BlackRock Energy and Resources Income Trust plc (LON:BERI) has announced its Annual Results for the year ended 30 November 2021.
For more information on BlackRock Energy and Resources Income Trust and how to access the opportunities presented by the energy and resources markets, please visit www.blackrock.com/uk/beri
PERFORMANCE RECORD
| As at 30 November 2021 | As at 30 November 2020 | Change % | |
| Net assets (£’000)1 | 120,828 | 91,642 | 31.8 |
| Net asset value per ordinary share (pence) | 103.97 | 80.76 | 28.7 |
| Ordinary share price (mid-market) (pence) | 96.70 | 71.40 | 35.4 |
| Discount to net asset value2 | 7.0% | 11.6% | |
| ————— | ————— | ————— | |
| Performance (with dividends reinvested) | |||
| Net asset value per share2 | 34.4% | 13.9% | |
| Ordinary share price2 | 41.7% | 16.0% | |
| ========= | ========= | ========= |
| For the year ended 30 November 2021 | For the year ended 30 November 2020 | Change % | |
| Revenue | |||
| Net profit on ordinary activities after taxation (£’000) | 5,704 | 4,900 | 16.4 |
| Revenue earnings per ordinary share (pence)3 | 4.96 | 4.31 | 15.1 |
| ————— | ————— | ————— | |
| Dividends (pence) | |||
| 1st interim | 1.00 | 1.00 | – |
| 2nd interim | 1.00 | 1.00 | – |
| 3rd interim | 1.00 | 1.00 | – |
| 4th interim | 1.10 | 1.00 | 10.0 |
| ————— | ————— | ————— | |
| Total dividends paid and payable | 4.10 | 4.00 | 2.5 |
| ========= | ========= | ========= |
1 The change in net assets reflects market movements, the buyback and issue of shares and dividends paid during the year.
2 Alternative Performance Measures, see Glossary contained in the Annual Report for the year ended 30 November 2021 (which can be found on the Company’s website at www.blackrock.com/uk/beri) on pages 131 to 133.
3 Further details are given in the Glossary contained in the Annual Report for the year ended 30 November 2021.
CHAIRMAN’S STATEMENT
MARKET OVERVIEW
The year began on a promising note as the election of President Biden in the United States and the prospect of new ‘green deal’ spending in the US and Europe lifted markets and economies began to reopen across the world, boosted by unprecedented fiscal and monetary stimulus programmes. This, in turn, drove exceptional levels of commodity demand and has given rise to significant logistical challenges and shortages of labour which have consequently pushed inflation to levels not seen since before the financial crisis in 2008.
The inflation narrative is likely to dominate markets over the coming year; typically, inflation is positive for companies in the commodities space. As supply chains and markets are heavily interconnected, the impact of higher prices must be carefully analysed to identify investment challenges and opportunities.
The COVID-19 pandemic also continues to generate market volatility and economic upheaval. The emergence of a new Omicron variant of the disease contributed to the seventh largest one-day fall in oil prices in history in December 2021.
Within the energy transition space, COP26 took place during November 2021 with many countries pledging to cut 30% of methane emissions by 2030, to continue the shift away from coal use and end deforestation by 2030.
President Biden also signed the $1trillion infrastructure bill into law and car manufacturers announced ambitious plans for investment in the development of electric vehicles. The Company’s portfolio was well positioned to move flexibly between traditional energy, mining and energy transition sectors as investment opportunities came up within these volatile markets.
PERFORMANCE
I am pleased to report that during the year to 30 November 2021, your Company’s Net Asset Value per share increased by an impressive 34.4% and its share price by 41.7% (both percentages in Sterling terms with dividends reinvested). The Company’s objectives are to achieve both an annual dividend target and, over the long term, capital growth. Consequently, the Board does not formally benchmark performance against mining and energy sector indices as meeting a specific dividend target is not within the scope of these indices. However, to set the performance in the context of the sectors in which it invests, the EMIX Global Mining Index rose by 12.5% and the MSCI World Energy Index rose by 41.2% over the same period. The Company holds around 30% of its portfolio in energy transition stocks; to give the renewable energy sector context, the S&P Global Clean Energy Index rose by 1.4% over the year ended 30 November 2021 and the WilderHill Clean Energy Index fell by 6.1% (all percentages in Sterling terms with dividends reinvested). It should be noted that these comparisons are given for illustrative purposes only.
Traditional energy stocks in the oil and gas sector were the biggest contributor to performance over the period. The portfolio managers negotiated the volatility in energy prices well with appropriately timed shifts in exposure to the sector as prices surged and fell. The mining sector also contributed positively to performance on the back of strong commodity prices. These gains were offset by losses in the energy transition sector as companies struggled with higher costs and lower margins and a degree of profit taking.
The Board has increased the annual dividend target for the Company for the year by 10% to 30 November 2022 to 4.40p per share.
Performance to 30 November 2021 | 1 Year change % | 3 Years change % | 5 Years change % | Since inception2 % |
| Net Asset Value (with dividends reinvested)1 | 34.4 | 59.8 | 60.0 | 144.8 |
| Share price (with dividends reinvested)1 | 41.7 | 62.3 | 53.6 | 127.6 |
| ========= | ========= | ========= | ========= |
1 Alternative Performance Measures. Further details of the calculation of performance with dividends reinvested are given in the Glossary contained in the Annual Report for the year ended 30 November 2021.
2 The Company was launched on 13 December 2005.
Further information on investment performance is given in the Investment Manager’s Report. Since the period end and up until close of business on 1 February 2022 the Company’s NAV has increased by 8.7% and the share price has risen by 16.3% (with dividends reinvested).
REVENUE RETURN AND DIVIDENDS
Despite challenges faced by the wider equity markets as a result of the ongoing COVID-19 crisis, the income from the investments held by your Company has remained robust. The revenue return for the year to 30 November 2021 was 4.96 pence per share, a 15.1% increase compared to the prior year earnings per share of 4.31 pence. Indeed, the level of revenue generated is such that the minimum dividend that the Company is required to pay for the financial year to 30 November 2021 to satisfy investment trust tax regulations has exceeded the 4.00p per share target set by the Board in January 2021. As a result, the Board announced in December 2021 that it would pay a fourth quarterly dividend for the year to 30 November 2021 of 1.10 pence per share (making the total dividend payment for the year of 4.10 pence per share) and also that it would increase the annual dividend target for the Company for the year to 30 November 2022 to 4.40p per share.
The Company will aim to meet this target dividend next year and beyond, primarily from a mix of dividend income from the portfolio and revenue reserves, although this may be supported by the distribution of other distributable reserves if required. The Company may also write options to generate revenue return, although the portfolio managers’ focus is on investing the portfolio to generate an optimal level of total return without striving to meet an annual income target and will only undertake option transactions to the extent that the overall contribution is beneficial to total return.
The dividend target should not be interpreted as a profit forecast. The target level represents a yield of 4.6% based on the share price as at the close of business on 30 November 2021.
GEARING
The Company operates a flexible gearing policy which depends on prevailing market conditions. It is not intended that gearing will exceed 20% of the gross assets of the Company. The maximum gearing used during the period was 9.7%, and the level of gearing at 30 November 2021 was 5.8%. Average gearing over the year to 30 November 2021 was 6.3%. For calculations, see the Glossary contained in the Annual Report for the year ended 30 November 2021.
DISCOUNT CONTROL
The Directors recognise the importance to investors that the Company’s share price should not trade at a significant premium or discount to NAV, and therefore, in normal market conditions, may use the Company’s share buyback and share issue powers and sale of shares from treasury to ensure that the share price is broadly in line with the underlying NAV. The Company currently has authority to buy back up to 14.99% of the Company’s issued share capital (excluding treasury shares) and to allot ordinary shares representing up to 10% of the Company’s issued ordinary share capital. Over the year to 30 November 2021, the Company’s shares have traded at an average discount of 5.6%, and within a range of a 13.2% discount to a 5.8% premium. In May 2021, the Company’s shares moved to trade at a premium and the Company reissued 2,880,000 shares from treasury for net proceeds of £2,875,000 (representing an average premium of 1.61%) to meet investor demand. Subsequently, shares moved to trade at a discount again and the Company bought back a total of 51,992 ordinary shares in September 2021 for a total consideration of £48,000 at a discount of 8.4%. These shares were placed in treasury for potential reissue, thereby saving the associated costs of an issue of new shares if demand arises.
BOARD COMPOSITION
The Board supports the increasing focus on independence, tenure and succession planning set out in the updated Financial Reporting Council’s review of the UK Corporate Governance Code, which applies for periods commencing on or after 1 January 2019. With this in mind, the Board commenced a search during the year to identify a new Director to join the Board, assisted by a third-party recruitment firm, Odgers Berndtson. Following a detailed evaluation of each of the candidates, the Board selected Carole Ferguson who was subsequently appointed with effect from 22 December 2021. Mrs Ferguson brings a wealth of experience and expertise in the financial services sector in research, finance and sustainability, both complementing and enhancing the skills and experience of the existing Board. Mrs Ferguson will stand for election at the forthcoming Annual General Meeting.
Further information on Carole Ferguson and all of the Directors can be found in their biographies contained in the Annual Report for the year ended 30 November 2021.
It has been a privilege for me to serve on the Company’s Board since July 2013, taking on the role of Chair in March 2015. As my tenure as Director will exceed nine years with effect from July 2022, in accordance with best corporate governance practice I have decided to stand down at the forthcoming AGM on 15 March 2022 and not to seek re-election. I would like to thank all shareholders for their support and to thank my Board colleagues and the team at BlackRock for helping make my tenure as Chair an enjoyable one. I am delighted to announce that Adrian Brown will take over the role of Chair following my retirement at the AGM1. Mr Brown has been a Director of BERI for over two years and has a wealth of experience in the financial sector. Further details of his biography can be found on page 32 of the Annual Report for the year ended 30 November 2021.
Information on the recruitment and selection process undertaken and details of the Board’s policy on the re-election of directors, director tenure and succession planning can be found in the Directors’ Report on page 56 of the Directors’ Report contained within the Annual Report for the year ended 30 November 2021.
ANNUAL GENERAL MEETING ARRANGEMENTS
I am pleased to report that it is the Board’s intention that this year’s AGM will be held in person at 10.30 a.m. on Tuesday, 15 March 2022 at the offices of BlackRock at 12 Throgmorton Avenue, London EC2N 2DL.
At present, UK Government restrictions on public gatherings are no longer in force in connection with COVID-19 and the AGM can be held in the normal way with physical attendance by shareholders. However, shareholders should be aware that it is possible that such restrictions could be reimposed prior to the date of the AGM. In such event, these restrictions could mean that the AGM is required to be held as a closed meeting as happened last year with physical attendance limited to only a small number of attendees comprising the required quorum for the meeting and those persons whose attendance is necessary for the conduct of the meeting, and that any other persons will be refused entry. Accordingly, all shareholders are recommended to vote by proxy in advance of the AGM and to appoint the Chairman of the meeting as their proxy. This will ensure that shareholders’ votes will be counted even if they (or any appointed proxy) are not able to attend. All votes will be taken by poll so that all proxy votes are counted.
The Company may impose entry restrictions on persons wishing to attend the AGM (including, if required, refusing entry) in order to secure the orderly conduct of the AGM and the safety of the attendees.
All shareholders intending to attend should either be fully vaccinated or obtain a negative COVID-19 test result before entering the venue. Negative test results must be obtained no earlier than one day before entering the venue and fully vaccinated shareholders are also strongly encouraged to get tested. Attendees will also be required to wear a face covering at all times within the venue except when seated in the relevant meeting room.
