As a consequence of the nature of what we do – music – we have a profound influence on communities and society at large and we recognise that this privilege carries with it significant responsibilities. An important facet of this is having a clear approach to environmental, social and governance matters.
From the outset, the whole team has been aware that there is a careful balance to be struck between our creation of financial value and providing wider social returns. This is why our ulterior motive is at the heart of our stated purpose: That motive is 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 issues in society and the environment.
We view key decisions as those that are material to the success and sustainability of Hipgnosis, 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.
For Key Decisions that the Board has made see Board Leadership and Company Purpose sections of our latest annual report in Results Centre.
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 maximize portfolio alignment with Sustainability Factors (as defined in SFDR). However, the Company is nevertheless exposed to sustainability risks due to the nature of the assets in which it invests:
1. How Sustainability Risks are integrated into our investment decisions
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.
2. The assessment and likely impacts of Sustainability Risks on returns of the Company
The returns generated by our investments are exposed to varied Sustainability Risks, most of which are deemed not material due to the nature of our investment strategy and types of assets we hold.
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 interact 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. This is covered in more detail in the Corporate Governance Statement of our Annual Report.
Following the acquisition of Hipgnosis Songs Group, Hipgnosis now has 35 employees. None of the employees are classified as Senior Executives as they do not report directly to the Board of the Company. Whilst they are indeed employees of the Group, at the time of the acquisition of HSG, the Board delegated responsibility for HSG’s employees to the Investment Adviser, consistent with their policies, procedures, and knowledge of the rights administration industry.
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. The Group’s ESG policies are shared with our suppliers.
We are very pleased that everyone involved with the Company worked so well and seamlessly throughout the COVID-19 pandemic. Our Investment Adviser has re-opened its offices and has made returning to the office optional, for the time being.
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 song Catalogues 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 featured in the Hipgnosis portfolio, in the recording studio together to collaborate and create new compositions.
The Investment Adviser also has regular communication with publishers and Administrators (such as Kobalt) and the PROs (such as ASCAP) 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 back to our Stakeholders.
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 platform and leverage for the songwriting community and to take Songwriters from the bottom of the economic equation to the top. Björn Ulvaeus of Abba began his recent TED Talk which was more than a little influenced by Hipgnosis’ advocacy with an unattributed quote: “Copyright is designed not only to provide fairness to authors, but also to enhance the quality of life within a society by promoting the progress of science, art and culture”. In other words, the concept of making it economically feasible for “creators to create” is now globally recognized as a societal imperative. 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 recognized 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 the preferred buyer for that community, which is also in the best interest of our shareholders. Our advocacy is being felt at every level from the CRB hearings in the US to the global headquarters of the major recorded music companies that are in our view responsible for the Songwriter’s role not being properly remunerated and recognized, the Performing Rights Societes, who have to advocate for songwriters more aggressively and straight through to the excellent work of DCMS Committee and the hearings in UK Parliament.
“At the end of the day [when buying Catalogues] you have to demonstrate to Songwriters, artists and producers that you are the right pair of hands for them to put their children in. That’s not something you can do if you’ve never spent time – both good times and bad times – dealing with great artists, Songwriters and producers in helping them achieve their dreams.”
Merck Mercuriadis, Music Business Worldwide
We have dedicated significant time, money and resources to supporting the songwriting community. Led by Merck, this includes work with The Ivors Academy, who nurture new songwriting talent and advocate for the songwriters; and The Nashville Songwriters Association International, who work at the highest levels of the US Congress and Senate on the same themes. We have also been a major catalyst for the DCMS hearings in UK Parliament; Merck has met with several MPs over the last 6 months to advocate for the songwriter in aid of Hipgnosis’ publicly stated ulterior motive which is to take the songwriter from the bottom of the economic equation to the top.
Our strategy to effect this change represents engagement on several fronts (see below).
The Department for Digital, Culture, Media & Sport (DCMS) Inquiry in the UK Parliament, which opened on 15 October 2020, has proven to be a timely opportunity to highlight the issues facing the music industry in relation to streaming as well as to look at potential solutions to address the imbalance of industry power in favour of major music companies and the lack of transparency and accountability which adversely affects Songwriters and other creators.
Hipgnosis made its own written submission with seven important recommendations to include in the Committee’s Report, all designed to improve transparency, increase bargaining power and boost income share for Songwriters. Advisory Board Member to the Investment Adviser, Nile Rodgers, also gave oral evidence to the Committee in support of our submission.
Members of the DCMS Committee will play a crucial role in shaping the Inquiry’s final recommendations, and Hipgnosis has written to or held positive meetings with all of them, including Committee Chair, Julian Knight MP (Con) and other leading MP Committee members. We have briefed them on Hipgnosis’ business and given our perspective on evidence given to the Committee and the music market in general, with a view to setting the context in which decisions will be taken by the Committee. We feel the response to our engagement on this has been very positive.
