music Support, the charity created by and for music industry professionals to provide help for UK workers affected by mental ill-health and/or addiction. Rosa Mercuriadis has co-created sicksadgirlz an Instagram community with 30,000 followers where young women can find support for mental health and women’s issues.
Hipgnosis’ direct environmental impact is very limited. We have considered the materiality of our environmental risks and have concluded that they are minimal. The direct impact of our Investment Adviser is also limited to running office facilities and the international transport of key personnel.
The portfolio of music copyrights acquired are intangible assets whose returns are generated by Songs being listened to through many third-party channels including retail, hospitality, digital entertainment, advertising, film and others. Our assets are being consumed and monetised as an adjunct to other, sometimes more environmentally impactful business activities, that would occur whether our assets were used or not.
We keep under consideration the impact on the environment relating to the shift from the physical to digital consumption of music. The popularity of Streaming as the preferred method of enjoying digital entertainment has generated concerns about a concomitant increase in the energy consumption of the required data centre infrastructure. At the moment, there is considerable debate, with no clear consensus view, on the relative environmental merits and impacts of the various channels, physical and virtual, used to supply music as entertainment. We continue to monitor the environmental commitments made by DSPs to reduce the energy intensity of their datacentres.
The necessity for international travel is another area on which much attention has been focused, brought into stark practical relief by the necessary responses to the pandemic. The entertainment industry generally, and our business model specifically, are heavily reliant on the establishment and maintenance of personal relationships; to us, these relationships are amongst our most valuable assets. Hipgnosis, and its suppliers, are applying the lessons learned during the pandemic about the various alternatives to physical meetings and are working to keep international travel to the level needed to sustain these key relationships.
To better understand and manage our environmental impact, our Investment Adviser has worked with thirdparty experts to carry out a greenhouse gas (GHG) emissions assessment using calendar year 2022 data. This quantifies the greenhouse gases produced directly and indirectly from a business or organisation’s activities and is useful to manage its climate-related impacts. This assessment marks our first-time baselining Scope 1, Scope 2, and certain Scope 3 emissions.
On a location-based methodology, the Scope 1 and 2 GHG emissions for FY 2022 were approximately 9.6 tCO₂e/yr. Scope 3 includes other indirect emissions, business travel and staff commuting. In total, it is estimated that these activities generated 190 tCO₂e/yr.
The Investment Adviser will refine its methodology and continue to report its emissions going forward.