Shareholders are also requested not to attend the AGM if they have tested positive for COVID-19 in the 10 days prior to the AGM, are experiencing new or worsening COVID-19 related symptoms, have been in close contact with anyone who is experiencing symptoms or has contracted COVID-19 during the 14 days prior to the AGM, or are required to self isolate pursuant to UK Government guidance. In the absence of any re-imposition of restrictions, the Board very much looks forward to meeting with shareholders.
MARKET OUTLOOK AND PORTFOLIO POSITIONING
A tailwind of fiscal and monetary easing continues to drive strong demand for commodities at a time when supply risks are rising. Although the Omicron variant poses a headwind to economic growth, vaccination rates are rising and the global economy is likely to continue to reopen during 2022. Logistical bottlenecks are causing pockets of inflation as economic activity ramps up – undoubtedly some of this is transitory in nature. As we look out over the next several years, we see a period of structurally higher inflation than we have seen for several years as pricing power shifts back to labour markets and many industries seek to ‘reshore’ manufacturing processes. Traditional resources sectors like mining and energy tend to perform well in inflationary environments and our ability to pivot across the three pillars (Mining, Traditional Energy and Energy Transition) offers significant flexibility to investors.
In the traditional energy sector fiscal prudence is likely to pave the way for further improved shareholder returns. On the energy transition side, the long-term trajectory towards Net Zero is a certainty; the significant amounts of infrastructure investment required are likely to underpin demand for a number of commodities in the medium term, while the shift to a lower carbon economy presents a significant investment opportunity, although it will be crucial to be highly selective in choosing the industries and companies that form part of the energy transition portion of the portfolio. The Board is confident that the Company is currently well placed to benefit from this key investment trend.
ED WARNER
3 February 2022
1 In accordance with best corporate governance practice, Mr Brown will step down from the Audit and Management Engagement Committee when he becomes Chairman on 15 March 2022.
For more information on BlackRock Energy and Resources Income Trust and how to access the opportunities presented by the energy and resources markets, please visit www.blackrock.com/uk/beri
INVESTMENT MANAGER’S REPORT
MARKET OVERVIEW
Timing is everything in markets and, even for the long-term investors, the point of entry or exit can play a material role on returns. The market moves seen during November mean that this report carries a rather different set of numbers and tone to it than was envisaged at the end of October. Oil prices falling by over 20% in a month are a sharp reminder of the need to maintain a balanced and risk-aware portfolio as well as to retain some dry powder to take advantage of corrections that occur even within strong long-term uptrends.
The second half of 2021 saw incredible divergence between different commodities, the producers of these commodities and companies involved in the energy transition. The reopening of economies across the world continued to drive forward at pace with the fiscal and monetary stimulus programmes enacted over the last 18 months driving exceptional levels of demand for goods. Whilst this has been a great tailwind for commodity demand in the western world, it has also created shortages of labour and significant logistical challenges. Inflation has risen to levels not seen since before the financial crisis and in our view is likely to remain higher in 2022 than the modest inflation targets set by most central banks across the globe. The inflation narrative is one that is typically good for commodities but we need to keep in mind that previous inflationary cycles did not have the strong Environmental, Social and Governance (ESG) interplay and that investors are still sceptical of resource companies drifting from their commitment to shareholder returns.
There were also reminders over the last six months of just how interconnected different supply chains and markets now are and that you cannot look at a company, let alone an industry, in isolation. There are many examples we could cite here but one that connects mining to renewable energy may be surprising to many and worth highlighting. One of the main components of a solar cell is silicon; in China the price of silicon jumped by over 300% in late summer as the coal price surged in China (silicon is made in furnaces in China, burning coke and sand to produce it). Whilst coal and silicon prices have calmed since then, the silicon price has almost doubled relative to this time last year, which is threatening the economics of a number of solar projects planned for 2022. Understanding these energy and material feedback loops is critical. We believe that by having a portfolio that can flexibly move between areas and a team that analyses the whole energy/ energy transition and materials space, we can navigate these challenging markets.
Commodity | 30 November 2021 | 30 November 2020 | % change | 2021 on 2020 Average Price % Change1 |
| Base Metals (US$/tonne) | ||||
| Aluminium | 2,635 | 2,036 | 29.4 | 43.3 |
| Copper | 9,516 | 7,569 | 25.7 | 51.7 |
| Lead | 2,318 | 2,062 | 12.4 | 19.8 |
| Nickel | 20,005 | 15,985 | 25.1 | 34.2 |
| Tin | 39,905 | 18,642 | 114.1 | 81.3 |
| Zinc | 3,289 | 2,776 | 18.5 | 32.7 |
| ————— | ————— | ————— | ————— | |
| Precious Metals (US$/ounce) | ||||
| Gold | 1,780.1 | 1,774.4 | 0.3 | 3.9 |
| Silver | 22.8 | 22.6 | 0.9 | 27.8 |
| Platinum | 944.0 | 979.0 | -3.6 | 25.3 |
| Palladium | 1,767.0 | 2,400.0 | -26.4 | 13.5 |
| ————— | ————— | ————— | ————— | |
| Energy | ||||
| Oil (West Texas Intermediate) (US$/barrel) | 66.2 | 45.3 | 46.1 | 63.1 |
| Oil (Brent) (US$/barrel) | 70.6 | 47.6 | 48.3 | 54.8 |
| Natural Gas (US$/Metric Million British Thermal Unit) | 4.6 | 2.9 | 58.6 | 71.6 |
| ————— | ————— | ————— | ————— | |
| Bulk Commodities (US$/tonne) | ||||
| Iron ore | 100.0 | 130.5 | -23.4 | 57.7 |
| Coking coal | 317.5 | 98.0 | 224.0 | 74.2 |
| Thermal coal | 152.0 | 70.3 | 116.2 | 116.6 |
| ————— | ————— | ————— | ————— | |
| Equity Indices | ||||
| MSCI ACWI2 Metals & Mining Index (US$) | 357.7 | 321.0 | 11.4 | n/a |
| MSCI ACWI2 Metals & Mining Index (£) | 270.4 | 240.4 | 12.5 | n/a |
| MSCI3 World Energy Index (US$) | 295.6 | 211.4 | 39.8 | n/a |
| MSCI3 World Energy Index (£) | 223.5 | 158.3 | 41.2 | n/a |
| ========= | ========= | ========= | ========= |
Source: Datastream
1 Average of 30/11/19-30/11/20 to average of 30/11/20-30/11/21
2 Morgan Stanley Capital International All Country Weighted Index
3 Morgan Stanley Capital International
PORTFOLIO ACTIVITY AND INVESTMENT PERFORMANCE
Portfolio activity in the second half of the year has focused on a couple of key areas. First, we were quite active in the traditional energy sector during the second half of the year. As can be seen in the portfolio positioning chart included on page 11 of the Annual Report for the year ended 30 November 2021, we increased our energy exposure through to July and then pared it back as we thought markets had got ahead of themselves. We did this by trimming the traditional energy position as a whole and rotating some of the holdings within the energy sector. During the last few months, we increased the exposure, with a gas bias, as we saw global gas markets tightening rapidly with inventories in Europe lower than seasonal averages.
Secondly, we made changes within the mining sector to reflect the risks we saw to the steel-making commodities because of the slowdown in the Chinese property sector. We reduced our iron ore holdings and added to more base metal exposed companies such as Glencore, which was trading at an attractive free cashflow yield and has a trading business that should benefit from the ongoing logistics/supply chain challenges and price volatility. We also added two steel companies to the portfolio as the combination of China restricting exports, lack of new capacity in Europe/US, and upcoming green infrastructure spend should see higher margins persist for longer than current valuations imply.
Finally, within the energy transition sector we were focused on identifying holdings that could be vulnerable to margin compression in an environment of input cost inflation and also those that are more interest rate sensitive.
This resulted in positions such as a wind turbine manufacturer being reduced in the portfolio, and towards the end of the year we saw several announcements from companies in this space warning of sharply high costs and lower margins for 2022. Although we remain excited about the long-term growth prospects across many enablers and adopters of decarbonisation, we had a greater proportion of the portfolio invested in mining and traditional energy for most of the year as we judged the investment opportunities to be more compelling from a valuation and risk-adjusted perspective.
Overall the Company had a strong year of returns, generating 34.4% overall (2020: 13.9%).
INCOME
The trend of improving returns back to shareholders in the traditional energy and mining sectors continued apace during 2021. Record dividends were paid by a number of large mining companies in addition to share buybacks in several cases. Encouragingly, the companies enacting such moves have also continued to strengthen their balance sheets and the overall financial health of the companies is very strong relative to their own history.
Perhaps the most significant positive surprise on the income side during the year was the step up in shareholder returns from the traditional energy companies. This came not only from the integrated oil majors (e.g. Chevron, which delivered a modest dividend increase) but importantly from the Exploration and Production (E&P) sector. The shift to a better balance between reinvestment and shareholder distributions is very welcome with companies such as Devon Energy increasing its regular dividend as well as announcing a series of special dividends.
In terms of option income, 2021 saw the continuation of our recent trend of a lower proportion of income coming from option writing. Option premiums accounted for just over 10% of gross income for the year, down from around 25% in 2020 and even higher levels in 2015-18. We will be opportunistic in our approach to option writing – we were active at the end of 2020 in selling puts as we saw strong upside on economic recovery across the energy markets but did very little in the middle part of the year as volatility dropped and selling options became less attractive.
It should also be noted that 2021 saw the Company return to a more normal position of a tax expense, compared to 2020 where we benefitted from an extraordinary gain on a substantial tax refund.
TRADITIONAL ENERGY
Following a dismal 2020, energy was the top-performing global sector (+28.6%1) through the last financial year. Oil prices were up more than 50% on average year-over-year.
Last year we outlined our belief that the energy sector was entering a new era, one characterised by better capital allocation and increasing returns to shareholders. For a sector that has been synonymous with poor capital returns for decades, scepticism was warranted particularly as oil prices tracked a steady recovery throughout the year. Yet, quite remarkably, the US shale companies are on pace to reinvest less than 60% of their internally generated cash flows this year. This is in stark contrast to the ten years ending 2019, where the sector reinvested as much as 150% of each dollar generated. By mid-year, industry balance sheets were largely repaired and cash returns to shareholders inflected dramatically.
At this point it is probably worth asking what has changed in the oil and gas sector. Historically, this was a sector perennially incentivised to chase double-digit top line growth that predictably led to oversupply and the inevitable boom-bust cycles. Now, shareholders are being promised double-digit returns comprised of high single-digit cash returns supplemented by low single-digit, profitable, volume growth. This discipline is what differentiates the current situation from previous cycles.
It should be noted that the Organisation of the Petroleum Exporting Countries (OPEC) and supporting countries (OPEC-plus) have continued to exhibit similar discipline in managing supply/ demand imbalances since the global pandemic kicked off in earnest in March 2020. Whilst oil markets were initially unsettled by the news OPEC-plus would commence adding back up to 400,000 barrels per day each month from August 2021, the group has continued to moderate its plans to accommodate the fragile recovery in underlying demand.
Not surprisingly, stock prices of E&P companies outpaced the broader energy market and this was an area where the portfolio was positioned strongly for most of the year. In contrast, this discipline proved less helpful for the Oilfield Services (OFS) companies which continued to struggle with over-capacity across most service lines and a reluctance among oil companies to increase budgets.
Reflecting back on last year’s expectation that the industry was entering a new era of discipline, it was clear that this would benefit a strong oil price recovery. However, the less obvious effect of discipline in oil was discipline in natural gas. With fewer oil wells being drilled, this meant lower associated natural gas volumes. Coupled with a regulatory reluctance to sanction new pipelines in North America, the decade-long bear market in natural gas prices is firmly over. This prompted a deliberate shift towards high quality North American natural gas producers within the portfolio.