The DCMS Select Committee is due to publish its Report shortly and it will then go to the Secretary of State for Digital, Media, Culture and Sport, Oliver Dowden MP, for review. Mr Dowden will have two months in which to coordinate a formal response from the UK Government to the Report and recommendations proposed by the Committee, detailing what, if any, action it will take. We will be on hand offering insights and further evidence to ministers and their advisers to inform their decisionmaking. Hipgnosis has already been in touch with lead officials within DCMS with the aim of:
In parallel with the Inquiry, the UK Intellectual Property Office (IPO) – an executive body of the Department for Business, Energy and Industrial Strategy (BEIS) – is undertaking its own piece of research on how ‘music creators’ are paid within the global streaming environment. This work is likely to feed into the government’s response to the Inquiry, and its approach to intellectual property rights for artists and musicians in a post-Brexit environment following the UK’s decision not to implement the EU Copyright Directive.
Hipgnosis has proactively engaged with the IPO to help support this work ahead of the publication of the research findings this summer and has established a good working relationship with the IPO and its academic research team carrying out this important work.
Our “ulterior motive” with Hipgnosis is to gain enough influence in the music rights space to bring about a change in the recompense seen by Songwriters in the streaming age.
We are working with like-minded individuals and organisations across the industry to support each other’s initiatives and increase general awareness of the issues arising.
If our mission is successful it will benefit not only Songwriters but also our investors as the value of Songs grows. Our interests are naturally aligned with what’s best for the Songwriter also being best for our Shareholders (as the direct owners of some of the world’s most culturally important Songs).
Our Investment Adviser and its Advisory Board
We fully support 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).
We support the actions taken by our Investment Adviser to promote #blacklivesmatter initiatives and calls to action and the important achievements of the We Are Family Foundation founded by Advisory Board Member, Nile Rodgers, which has created programmes to amplify the voices of diverse youth leaders across the globe addressing issues surrounding basic human needs including the fight against systemic racism. All Hipgnosis trade advertising in the last 13 months 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 Merck Mercuriadis in joining Richard Branson, Mike Novogratz, Arianna Huffington and other business leaders in the newly launched 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 TFM 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 groundbreaking work uses music as therapy to enrich the lives of people with life limiting illnesses, disabilities and feelings of isolation. While the pandemic prevented our traditional sponsorship of the MITS (Music Industry Trusts Award), it also threatened the annual Christmas Carol Service which is the other key highlight of Nordoff Robbins’ fundraising calendar. In order to avert the disaster of a cancellation, our Investment Adviser stepped in with a significant donation to create a virtual event. Merck Mercuriadis and Andrew Wilkinson were the Executive Producers for the event and Nile Rodgers not only hosted the event, but also performed along with Neil Young, Rod Stewart, Simple Minds, Tony Bennett, Kaiser Chiefs, Sir Cliff Richard, Florence And The Machine and many other Hipgnosis’ friends. Entitled The Stars Come Out To Sing At Christmas, we also brought on board our friends at Open Exchange and the London Stock Exchange to bring the biggest viewership possible and raised over $300,000, approximately three times what the event usually achieves. As a result, the event has been awarded the Third Sector / Business Charity Awards Award for “Charity Partnership – Media & Entertainment” for 2021, bringing further attention to the important work of Nordoff Robbins.
Our Investment Adviser contributes to the talent of tomorrow via one of the UK’s leading educational establishments in performing and creative arts, The BRIT School, where Merck Mercuriadis, Nile Rodgers and Paul Burger are all very active. We are grateful that in the last 28 months the ‘Nile Rodgers BRIT Awards Viewing Party’, established and funded by our Investment Adviser to give our institutional investors the opportunity of celebrating the UK Music Industry’s biggest night of the year, has raised over £750,000. This is shared between The BRIT School and the We Are Family Foundation and the important work they undertake. While the pandemic prohibited the party in 2021 (which will hopefully return in 2022), we have continued to support the beneficiaries at this difficult time.
Our Investment Adviser has been delighted to support 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. 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; 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, and we have contributed to the publication of Sound Advice- The Ultimate Guide To A Healthy And Successful Career In Music by Rhian Jones and Lucy Heyman, which helps to support all aspects of mental health in the Music Industry.
Hipgnosis’ direct environmental impact is very limited and the direct impact of our Investment Adviser is also limited to running office facilities and the international transport of key personnel.
We acquire, curate and creatively manage a growing portfolio of music copyrights. As intangible assets, returns are generated by the provision of Songs into a variety of third-party channels including retail, hospitality, digital entertainment, advertising, film and others. With the exception of digital service providers (DSPs) specialised exclusively in music entertainment (e.g. Spotify), 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. Indirectly, 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 focussed, 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.