The era of the shareholder is characterised by stringent capital allocation. This fiscal prudence is being reinforced by investors, yet is set against a consumer unwilling to make the tough decisions towards faster decarbonisation. Many pundits continue to focus myopically on forecasting peak oil demand (which we view as inevitable), yet singularly fail to recognise that we passed peak investment seven years ago.
That we need to continue apace to bend the carbon emissions curve downwards if we are to hit Net Zero is a given. Sadly, policy makers and consumers continue to apply the majority of their focus towards supply-side reductions. With little heed paid to bending down the demand side curve, this mismatch may continue to keep commodity prices high for many years to come.
The underinvestment in oil and natural gas coincided with a sharp restart in the global economy. Colder northern hemisphere temperatures at both ends of the year have tightened gas markets in Europe and Asia as demand for heating surged and renewable intermittency reared its head. Political tensions between Russia and the European Union (EU) have undoubtedly played a hand in driving up natural gas and power prices to record highs this year.
The surge in US natural gas prices this year paled in comparison to the record highs experienced in Europe and Asia where spot markers breached $40/mmbtu through October. Record high gas prices also left their mark on carbon markets with the European Emissions Trading Scheme (ETS) price hitting a record €75/t (US$85/t) during November. Whilst the bifurcation in gas prices between North America and the rest of the world can be partially explained by political tensions between the EU and Russia, the primary driver remains underinvestment in our opinion. Recognising these dislocations, we positioned the Company towards those companies in a position to supply Europe with natural gas.
We continue to believe that natural gas (ultimately coupled with carbon removal) is a critical bridging fuel to a lower carbon world. On the one hand, many parts of Europe are looking to shut down baseload nuclear capacity. On the other hand, rapid deployment of renewables means we need natural gas to help deal with intermittency (the sun does not always shine and the wind does not always blow). Frustratingly, policy makers in some countries are not approving responsibly-managed domestic gas projects that could alleviate the emerging supply/demand imbalance. The losers in this scenario are those that can least afford record high energy prices today.
ENERGY TRANSITION
When we first introduced Energy Transition stocks into the Company in May 2020, we had a clear and simple view: the path to Net Zero would not be a straight line and hence a balanced and nimble approach was warranted. Solving for Net Zero requires a complete replumbing of our global energy system – and energy transitions of this scale are measured in decades rather than months. Just as important is that they require efforts from all stakeholders. The good news so far is that capital markets and industry have made good progress with more companies outlining credible plans to hit Net Zero and the underlying economics of wind and solar continue to make enormous strides. Yet, as outlined earlier, consumers and policy makers are not reacting as swiftly nor with any visible cohesion. It was perhaps a little unsurprising then that COP26 in Glasgow this year ended with little in the way of significant progress.
On a more positive note, the long-term prospects for stocks embracing the Energy Transition continue to brighten with the US$1.75 trillion “build it back better” US bill gaining initial House of Representatives approval in November. This came shortly after the EU approved its Green Deal in May.
Rapidly rising European natural gas and power prices throughout the second half of the year have seen a swift reaction from several governments to cap retail prices ahead of winter. The burden of this cost is to a large extent being borne by European utility companies and as a result we cut the Company’s exposure during the period. We tilted these funds towards key suppliers of natural gas to Europe.
The other notable issue for Energy Transition stocks this year has been that of tightening global supply chains causing inflationary pressures. Despite the strong long-term outlook for renewables, this cost inflation overwhelmed the wind and solar manufacturers causing sharp underperformance. We have reduced exposure to both sectors in anticipation of continued inflationary pressures. Although inflationary issues are expected to persist into next year, we do view them as transitory. However, as more and more economies look to “reshore” their supply chains and manufacturing capabilities we see scope for inflationary headwinds to become a longer dated feature.
Ironically, inflation resulting from “reshoring” is being compounded by higher energy prices which in turn are forcing many industries to pursue more aggressively energy efficient investments. This bodes well for companies exposed to areas such as building insulation, heat pumps and industrial efficiency equipment and monitoring.
MINING
After a great first half of 2021, the second half of the year was decidedly worse with a few mined commodity prices delivering modest positive returns but most of them falling from their mid-year highs. The long-term demand support for many metals that will come from the investment into decarbonisation of power, transport etc. will be positive but the last six months have been a timely reminder of the importance of China as the world’s largest consumer of metals.
The most notable feature of the second half of the year was the significant fall in Chinese steel production. For October and November, steel production rates were down 15-20% compared to the same months in the previous year. For context, oil demand in the US and Europe fell by a similar amount during the widespread lockdowns of April 2020. The contraction in steel production was initially prompted by environmental and power curbs as shortages of power and spiking energy prices caused authorities in China to look to reduce the output of power intensive industries. This was then compounded by a pronounced slowdown in steel demand from real estate/construction in China. Property tightening measures had already slowed demand and then the financial difficulties experienced by a well-known developer appear to have caused another air-pocket in demand. However just as Western central banks are starting to tighten monetary conditions, we have seen the first signs of easing in China and expect this to continue in the first part of 2022. This should be supportive of a pickup in demand for steelmaking materials, for example iron ore, and their prices.
Over the course of 2021, there have been a number of political events that have refocused the market on the challenges of maintaining current mine supply, in addition to incentivising investment into new capacity. The elections in Peru in the first half of the year were heavily focused on the mining industry and the eventual winner was the leftist candidate Pedro Castillo. Whilst his populist rhetoric during his campaign has yet to be translated into negative legislation for the industry, it has almost certainly deterred capital investment into new mining projects. Peru is the world’s second largest copper producer so disruption to future production by delaying or cancelling investment is likely to support medium-term copper prices. Similar threats face the world’s largest copper producer, Chile, where the Senate recently pushed forward discussion on increasing royalties/ taxes on mining. This would also impact the outlook for future lithium supply as Chile produces over a fifth of the world’s current lithium and sits on some of the largest undeveloped reserves globally.
The mining companies remain in an extremely strong financial position and the theme of capital discipline/ shareholder returns that we have written about in a number of previous reports remains well intact. The charts set out on page 16 of the Annual report for the year ended 30 November 2021 show the strength of balance sheets in the mining sector compared to other sectors as well as the attractive dividend yield relative to broader equity markets.
OUTLOOK
The outlook for next year can be framed in much the same way as 2021. On the one hand, the long-term direction of travel towards Net Zero remains clear. On the other hand, the path there will not be a straight line which should bode well for the Company as we have the ability to exercise flexibility around the energy transition – particularly navigating both transitory and more structural inflationary pressures. Although the Omicron variant has increased the risk of economic slowdown, vaccination rates are rising and we believe the global economy will continue reopening throughout the course of 2022.
With a tailwind of fiscal and monetary easing from China driving a strong restocking cycle, we see positive demand drivers for iron ore and copper at a time when supply risks are rising.
Fiscal prudence is likely to remain a feature of the traditional energy space next year paving the way for further improved shareholder returns. The key for traditional energy share price performance may lie not in sputtering demand, but in rapidly evaporating spare crude capacity. In such circumstances, further spikes in prices cannot be ruled out.
From an Energy Transition perspective supply chain inflation likely means a tougher outlook for wind and solar manufacturers at least for the first half of the year. Persistently high gas and power prices (especially in Europe) are likely to feature through 2022 and may well rear their heads again in winter 2022/23. This poses further headwinds to utility companies, particularly outside North America. With that said, inflationary pressures and reshoring are sharpening industry focus in energy efficiency – and we see this as an attractive area heading into 2022 and beyond.
TOM HOLL AND MARK HUME
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
3 February 2022
TEN LARGEST INVESTMENTS
1 + Vale (2020: 2nd)
Diversified mining group
Market value: £7,540,000
Share of investments: 5.9%1 (2020: 6.0%)
One of the largest mining groups in the world with operations in 30 countries. Vale is the world’s largest producer of iron ore and iron ore pellets, and the world’s largest producer of nickel. The group also produces manganese ore, ferroalloys, metallurgical and thermal coal, copper, platinum group metals, gold, silver, cobalt, potash, phosphates and other fertiliser nutrients.
2 + Glencore (2020: n/a)
Diversified mining group
Market value: £7,428,000
Share of investments: 5.8% (2020: n/a)
One of the world’s largest globally diversified natural resources groups. The group’s operations include approximately 150 mining and metallurgical sites and oil production assets. Glencore’s mined commodity exposure includes copper, cobalt, nickel, zinc, lead, ferroalloys, aluminium, iron ore, gold and silver.
3 + Chevron (2020: 4th)
Integrated oil group
Market value: £5,906,000
Share of investments: 4.6% (2020: 5.2%)
An integrated oil and gas producer engaged in all aspects of the oil and gas industry. The group has both upstream and downstream operations, as well as alternative energy operations including solar, wind and biofuels.
4 – BHP (2020: 1st)
Diversified mining group
Market value: £4,912,000
Share of investments: 3.8% (2020: 6.3%)
The world’s largest diversified natural resources group. The company is a major producer of aluminium, iron ore, copper, thermal and metallurgical coal, manganese, uranium, nickel, silver, titanium minerals and diamonds. The group also has significant interests in oil, gas and liquefied natural gas.
5 + Anglo American (2020: 7th)
Diversified mining group
Market value: £4,455,000
Share of investments: 3.5% (2020: 3.4%)
A global mining group. The group’s mining portfolio includes bulk commodities including iron ore, manganese, and metallurgical coal, base metals including copper and nickel and precious metals and minerals including platinum and diamonds. Anglo American has mining operations globally, with significant assets in Africa and South America.
6 + First Quantum Minerals (2020: 8th)
Copper producer
Market value: £4,432,000
Share of investments: 3.5%2 (2020: 3.1%)
An established growing copper mining group operating seven mines including the ramp-up of their newest mine, Cobre Panama, which declared commercial production in September 2019. The group is a significant copper producer and also produces nickel, gold and zinc.
7 + ConocoPhillips (2020: 13th)
Exploration & Production
Market value: £3,398,000
Share of investments: 2.7% (2020: 2.7%)
An American multinational corporation engaged in hydrocarbon exploration. ConocoPhillips is one of the world’s largest independent Exploration & Production (E&P) groups based on production and proved reserves. They have operations in 15 countries and are committed to the efficient and effective exploration and production of oil and natural gas.
8 + EDP Renovaveis (2020: 21st)
Electrification
Market value: £2,888,000
Share of investments: 2.3% (2020: 1.6%)
A global leader in the renewable energy sector, with presence in 25 markets. The group is the fourth largest wind energy producer.
9 + TotalEnergies (2020: 14th)
Integrated oil group
Market value: £2,825,000
Share of investments: 2.2% (2020: 2.7%)
A French multinational integrated oil and gas group, which is one of the seven supermajor oil groups. The group has rebranded from Total to TotalEnergies, as it looks to be a world-class player in the energy transition sector.
10 = Enel (2020: 10th)
Electrification
Market value: £2,705,000
Share of investments: 2.1% (2020: 2.9%)
An Italian electric utility and network operator and a leading owner of renewable energy assets. The group operates in more than 30 countries, bringing energy to people through the adoption of new sustainability-oriented technologies.
1 2.1% relates to fixed interest holdings in Vale.
2 1.3% relates to fixed interest holdings in First Quantum Minerals.
All percentages reflect the value of the holding as a percentage of total investments. For this purpose, where more than one class of securities is held, these have been aggregated. The percentages in brackets represent the value of the holding as at 30 November 2020.
Together, the ten largest investments represent 36.4% of total investments (ten largest investments as at 30 November 2020: 43.1%).
INVESTMENTS AS AT 30 NOVEMBER 2021
| Main geographic exposure | Market value £’000 | | % of investments | |
| Mining | ||||
| Diversified | ||||
| Vale | Brazil | 4,833 | } | 5.9 |
| Vale Debentures* | Brazil | 2,707 | ||
| Glencore | Global | 7,428 | 5.8 | |
| BHP | Global | 4,912 | 3.8 | |
| Anglo American | Global | 4,455 | 3.5 | |
| Teck Resources | Global | 1,733 | 1.4 | |
| Rio Tinto | Global | 1,457 | 1.1 | |
| ————— | ————— | |||
| 27,525 | 21.5 | |||
| ========= | ========= | |||
| Industrial Minerals | ||||
| Lynas Corporation | Australia | 1,592 | 1.2 | |
| Bunge | Global | 1,542 | 1.2 | |
| Trane Technologies | United States | 1,388 | 1.1 | |
| CF Industries | United States | 1,196 | 0.9 | |
| Sociedad Química y Minera de Chile | Chile | 1,119 | 0.9 | |
| ————— | ————— | |||
| 6,837 | 5.3 | |||
| ========= | ========= | |||
| Copper | ||||
| First Quantum Minerals | Global | 2,833 | } | 3.5 |
| First Quantum Minerals 6.875% 01/03/26 | Global | 899 | ||
| First Quantum Minerals 7.5% 01/04/25 | Global | 357 | ||
| First Quantum Minerals 7.25% 01/04/23 | Global | 343 | ||
| Freeport-McMoRan | United States | 2,323 | 1.8 | |
| ————— | ————— | |||
| 6,755 | 5.3 | |||
| ========= | ========= | |||
| Gold | ||||
| Wheaton Precious Metals | Global | 2,704 | 2.1 | |
| Newcrest Mining | Australia | 1,095 | 0.9 | |
| Newmont Corporation | Global | 886 | 0.7 | |
| Sibanye Stillwater | South Africa | 534 | 0.4 | |
| ————— | ————— | |||
| 5,219 | 4.1 | |||
| ========= | ========= | |||
| Steel | ||||
| ArcelorMittal | Global | 997 | } | 1.4 |
| ArcelorMittal 5.5% 18/05/23 | Global | 764 | ||
| Steel Dynamics | United States | 1,290 | 1.0 | |
| ————— | ————— | |||
| 3,051 | 2.4 | |||
| Diamonds | ========= | ========= | ||
| Mountain Province Diamonds 8% 15/12/22 | Canada | 1,535 | 1.2 | |
| ————— | ————— | |||
| 1,535 | 1.2 | |||
| Iron | ========= | ========= | ||
| Labrador Iron Ore | Canada | 1,268 | 1.0 | |
| ————— | ————— | |||
| 1,268 | 1.0 | |||
| Platinum | ========= | ========= | ||
| Impala Platinum | South Africa | 1,131 | 0.9 | |
| ————— | ————— | |||
| 1,131 | 0.9 | |||
| ========= | ========= | |||
| Nickel | ||||
| Nickel Mines | Australia | 1,109 | 0.9 | |
| ————— | ————— | |||
| 1,109 | 0.9 | |||
| ========= | ========= | |||
| Total Mining | 54,430 | 42.6 | ||
| ========= | ========= | |||
| Traditional Energy | ||||
| Exploration & Production | ||||
| ConocoPhillips | Global | 3,398 | 2.7 | |
| Canadian Natural Resources | Canada | 2,658 | 2.1 | |
| Devon Energy | United States | 2,403 | 1.9 | |
| Pioneer Natural Resources | United States | 2,253 | 1.7 | |
| Hess | Global | 1,768 | 1.4 | |
| Tourmaline Oil | Canada | 1,392 | 1.1 | |
| Kosmos Energy | United States | 1,216 | 1.0 | |
| Arc Resources | Canada | 1,126 | 0.9 | |
| Santos | Australia | 839 | 0.6 | |
| ————— | ————— | |||
| 17,053 | 13.4 | |||
| ========= | ========= | |||
| Integrated | ||||
| Chevron | Global | 5,906 | 4.6 | |
| TotalEnergies | Global | 2,825 | 2.2 | |
| Cenovus Energy | Canada | 2,311 | 1.8 | |
| Suncor Energy | Canada | 2,302 | 1.8 | |
| Equinor | Global | 1,789 | 1.4 | |
| Gazprom ADR | Russian Federation | 1,227 | 1.0 | |
| LUKOIL ADR | Russian Federation | 577 | 0.5 | |
| ————— | ————— | |||
| 16,937 | 13.3 | |||
| ========= | ========= | |||
| Refining & Marketing | ||||
| Marathon Petroleum | United States | 2,033 | 1.6 | |
| Valero Energy | United States | 1,589 | 1.2 | |
| Darling Ingredients | United States | 551 | 0.4 | |
| ————— | ————— | |||
| 4,173 | 3.2 | |||
| ========= | ========= | |||
| Distribution | ||||
| TC Energy Corporation | Canada | 1,391 | 1.1 | |
| Cheniere Energy | United States | 1,056 | 0.8 | |
| ————— | ————— | |||
| 2,447 | 1.9 | |||
| ========= | ========= | |||
| Oil Services | ||||
| Schlumberger | Global | 2,123 | 1.7 | |
| ————— | ————— | |||
| 2,123 | 1.7 | |||
| ========= | ========= | |||
| Total Traditional Energy | 42,733 | 33.5 | ||
| ========= | ========= | |||
| Energy Transition | ||||
| Energy Efficiency | ||||
| Ingersoll-Rand | United States | 2,432 | 1.9 | |
| Analog Devices | Global | 2,155 | 1.7 | |
| Schneider Electric | Global | 1,994 | 1.5 | |
| ON Semiconductor | Global | 1,733 | 1.4 | |
| Soitec | France | 1,289 | 1.0 | |
| Renew Energy Global | India | 1,097 | 0.9 | |
| Kingspan Group | Ireland | 1,064 | 0.8 | |
| Texas Instruments | Global | 862 | 0.7 | |
| ————— | ————— | |||
| 12,626 | 9.9 | |||
| ========= | ========= | |||
| Electrification | ||||
| EDP Renováveis | Global | 2,888 | 2.3 | |
| Enel | Global | 2,705 | 2.1 | |
| RWE | Germany | 2,530 | 2.0 | |
| NextEra Energy | United States | 1,086 | 0.8 | |
| ————— | ————— | |||
| 9,209 | 7.2 | |||
| ========= | ========= | |||
| Renewables | ||||
| Vestas Wind | Global | 1,999 | 1.6 | |
| First Solar | Global | 1,211 | 0.9 | |
| Scatec ASA | Global | 1,066 | 0.8 | |
| Sunnova Energy International | United States | 1,055 | 0.8 | |
| ————— | ————— | |||
| 5,331 | 4.1 | |||
| ========= | ========= | |||
| Transport | ||||
| Samsung SDI | Global | 2,145 | 1.7 | |
| General Motors | United States | 1,310 | 1.0 | |
| ————— | ————— | |||
| 3,455 | 2.7 | |||
| ========= | ========= | |||
| Total Energy Transition | 30,621 | 23.9 | ||
| ========= | ========= | |||
| Total Portfolio | 127,784 | 100.0 | ||
| ========= | ========= |
* The investment in the Vale debenture is illiquid and has been valued using secondary market pricing information provided by the Brazilian Financial and Capital Markets Association (ANBIMA).
All investments are ordinary shares unless otherwise stated. The total number of holdings (including options) at 30 November 2021 was 68 (30 November 2020: 63). There were no open options as at 30 November 2021 (30 November 2020: 2).
The equity and fixed income investment total of £127,784,000 (30 November 2020: £97,580,000) above before the deduction of the negative option valuations of £nil (30 November 2020: £11,000) represents the Group’s total investments held at fair value as reflected in the Consolidated and Parent Company Statements of Financial Position below. The table above excludes cash and gearing; the level of the Group’s gearing may be determined with reference to the bank overdraft of £12,927,000 and cash and cash equivalents of £6,552,000 that are also disclosed in the Consolidated and Parent Company Statements of Financial Position. Details of the AIC methodology for calculating gearing are given in the Glossary contained within the Annual Report for the year ended 30 November 2021.
As at 30 November 2021, the Group did not hold any equity interests comprising more than 3% of any company’s share capital.
STRATEGIC REPORT
The Directors present the Strategic Report of the Company for the year ended 30 November 2021. The aim of the Strategic Report is to provide shareholders with the information required to enable them to assess how the Directors have performed in their duty to promote the success of the Company for the collective benefit of shareholders.
The Chairman’s Statement together with the Investment Manager’s Report and the Section 172 Statement setting out how the Directors promote the success of the Company (as set out below) form part of the Strategic Report. The Strategic Report was approved by the Board at its meeting on 3 February 2022.
BUSINESS AND MANAGEMENT OF THE COMPANY
BlackRock Energy and Resources Income Trust plc (the Company) is an investment trust company that has a premium listing on the London Stock Exchange. Its principal activity is portfolio investment and option writing. The Company’s wholly owned subsidiary is BlackRock Energy and Resources Securities Income Company Limited (together ‘the Group’). Its principal activity is investment dealing.
Investment trusts, like unit trusts and open-ended investment companies (OEICs), are pooled investment vehicles which allow exposure to a diversified range of assets through a single investment thus spreading, although not eliminating, investment risk. In accordance with the Alternative Investment Fund Managers’ Directive (AIFMD) the Company is an Alternative Investment Fund (AIF). BlackRock Fund Managers Limited (the Manager) is the Company’s Alternative Investment Fund Manager (AIFM). The management of the investment portfolio and the administration of the Company have been contractually delegated to the Manager. The Manager, operating under guidelines determined by the Board, has direct responsibility for decisions relating to the running of the Company and is accountable to the Board for the investment, financial and operating performance of the Company.
The Company delegates fund accounting services to the Manager, which in turn subdelegates these services to the Fund Accountant, The Bank of New York Mellon (International) Limited. The Company sub-delegates registration services to the Registrar, Computershare Investor Services PLC. Other service providers include the Depositary, also performed by The Bank of New York Mellon (International) Limited. Details of the contractual terms with these service providers are set out on page 53 of the Directors’ Report contained within the Annual Report for the year ended 30 November 2021.
BUSINESS MODEL
The Company invests in accordance with the investment objective. The Board is collectively responsible to shareholders for the long-term success of the Company. There is a clear division of responsibility between the Board and the Manager. Matters reserved for the Board include setting the Company’s strategy, including its investment objective and policy, setting limits on gearing, capital structure, governance, and appointing and monitoring of the performance of service providers, including the Manager. As the Company’s business model follows that of an externally managed investment trust, it does not have any employees and outsources its activities to third party service providers including the Manager who is the principal service provider.
INVESTMENT OBJECTIVE
The Company’s objectives are to achieve an annual dividend target and, over the long term, capital growth by investing primarily in securities of companies operating in the mining and energy sectors.
INVESTMENT POLICY AND STRATEGY
The Company seeks to achieve its objectives through a focused portfolio, consisting of approximately thirty to one hundred and fifty securities.
Although the Company has the flexibility to invest within this range, at 30 November 2021 the portfolio consisted of 68 investments, and the detailed portfolio listing is provided above.
There are no restrictions on investment in terms of geography or sub-sector and, in addition to equities, other types of securities, such as convertible bonds and debt issued primarily by mining or energy companies, may be acquired. Although most securities will be quoted, listed or traded on an investment exchange, up to 10% of the gross assets of the Group, at the time of investment, may be invested in unquoted securities. Investment in securities may be either direct or through other funds, including other funds managed by BlackRock or its associates, with up to 15% of the portfolio being invested in other listed investment companies, including listed investment trusts. Up to 10% of the gross assets of the Group, at the time of investment, may be invested in physical assets, such as gold and in securities of companies that operate in the commodities sector other than the mining and energy sectors.
No more than 15% of the gross assets of the Group will be invested in any one company as at the date any such investment is made and the portfolio will not own more than 15% of the issued shares of any one company, other than the Company’s subsidiary. The Group may deal in derivatives, including options and futures, up to a maximum of 30% of the Group’s assets for the purposes of efficient portfolio management and to enhance portfolio returns. In addition, the Group is also permitted to enter into stock lending arrangements up to a maximum of 33.3% of the total asset value of the portfolio.
The Group may, from time to time, use borrowings to gear its investment policy or in order to fund the market purchase of its own ordinary shares. This gearing typically is in the form of an overdraft or short-term facility, which can be repaid at any time. Under the Company’s Articles of Association, the Board is obliged to restrict the borrowings of the Company to an aggregate amount equal to 40% of the value of the gross assets of the Group. However, borrowings are not anticipated to exceed 20% of gross assets at the time of drawdown of the relevant borrowings.
The Group’s financial statements are maintained in British Pound Sterling. Although many investments are denominated and quoted in currencies other than Sterling, the Company does not intend to employ a hedging policy against fluctuations in exchange rates but may do so in the future if circumstances warrant implementing such a policy.
No material change will be made to the investment policy without shareholder approval.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (“ESG”) IMPACT
The Board’s ESG approach is set out below. The direct impact of the Company’s activities is minimal as it has no employees, premises, physical assets or operations either as a producer or a provider of goods or services. Neither does it have customers. Its indirect impact occurs through the investments that it makes, and this is mitigated through BlackRock’s approach to ESG integration.
PERFORMANCE
Details of the Company’s performance for the year are given in the Chairman’s Statement above. The Investment Manager’s Report above includes a review of the main developments during the year, together with information on investment activity within the Company’s portfolio.
RESULTS AND DIVIDENDS
The Company’s revenue earnings for the year amounted to 4.96p per share (2020: 4.31p). Details of dividends paid and declared in respect of the year, together with the Company’s dividend policy, are set out in the Chairman’s Statement above.
FUTURE PROSPECTS
The Board’s main focus is the achievement of an annual dividend target and, over the long term, capital growth. The future of the Company is dependent upon the success of the investment strategy. The outlook for the Company is discussed in both the Chairman’s Statement and in the Investment Manager’s Report above.
EMPLOYEES, SOCIAL, COMMUNITY AND HUMAN RIGHTS ISSUES
The Company has no employees, and all the Directors are non-executive, therefore, there are no disclosures to be made in respect of employees. The Company believes that it is in shareholders’ interests to consider environmental, social and governance factors and human rights issues when selecting and retaining investments. Details of the Company’s policy on socially responsible investment are set out on page 69 of the Annual Report for the year ended 30 November 2021.
MODERN SLAVERY ACT
As an investment vehicle the Company does not provide goods or services in the normal course of business and does not have customers. Accordingly, the Directors consider that the Company is not required to make any slavery or human trafficking statement under the Modern Slavery Act 2015. The Board considers the Company’s supply chain, dealing predominantly with professional advisers and service providers in the financial services industry, to be low risk in relation to this matter.
DIRECTORS AND GENDER REPRESENTATION
The Directors of the Company are set out in the Governance structure and Directors’ biographies on pages 30 to 33 of the Annual Report for the year ended 30 November 2021. All the Directors held office throughout the year with the exception of Mr Andrew Robson (who was appointed to the Board on 8 December 2020) and Mrs Carole Ferguson who was appointed to the Board on 22 December 2021). The Board consists of three male Directors and two female Directors.
KEY PERFORMANCE INDICATORS
A number of performance indicators (KPIs) are used to monitor and assess the Company’s success in achieving its objectives and to measure its progress and performance. The principal KPIs are described below:
Performance
At each meeting the Board reviews the performance of the portfolio as well as the net asset value and share price for the Company and compares this to the performance of other companies in the peer group. The Company does not have a benchmark; however, the Board also reviews performance in the context of the blended performance of the EMIX Global Mining (ex Gold) Index, MSCI World Energy Index and the S&P Global Clean Energy Index and a 40:30:30 composite of the three indices effective from 1 June 2020. The Board also monitors performance relative to a peer group of commodities and natural resources focused funds and also regularly reviews the Company’s performance attribution analysis to understand how performance was achieved. This provides an understanding of how components such as sector exposure, stock selection and asset allocation impacted performance. Information on the Company’s performance is given in the performance record above and the Chairman’s Statement and Investment Manager’s Report above respectively.
Share rating
The Board monitors the level of the Company’s premium or discount to NAV on an ongoing basis and considers strategies for managing any premium or discount. In the year to 30 November 2021, the Company’s share price to NAV traded in the range of a discount of 13.2% to a premium of 5.8% on a cum income basis. The average discount for the year was 5.6%. A total of 2,800,000 shares were issued from treasury during the year. The Company bought back a total of 51,992 shares during the year and further details are given in the Chairman’s Statement above. Details of shares bought back since the year end date are given in note 9 below.
Further details setting out how the discount or premium at which the Company’s shares trade is calculated are included in the Glossary contained within the Annual Report for the year ended 30 November 2021.
Ongoing charges
The ongoing charges represent the Company’s management fee and all other recurring operating expenses, excluding finance costs, direct transaction costs, custody transaction charges, VAT recovered, taxation and certain non-recurring items, expressed as a percentage of average daily net assets. The ongoing charges are based on actual costs incurred in the year as being the best estimate of future costs. The Company’s Manager has also agreed to cap ongoing charges by rebating a portion of the management fee to the extent that the Company’s ongoing charges exceed 1.25% of average net assets. The Board reviews the ongoing charges and monitors the expenses incurred by the Company on an ongoing basis. A definition setting out in detail how the ongoing charges ratio is calculated is included in the Glossary contained within the Annual Report for the year ended 30 November 2021.
Dividend target and income generation
The level of income is considered at each meeting and the Board receives detailed income forecasts. The Board also monitors the risks and returns from option writing, and regularly reviews the Company’s levels of distributable reserves.
The table below sets out the key KPIs for the Company. These KPIs fall within the definition of ‘Alternative Performance Measures’ (APMs) under guidance issued by the European Securities and Markets Authority (ESMA) and additional information explaining how these are calculated is set out in the Glossary contained within the Annual Report for the year ended 30 November 2021.
Key Performance Indicators | Year ended 30 November 2021 | Year ended 30 November 2020 |
| Net asset value total return1,2 | 34.4% | 13.9% |
| Share price total return1,2 | 41.7% | 16.0% |
| Discount to net asset value (at year end)2,3 | 7.0% | 11.6% |
| Revenue return per share4 | 4.96p | 4.31p |
| Ongoing charges2, 5 | 1.21% | 1.25% |
| ========= | ========= |
1 This measures the Company’s NAV and share price total returns, which assumes dividends paid by the Company have been reinvested.
2 Alternative Performance Measures, see contained within the Annual Report for the year ended 30 November 2021.
3 This is the difference between the share price and the cum-income NAV per share.
4 Revenue return per share of 4.31 pence per share for the year to 30 November 2020 includes an amount of 0.83 pence per share in respect of withholding tax rebates that are non-recurring. See page 102 of the Annual Report for the year ended 30 November 2021 for additional information.
5 Ongoing charges represent the management fee and all other recurring operating expenses excluding finance costs, direct transaction costs, custody transaction charges, VAT recovered, taxation and certain non-recurring items, expressed as a percentage of average daily net assets.
Principal risks
The Company is exposed to a variety of risks and uncertainties. The Board has in place a robust process to identify, assess and monitor the principal risks of the Company. A core element of this process is the Company’s risk register which identifies the risks facing the Company and assesses the likelihood and potential impact of each risk and the controls established for mitigation. A residual risk rating is then calculated for each risk.
The risk register is regularly reviewed, and the risks reassessed. The risk environment in which the Company operates is also monitored and regularly appraised. New risks are also added to the register as they are identified which ensures that the document continues to be an effective risk management tool.
The risk register, its method of preparation and the operation of key controls in the Manager’s and third-party service providers’ systems of internal control are reviewed on a regular basis by the Audit and Management Engagement Committee. In order to gain a more comprehensive understanding of the Manager’s and other third-party service providers’ risk management processes, and how these apply to the Company’s business, BlackRock’s internal audit department provides an annual presentation to the Audit and Management Engagement Committee Chairman setting out the results of testing performed in relation to BlackRock’s internal control processes. The Audit and Management Engagement Committee also periodically receives presentations from BlackRock’s Risk & Quantitative Analysis teams, and reviews Service Organisation Control (SOC 1) reports from BlackRock and from the Company’s Custodian (The Bank of New York Mellon (International) Limited). The Custodian is appointed by the Company’s Depositary and does not have a direct contractual relationship with the Company.
The Board has undertaken a robust assessment of both the principal and emerging risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. The COVID-19 pandemic has given rise to unprecedented challenges for businesses across the globe and the Board has taken into consideration the risks posed to the Company by the crisis and incorporated these into the Company’s risk register. The risks identified by the Board have been described in the table that follows, together with an explanation of how they are managed and mitigated. Emerging risks are considered by the Board as they come into view and are incorporated into the existing review of the Company’s risk register. Additionally, the Manager considers emerging risks in numerous forums and the Risk and Quantitative Analysis team produces an annual risk survey. Any material risks of relevance to the Company identified through the annual risk survey will be communicated to the Board. The Board will continue to assess these risks on an ongoing basis. In relation to the UK Code, the Board is confident that the procedures that the Company has put in place are sufficient to ensure that the necessary monitoring of risks and controls has been carried out throughout the reporting period.
The principal risks and uncertainties faced by the Company during the financial year, together with the potential effects, controls and mitigating factors are set out in the following table.
| Principal risk | Mitigation/control |
| Investment performance The returns achieved are reliant primarily upon the performance of the portfolio. The Board is responsible for: · setting the investment strategy to fulfil the Company’s objective; and · monitoring the performance of the Investment Manager and the implementation of the investment strategy. An inappropriate investment strategy may lead to: · poor performance; · a reduction or permanent loss of capital; and · dissatisfied shareholders and reputational damage. The Board is also cognisant of the long-term risk to performance from inadequate attention to ESG issues, and in particular the impact of Climate Change. More detail in respect of these risks can be found in the AIFMD Fund Disclosures document available on the Company’s website at https://www.blackrock.com/uk/individual/literature/policies/itc-disclosure-blackrock-energy-and-resources-income-trust-plc.pdf | To manage this risk the Board: · regularly reviews the Company’s investment mandate and long-term strategy; · has set investment restrictions and guidelines which the Investment Manager monitors and regularly reports on; · receives from the Investment Manager a regular explanation of stock selection decisions, portfolio exposure, gearing and any changes in gearing and the rationale for the composition of the investment portfolio; and · monitors the maintenance of an adequate spread of investments in order to minimise the risks associated with factors specific to particular sectors, based on the diversification requirements inherent in the investment policy. ESG analysis is embedded in the Manager’s investment process. This is monitored by the Board. |
| Income/dividend The ability to pay dividends, and future dividend growth, is dependent on a number of factors including the level of dividends earned from the portfolio and income generated from the option writing strategy. Income returns from the portfolio are dependent, among other things, upon the Company successfully pursuing its investment policy. Any change in the tax treatment of dividends or interest received by the Company including as a result of withholding taxes or exchange controls imposed by jurisdictions in which the Company invests may reduce the level of dividends received by shareholders. | The Board monitors this risk through the receipt of detailed income forecasts and considers the level of income at each meeting. The Company has the ability to make dividend distributions out of special reserves and capital reserves as well as revenue reserves to support any dividend target. These reserves totalled £71.9 million at 30 November 2021. In setting the dividend target each year, the Board is mindful of the balance of shareholder returns between income and capital. |
| Gearing The Company’s investment strategy may involve the use of gearing, including borrowings. Gearing may be generated through borrowing money or increasing levels of market exposure through the use of derivatives. The Company currently has an uncommitted overdraft facility with The Bank of New York Mellon (International) Limited. The use of gearing exposes the Company to the risk associated with borrowing. Gearing provides an opportunity for greater returns where the return on the Company’s underlying assets exceeds the cost of borrowing. It is likely to have the opposite effect where the return on the underlying assets is below the cost of borrowings. Consequently, the use of borrowings by the Company may increase the volatility of the NAV. | The Company’s Articles of Association limit borrowings to an aggregate amount equal to 40% of the value of the gross assets of the Company. However, to further manage this risk the Board does not anticipate borrowings will exceed 20% of gross assets at the time of drawdown. The use of derivatives, including options and futures has been limited to a maximum of 30% of the Group’s assets. The Investment Manager will only use gearing when confident that market conditions and opportunities exist to enhance investment returns. The Investment Manager reports to the Board on a regular basis the levels of gearing in place as compared to limits set by the Board under the investment policy and by the Manager as Alternative Investment Fund Manager (AIFM) under the Alternative Investment Fund Managers’ Directive (AIFMD). The Board monitors gearing levels and will raise any queries or concerns in respect of changes in the gearing level with the Investment Manager. |
| Legal and regulatory compliance The Company has been approved by HM Revenue & Customs as an investment trust, subject to continuing to meet the relevant eligibility conditions and operates as an investment trust in accordance with Chapter 4 of Part 24 of the Corporation Tax Act 2010. As such, the Company is exempt from capital gains tax on the profits realised from the sale of its investments. Any breach of the relevant eligibility conditions could lead to the Company losing investment trust status and being subject to corporation tax on capital gains realised within the Company’s portfolio. Any serious breach could result in the Company and/or the Directors being fined or the subject of criminal proceedings or the suspension of the Company’s shares which would in turn lead to a breach of the Corporation Tax Act 2010. Amongst other relevant laws and regulations, the Company is required to comply with the provisions of the Companies Act 2006, the Alternative Investment Fund Managers’ Directive, the Market Abuse Regulation, the UK Listing Rules and the FCA’s Disclosure Guidance and Transparency Rules. | The Investment Manager monitors investment movements and the amount of proposed dividends, if any, to ensure that the provisions of Chapter 4 of Part 24 of the Corporation Tax Act 2010 are not breached. The results are reported to the Board at each meeting. Compliance with the accounting rules affecting investment trusts is carefully and regularly monitored. The Company Secretary and the Company’s professional advisers provide regular reports to the Board for their review in respect of compliance with all applicable rules and regulations. Following authorisation under the AIFMD, the Company and its appointed AIFM are subject to the risks that the requirements of this Directive are not correctly complied with. The Board and the AIFM also monitor changes in government policy and legislation which may have an impact on the Company. The Market Abuse Regulation came into force across the EU on 3 July 2016. The Board has taken steps to ensure that individual Directors (and their Persons Closely Associated) are aware of their obligations under the regulation and has updated internal processes, where necessary, to ensure the risk of non-compliance is effectively mitigated. |
| Operational The Company relies on the services provided by third parties. Accordingly, it is dependent on the control systems of the Manager and The Bank of New York Mellon (International) Limited (who act as both Depositary, Custodian and Fund Accountant and who maintain the Company’s assets, settlement and accounting records). The Company’s share register is maintained by the Registrar, Computershare. The security of the Company’s assets, dealing procedures, accounting records and adherence to regulatory and legal requirements depend on the effective operation of the systems of the third-party service providers. Failure by any service provider to carry out its obligations to the Company could have a material adverse effect on the Company’s performance. Disruption to the accounting, payment systems or custody records could prevent the accurate reporting and monitoring of the Company’s financial position. | Due diligence is undertaken before contracts are entered into with third party service providers. Thereafter, the performance of the provider is subject to regular review and reported to the Board. The Fund Accountant’s and the Manager’s internal control processes are regularly tested and monitored throughout the year and are evidenced through their SOC 1 reports, which are subject to review by an Independent Service Assurance Auditor. The SOC 1 reports provide assurance in respect of the effective operation of internal controls. These reports are provided to the Audit and Management Engagement Committee. The Company’s financial assets are subject to a strict liability regime and in the event of a loss of assets, the Depositary must return assets of an identical type or the corresponding amount, unless able to demonstrate the loss was a result of an event beyond its reasonable control. The Board reviews the overall performance of the Manager, Investment Manager and all other third-party service providers on a regular basis. The Board also considers the business continuity arrangements of the Company’s key service providers on an ongoing basis and reviews these as part of its review of the Company’s risk register. In respect of the unprecedented risks posed by the COVID-19 pandemic in terms of the ability of service providers to function effectively, the Board has received reports from key service providers setting out the measures that they have put in place to address the crisis, in addition to their existing business continuity framework. Having considered these arrangements and reviewed service levels since the crisis has evolved, the Board is confident that a good level of service has and will be maintained. |
| Market Market risk arises from volatility in the prices of the Company’s investments. The price of shares of companies in the mining, traditional energy and energy transition sectors can be volatile and this may be reflected in the NAV and market price of the Company’s shares. The Company invests in the mining, traditional energy and energy transition sectors in many countries globally and will also be subject to country-specific risk. A lack of growth in world or country-specific industrial production may adversely affect metal and energy prices. Companies operating within the sectors in which the Company invests may be impacted by new legislation governing climate change and environmental issues, which may have a negative impact on their valuation and share price. There is the potential for the Company to suffer loss through holding investments in the face of negative market movements. | The Board considers the diversification of the portfolio, asset allocation, stock selection, and levels of gearing on a regular basis and has set investment restrictions and guidelines which are monitored and reported on by the Investment Manager. The Board monitors the implementation and results of the investment process with the Investment Manager. Under the Company’s investment policy, the Investment Manager has the ability to invest in energy transition stocks and is mindful of the impact of any shift in energy consumption towards less carbon intensive energy supply. This is taken into account by the Investment Manager in building a well diversified portfolio. The Board also recognises the benefits of a closed-end fund structure in extremely volatile markets such as those experienced with the COVID-19 pandemic. Unlike open- ended counterparts, closed-end funds are not obliged to sell- down portfolio holdings at low valuations to meet liquidity requirements for redemptions. During times of elevated volatility and market stress, the ability of a closed-end fund structure to remain invested for the long term enables the Portfolio Managers to adhere to disciplined fundamental analysis from a bottom-up perspective and be ready to respond to dislocations in the market as opportunities present themselves. |
| Financial The Company’s investment activities expose it to a variety of financial risks that include interest rate risk and foreign currency risk. The Company invests in both Sterling and non-Sterling denominated securities. Consequently, the value of investments in the portfolio made in non-Sterling currencies will be affected by currency movements. | Details of these risks are disclosed in note 16 to the Financial Statements in the Annual Report for the year to 30 November 2021, together with a summary of the policies for managing these risks. |
VIABILITY STATEMENT
In accordance with provision 31 of the 2018 UK Corporate Governance Code, the Directors have assessed the prospects of the Company over a longer period than the twelve months referred to by the ‘Going Concern’ guidelines. The Board is cognisant of the uncertainty surrounding the potential duration of the COVID-19 pandemic, its impact on the global economy and the prospects for many of the Company’s portfolio holdings. Notwithstanding this crisis, and given the factors stated below, the Board expects the Company to continue for the foreseeable future and has therefore conducted this review for a period of five years. This is generally the investment holding period investors consider while investing in the sector. The Board also believes that the Company and its key third party service providers have in place appropriate business continuity plans and will be able to maintain service levels through the COVID-19 pandemic. The Board conducted this review for the period up to the AGM in 2027.
In its assessment of the viability of the Company the Directors have noted that:
· the Company predominantly invests in highly liquid, large listed companies so its assets are readily realisable;
· the Company has gearing facilities in place and no concerns around facilities, headroom or covenants;
· the Company’s forecasts for revenues, expenses and liabilities are relatively stable, it has largely fixed overheads which comprise a small percentage of net assets and ongoing charges are capped at 1.25% of average net asset value; and
· the business model should remain attractive for longer than five years unless there is significant economic or regulatory change.
The Directors have also reviewed:
· the impact of a significant fall in global commodity equity markets on the value of the Company’s investment portfolio, factoring in the volatility seen related to the COVID-19 pandemic;
· the ability of portfolio companies to pay dividends, and the Company’s portfolio yield and ability to meet its dividend target over the longer term;
· the ongoing relevance of the Company’s investment objective, business model and investment policy in the current environment; and
· the level of demand for the Company’s shares.
The Board has also considered a number of other factors in its assessment, including:
· portfolio liquidity;
· the Company’s revenue and expense forecasts. The Board is confident that the Company’s business model remains viable and that there are sufficient resources to meet all liabilities as they fall due for the period under review;
· the Company’s borrowing facility and the fact that the Company continues to meet its financial covenants in respect of this facility;
· the principal risks and uncertainties as set out above and the fact that the Company has appropriate controls and processes in place to manage these and to maintain its operating model;
· the operational resilience of the Company and its key service providers and their ability to continue to provide a good level of service for the foreseeable future;
· the effectiveness of business continuity plans in place for the Company and key service providers; and
· the level of income generated by the Company and future income forecasts.
Based on the results of their analysis, the Directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment.
SECTION 172 STATEMENT: PROMOTING THE SUCCESS OF BLACKROCK ENERGY AND RESOURCES INCOME TRUST PLC
The Companies (Miscellaneous Reporting) Regulations 2018 require Directors to explain in detail how they have discharged their duties under Section 172(1) of the Companies Act 2006 in promoting the success of their companies for the benefit of members as a whole. This enhanced disclosure covers how the Board has engaged with and understands the views of stakeholders and how stakeholders’ needs have been taken into account, the outcome of this engagement and the impact that it has had on the Board’s decisions.
As the Company is an externally managed investment company and does not have any employees or customers, the Board considers the main stakeholders in the Company to be the shareholders, key service providers (being the Manager and Investment Manager, the Custodian, Depositary, Registrar and Broker) and investee companies. The reasons for this determination, and the Board’s overarching approach to engagement, are set out in the table below.
| Stakeholders | |||
Shareholders | Manager and Investment Manager | Other key service providers | Investee companies |
| Continued shareholder support and engagement are critical to the continued existence of the Company and the successful delivery of its long-term strategy. The Board is focused on fostering good working relationships with shareholders and on understanding the views of shareholders in order to incorporate them into the Board’s strategy and objectives in delivering long-term growth and income. | The Board’s main working relationship is with the Manager, who is responsible for the Company’s portfolio management (including asset allocation, stock and sector selection) and risk management, as well as ancillary functions such as administration, secretarial, accounting and marketing services. The Manager has sub-delegated portfolio management to the Investment Manager. Successful management of shareholders’ assets by the Investment Manager is critical for the Company to successfully deliver its investment strategy and meet its objective. The Company is also reliant on the Manager as AIFM to provide support in meeting relevant regulatory obligations under the AIFMD and other relevant legislation. | In order for the Company to function as an investment trust with a listing on the premium segment of the official list of the Financial Conduct Authority (FCA) and trade on the London Stock Exchange’s (LSE) main market for listed securities, the Board relies on a diverse range of advisors for support in meeting relevant obligations and safeguarding the Company’s assets. For this reason, the Board considers the Company’s Custodian, Depositary, Registrar and Broker to be stakeholders. The Board maintains regular contact with its key external service providers and receives regular reporting from them through the Board and committee meetings, as well as outside of the regular meeting cycle. | Portfolio holdings are ultimately shareholders’ assets, and the Board recognises the importance of good stewardship and communication with investee companies in meeting the Company’s investment objective and strategy. The Board monitors the Manager’s stewardship arrangements and receives regular feedback from the Manager in respect of meetings with the management of portfolio companies. |
A summary of the key areas of engagement undertaken by the Board with its key stakeholders in the year under review and how Directors have acted upon this to promote the long-term success of the Company are set out in the table below.
| Area of Engagement | Issue | Engagement | Impact |
| Investment Mandate and Objective | The Board is committed to promoting the role and success of the Company in delivering on its investment mandate to shareholders over the long term. However, the Board recognises that the sectors in which the Company invests are undergoing structural changes, with a shift in the energy sector away from carbon-based energy supplies towards alternative and renewable energy sources. The extractive industries in which the companies in the Company’s investment universe operate are facing ethical and sustainability issues that cannot be ignored by asset managers and investment companies alike. More than ever, consideration of sustainable investment is a key factor in making investment decisions. The Board also has responsibility to shareholders to ensure that the Company’s portfolio of assets is invested in line with the stated investment objective and in a way that ensures an appropriate balance between spread of risk and portfolio returns. | The Board believes that responsible investment and sustainability are integral to the longer-term delivery of growth in capital and income and has worked very closely with the Manager throughout the year to regularly review the Company’s performance, investment strategy and underlying policies to ensure that the Company’s investment objective continues to be met in an effective, responsible and sustainable way that is transparent to current and future investors. In addition to six scheduled Board meetings a year, the Board holds a Strategy Day which is dedicated to an in depth review of the Company’s strategy in conjunction with key advisors including the Company’s broker, public relations and marketing teams and members of BlackRock’s portfolio management and risk analytics teams. The Manager’s approach to the consideration of ESG factors in respect of the Company’s portfolio, as well as its engagement with investee companies to encourage the adoption of sustainable business practices which support long-term value creation, are kept under review by the Board. The Manager reports to the Board in respect of its consideration of ESG factors and how these are integrated into the investment process; a summary of BlackRock’s approach to ESG and sustainability is set out below. | With effect from 1 June 2020 the Manager began to transition the Company’s portfolio to reflect an increased focus on investments that would benefit from the transition in the energy sector (including alternative and renewable energy stocks). Although the Board does not formally benchmark the Company’s performance against mining and energy sector indices (because meeting a specific dividend target is not within the scope of these indices and there is not an index that appropriately reflects the Company’s blended exposure to the energy and mining sectors) for internal purposes, the Board has historically compared the performance of the portfolio against a bespoke internal 50:50 mining and energy composite index. This internal reference index was amended in June 2020 in line with portfolio changes noted above such that the neutral sector weightings of 50% mining and 50% traditional energy have been altered to 40% mining, 30% traditional energy and 30% energy transition sector weightings. The Board keeps these neutral weightings under constant review with a view to determining the optimal levels as the Company’s strategy evolves. The Board believes that this shift will enable shareholders to benefit from investment opportunities in well-established, high quality dividend paying renewable energy companies as well as companies set to benefit from changing energy consumption and structural changes in the energy sector. |
| Discount Management | The Board recognises the importance to shareholders that the market price of the Company’s shares should not trade at either a significant discount or premium to the NAV. One of the Board’s long- term strategic aspirations is that the Company’s shares should trade consistently at a price close to the NAV per share. | The Board monitors the Company’s discount on an ongoing basis and meets with the Manager and the Company’s Broker on a regular basis to discuss methods to manage the discount. A range of discount control mechanisms have been considered and the benefits and disadvantages of these have been discussed at length. The Board has the ability to buy back up to 14.99% of the Company’s share capital with pre- emption rights disapplied and will seek to renew this authority at the forthcoming AGM. Although the Board is committed to making share purchases where appropriate and has done so in the past, the Board must balance this against the impact such action has on further reducing the overall size of the Company, which could exacerbate any discount issues. The Board is also prepared to issue shares into the market to meet demand as required and avoid shares moving to trade at an excessive premium. The Board continues to monitor the Company’s discount on a daily basis and considers whether it should take action in terms of buybacks as market conditions evolve. In addition, the Board has worked closely with the Manager to develop the Company’s marketing strategy, with the aim of ensuring effective communication with existing shareholders and to attract new shareholders to the Company in order to improve liquidity in the Company’s shares and to sustain the share rating of the Company. | In May 2021, the Company’s shares moved to trade at a premium and the Company issued 2,800,000 shares for a net consideration of £2,875,000 including costs between 12 May and 25 May 2021. Subsequent to this, the Company’s shares moved to trade at a discount and in September 2021 the Company bought back 51,992 shares at a cost of £48,000. Since the year end and up to 1 February 2022, the Company’s shares moved to trade at a premium and the Company issued 2,375,000 shares at a premium to NAV; during this period no additional shares have been bought back. The Company contributed during the year to a focused investment trust sales and marketing initiative operated by BIM (UK) on behalf of the investment trusts under its management. For the year ended 30 November 2021, the Group’s contribution to the consortium element of the initiative, which enables the trusts to achieve efficiencies by combining certain sales and marketing activities, represented 0.025% per annum of its net assets (£97.2million) as at 31 December 2020, and this contribution was matched by BIM (UK). The Company’s average discount for the year to 30 November 2021 was 5.6% and as at 1 February 2022 the discount stood at 0.6%. |
| Dividend target | A key element of the Company’s investment objective is to achieve an annual dividend target. The Board is cognisant that portfolio investments with a high yield may have lower capital growth, and that seeking to ensure that any dividend target is covered by current year dividend revenue may result in a lower total return. Conversely, a move to invest a higher proportion of the portfolio in higher growth investments (including certain Energy Transition stocks) may result in a lower yielding portfolio. | The Board reviews income forecasts and option writing activity in conjunction with the Manager to determine the most effective approach for meeting the dividend target whilst generating the optimal level of total return for shareholders. The Board aims to meet the annual target dividend primarily from a mix of dividend income from the portfolio and revenue reserves, although this will be supported by the distribution of the Company’s other substantial distributable reserves (£71.9 million at 30 November 2021) if required. | The Board announced on 9 December 2021 that it was increasing the fourth quarter dividend to 1.10p per share (an increase of 10% on the Q3 dividend) and also that it was increasing the Company’s annual dividend target for the year to 30 November 2022 to 4.40 pence per share (a yield of 4.6% based on the share price at 30 November 2021). For the year to 30 November 2021, total dividends of 4.10p per share paid were covered by current year revenue. |
| Service levels of third party providers | The Board acknowledges the importance of ensuring that the Company’s principal suppliers are providing a suitable level of service: this includes the Manager in respect of investment performance and delivering on the Company’s investment mandate; the Custodian and Depositary in respect of their duties towards safeguarding the Company’s assets; the Registrar in its maintenance of the Company’s share register and dealing with investor queries and the Company’s Broker in respect of the provision of advice and acting as a market maker for the Company’s shares. | The Manager reports to the Board on the Company’s performance on a regular basis. The Board carries out a robust annual evaluation of the Manager’s performance, its commitment and available resources. The Board performs an annual review of the service levels of all third-party service providers and concludes on their suitability to continue in their role. The Board receives regular updates from the AIFM, Depositary, Registrar and Broker on an ongoing basis. In light of the challenges presented by the COVID-19 pandemic to the operation of businesses across the globe, the Board has worked closely with the Manager to gain comfort that relevant business continuity plans are operating effectively for all of the Company’s key service providers. | All performance evaluations were performed on a timely basis and the Board concluded that all key third-party service providers, including the Manager were operating effectively and providing a good level of service. The Board has received updates in respect of business continuity planning from the Company’s Manager, Custodian, Depositary, Fund Accountant, Registrar, Printer and Broker and is confident that arrangements are in place to ensure a good level of service will continue to be provided despite the ongoing impact of the COVID-19 pandemic. |
| Board composition | The Board is committed to ensuring that its own composition brings an appropriate balance of knowledge, experience and skills, and that it is compliant with best corporate governance practice under the UK Code, including guidance on tenure and the composition of the Board’s committees. | The Board undertook a review of succession planning arrangements in the year and identified the need for a new Director. The Nomination Committee agreed the selection criteria and the method of selection, recruitment and appointment. Board diversity, including gender, was taken into account when establishing the criteria. The services of an external search consultant, Odgers Berndtson, was used to identify potential candidates. | The Board appointed Mr Andrew Robson as a Director of the Company with effect from 8 December 2020. The Board also appointed Mrs Carole Ferguson as a Director of the Company with effect from 22 December 2021. Mr Robson’s and Mrs Ferguson’s biographies are set out on pages 32 and 33 of the Annual report for the year ended 30 November 2021. Details of each Director’s contribution to the success and promotion of the Company are set out in the Directors’ report on pages 57 and 58 of the Annual Report for the year ended 30 November 2021. Mr Warner, whose tenure will have reached nine years on 1 July 2022, has announced his intention to retire at the 2022 AGM and he will not be standing for re-election. |
ENVIRONMENTAL, SOCIAL AND GOVERNANCE APPROACH
The Board’s approach
Environmental, social and governance (ESG) issues can present both opportunities and threats to long term investment performance. The Company’s investment universe comprises sectors that are undergoing significant structural change and are likely to be highly impacted by increasing regulation as a result of climate change and other social and governance factors. Your Board is committed to ensuring that we have appointed a manager that integrates ESG considerations into its investment process and has the skill and vision to navigate the structural transition that the Company’s investment universe is undergoing. The Board believes effective engagement with management is, in most cases, the most constructive way of driving meaningful change in the behaviour of investee company management. This is particularly true for the Company’s Manager given the extent of BlackRock’s shareholder engagement (BlackRock held 3,000 engagements with companies based in 54 markets for the year to 30 June 2021, and voted on more than 165,000 management and shareholder proposals at more than 16,000 meetings1). The Board believes that BlackRock is well placed as Manager to fulfil these requirements due to the integration of ESG into its investment processes, the emphasis it places on sustainability, its constructive approach in its investment stewardship activities and its position in the industry as one of the largest suppliers of sustainable investment products in the global market. More information on BlackRock’s global approach to ESG integration, as well as activity specific to the BlackRock Energy and Resources Income Trust plc portfolio is set out below. BlackRock has defined ESG integration as the practice of incorporating material ESG information and consideration of sustainability risks into investment decisions in order to enhance risk-adjusted returns. ESG integration does not change the Company’s investment objective or constrain the Investment Manager’s investable universe, and does not mean that an ESG or impact focused investment strategy or any exclusionary screens have been or will be adopted by the Company (apart from the exclusion of companies that generate more than 25% of their revenues from thermal coal production as mentioned below). Similarly, ESG integration does not determine the extent to which the Company may be impacted by sustainability risks. More information on sustainability risks may be found in the AIFMD Fund Disclosures document of the Company available on the Company’s website at https://www.blackrock.com/uk/individual/literature/policies/itc-disclosure-blackrock-energy-and-resources-income-trust-plc.pdf.
1 Source: BlackRock 2021 Voting Spotlight report and BlackRock Investment Stewardship website https://www.blackrock.com/corporate/about-us/investment-stewardship#engagement-and-voting-history
BlackRock Energy and Resources Income Trust plc – engagement with portfolio companies in 2021
Given the Board’s belief in the importance of engagement and communication with portfolio companies, they receive regular updates from the Manager in respect of activity undertaken for the year under review. The Board notes that over the year to 30 November 2021, 94 total company engagements were held with the management teams of 32 portfolio companies representing 59% of the portfolio by value at 30 November 2021. To put this into context, there were 63 companies in the BlackRock Energy and Resources Income Trust plc portfolio at 30 November 2021). Additional information is set out in the table below as well as the key engagement themes for the meetings held in respect of the Company’s portfolio holdings.
| BlackRock Energy and Resources Income Trust plc – year ended 30 November 20211 | |
| Number of engagements held | 94 |
| Number of companies met | 32 |
| % of equity investments covered | 59% |
| Shareholder meetings voted at | 66 |
| Number of proposals voted on | 904 |
| Number of votes against management | 52 |
| % of total votes represented by votes against management | 5.75% |
1 Source: Institutional Shareholder Services as of 5 December 2021
Engagement Themes*1
Environmental: 86%
Governance: 84%
Social: 52%
Top Six Engagement Topics*1
Climate Risk Management: 69%
Operational Sustainability: 52%
Social Risks and Opportunities: 38%
Corporate Strategy: 54%
Board Composition and Effectiveness: 45%
Environmental Impact Management: 35%
* Engagements include multiple company meetings during the year with the same company. Most engagement conversations cover multiple topics and are based on BlackRock vote guidelines and BlackRock’s engagement priorities can be found at: https://www.blackrock.com/corporate/about-us/investment-stewardship#engagement-priorities. Percentages reflect the number of meetings at which a particular topic is discussed as a percentage of the total meetings held; as more than one topic is discussed at each meeting the total will not add up to 100%.
1 Sources: ISS Proxy Exchange and BlackRock Investment Stewardship.
THE IMPORTANCE AND CHALLENGES OF CONSIDERING ESG WHEN INVESTING IN THE NATURAL RESOURCES SECTOR AND BLACKROCK’S GLOBAL APPROACH TO ESG INTEGRATION2
| Environmental | Social | Corporate Governance | |
| Impact | As well as the longer-term contribution to carbon emissions and the impact on the environment, the activities undertaken by many companies in the portfolio such as digging mines or drilling for oil will inevitably have an impact on local surroundings. It is important how companies manage this process and ensure that an appropriate risk oversight framework is in place, with consideration given to all stakeholders. The value wiped off the market cap of companies like BP, after the Macondo oil spill, and Vale, after the Brumadinho dam collapse, highlights the key role that ESG has on share price performance. Climate change and other sustainability factors pose some of the greatest risks to the operating models of companies in the energy and mining sectors as the world transitions to a low-carbon economy. How such companies manage these risks and evolve their operating models through this transition will be a defining feature of their ability to generate long-term sustainable value for shareholders. In order to unlock the full potential of the energy transition these companies must be prepared to adapt, innovate, and pivot their business models. | BlackRock believes it is vital that natural resources companies maintain their social licence to operate. By this, BlackRock means that companies maintain broad acceptance from their key stakeholders, including, business partners (such as suppliers and distributors), clients and consumers, national governments, and the communities in which they operate. Considering the interests of key stakeholders recognizes the collective nature of long-term value creation and the extent to which each company’s prospects for growth are tied to its ability to foster strong sustainable relationships with and support from those stakeholders. | As with all companies, good corporate governance is especially critical for natural resources companies. The performance and effectiveness of the board is critical to the success of a company, the protection of shareholders’ interests, and long-term shareholder value creation. Governance issues, including the management of material sustainability issues that have a significant impact for natural resource companies, all require effective leadership and oversight from a company’s board. Companies with engaged, diverse, and experienced board directors who actively advise and oversee management have a competitive advantage. |
| BlackRock Approach | BlackRock prefers direct dialogue with companies on complex issues such as climate risk and other environmental issues. Where it has concerns that are not addressed by engagements, BlackRock may vote against management, including against corporate directors (and in favour of certain types of shareholder proposals) should companies fail to demonstrate material progress against specific measures. Where companies continue to show inadequate progress against these measures, BlackRock may divest. Specifically, BlackRock asks companies to articulate how their business model is aligned to a scenario in which global warming is limited to well below 2°C, moving towards global net zero emissions by 2050, and to disclose a business plan for how they intend to deliver long-term financial performance through this transition to global net zero, consistent with their business model and sector. More information in respect of how BlackRock assesses how companies are delivering on these plans can be found at https://www.blackrock.com/ corporate/literature/publication/ blk-commentary-climate-risk-and-energy-transition.pdf Where corporate disclosures are insufficient to make a thorough assessment, or a company has not provided a credible plan to transition its business model to a low-carbon economy, BlackRock’s Investment Stewardship team (BIS) may vote against the directors it considers responsible for climate risk oversight. BIS may also support shareholder proposals that it believes address gaps in a company’s approach to climate risk and the energy transition. The Company’s portfolio excludes all companies that generate more than 25% of their revenues from thermal coal production. As part of its process of evaluating sectors with high ESG risk, BlackRock also closely scrutinises other businesses that are heavily reliant on thermal coal as an input, in order to understand whether they are effectively transitioning away from this reliance. | In normal operating conditions (and when not prevented by travel restrictions imposed by Covid-19) the portfolio management team’s site visits to companies’ assets provide them with valuable insight into these issues which often cannot be properly understood from company reports. BIS advocate for improved disclosures to understand how companies are making prudent decisions considering their stakeholders’ interests. BIS also ask companies to demonstrate how they have put in place appropriate board oversight, due diligence, and remediation mechanisms relating to adverse impacts on people arising from their business operations – including those indirectly employed or communities that could be harmed or displaced by a company’s expanding operations. BIS consider the SASB materiality framework to be a helpful tool for companies considering enhancing their disclosures on industry-specific human capital metrics. Given continuing advances in sustainability reporting standards, in addition to BlackRock’s ask that all companies report in alignment with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), BlackRock is evolving its perspective on sustainability reporting to recognize that companies may use standards other than those of the SASB, and reiterate its ask for metrics that are industry- or company-specific. More information on BlackRock’s approach can be found at https://www.blackrock.com/corporate/literature/fact-sheet/blk-responsible-investment-engprinciples-global.pdf. | In conjunction with BIS, the portfolio management team actively engages with companies on a wide range of governance issues including board independence, executive compensation, shareholder protection and timely and adequate disclosure. BIS may also vote against the re-election of directors when they do not seem to be acting in the economic interests of long-term shareholders. The effectiveness of voting against directors is well documented in BlackRock’s, as well as independent third-party, research which indicated that across the FTSE 350 companies where BIS voted against directors over remuneration concerns, 83% made revisions to their pay policies within 12 months.1 The Company’s portfolio has no exposure to any companies on the US sanctions list. |
| BIS -Examples of approach to voting and engagement across ESG categories (year ended 30 June 2021)1 | BIS has created a climate focus universe of over 1,000 carbon-intensive public companies that represent 90% of the global scope 1 and 2 GHG emissions of its clients’ public equity holdings with BlackRock. This 2021 climate focus universe represents companies where climate change and other sustainability factors pose the greatest risk to clients’ investments. More detail can be found at https://www.blackrock. com/corporate/literature/publication/ blk-climate-focus-universe.pdf. BIS held over 1,300 engagements with nearly 670 of the companies in this climate focus universe between 1 July 2020 and 30 June 2021. BIS held 2,330 company engagements on climate related proposals overall. BIS voted against management on climate risk concerns at approximately 2% of the nearly 11,000 proposals it voted on at energy/utilities companies globally. BIS voted against 255 directors and against management at 319 companies for climate risk related concerns. | BIS held 1,350 engagements related to engaging and voting on company impacts on people. This year, BIS supported 35 out of 100 social-related shareholder proposals. | During the 2021 proxy year, BIS did not support 2,222 directors at 1,327 unique companies globally over concerns about independence. BIS voted against 1,862 directors at 975 unique companies globally for concerns related to board diversity. BIS voted against 758 directors globally at 639 unique companies for being overcommitted. BIS voted against the re-election of 931 directors at 453 companies due to concerns over remuneration. |
1 Source: BlackRock’s 2021 voting spotlight report which can be found at https://www.blackrock.com/corporate/literature/publication/2021-voting-spotlight-full-report.pdf
2 The data in this table applies to BIS’s engagements globally across all BlackRock-managed portfolios.
BLACKROCK’S APPROACH TO ESG INTEGRATION
BlackRock believes that sustainability risk – and climate risk in particular – now equates to investment risk, and this will drive a profound reassessment of risk and asset values as investors seek to react to the impact of climate policy changes. This in turn (in BlackRock’s view) is likely to drive a significant reallocation of capital away from traditional carbon intensive industries over the next decade. BlackRock believes that carbon-intensive companies will play an integral role in unlocking the full potential of the energy transition, and to do this, they must be prepared to adapt, innovate and pivot their strategies towards a low carbon economy.
As part of BlackRock’s structured investment process, ESG risks and opportunities (including sustainability/climate risk) are considered within the portfolio management team’s fundamental analysis of companies and industries. ESG factors have been a key consideration of the BlackRock Natural Resources Team’s investment process since inception and the Company’s portfolio managers work closely with BIS to assess the governance quality of companies and investigate any potential issues, risks or opportunities.
As part of their approach to ESG integration, the portfolio managers use ESG information when conducting research and due diligence on new investments and again when monitoring investments in the portfolio. In particular, portfolio managers now have access to 1,200 key ESG performance indicators in Aladdin (BlackRock’s proprietary trading system) from third-party data providers. BlackRock’s internal sustainability research framework scoring is also available alongside third-party ESG scores in core portfolio management tools. BlackRock’s scale and unparalleled access to company management allows it to engage on issues that are identified through questioning management teams and conducting site visits. In conjunction with the portfolio management team, BIS meets with boards of companies frequently to evaluate how they are strategically managing their longer-term issues, including those surrounding ESG and the potential impact these may have on company financials. BIS’s and the portfolio management team’s understanding of ESG issues is further supported by BlackRock’s Sustainable Investment Team (BSI). BSI look to advance ESG research and integration, active engagement and the development of sustainable investment solutions across the firm.
INVESTMENT STEWARDSHIP
As a fiduciary to its clients, BlackRock has built its business to protect and grow the value of clients’ assets. As part of this fiduciary duty to its clients, BIS is committed to promoting sound corporate governance through engagement with investee companies, development of proxy voting policies that support best governance practices and also through wider engagement on public policy issues
GLOBAL PRINCIPLES
BlackRock’s approach to corporate governance and stewardship is explained in its Global Principles. These high-level Principles are the framework for BlackRock’s more detailed, market-specific voting guidelines, all of which are published on the BlackRock website. The Principles describe BlackRock’s philosophy on stewardship (including how it monitors and engages with companies), its policy on voting, its integrated approach to stewardship matters and how it deals with conflicts of interest. These apply across relevant asset classes and products as permitted by investment strategies. BlackRock reviews its Global Principles annually and updates them as necessary to reflect in market standards, evolving governance practice and insights gained from engagement over the prior year. BlackRock’s Global Principles are available on its website at https:// www.blackrock.com/corporate/literature/fact-sheet/blk-responsible-investment-engprinciples-global.pdf
MARKET-SPECIFIC PROXY VOTING GUIDELINES
BlackRock’s voting guidelines are intended to help clients and companies understand its thinking on key governance matters. They are the benchmark against which it assesses a company’s approach to corporate governance and the items on the agenda to be voted on at the shareholder meeting. BlackRock applies its guidelines pragmatically, taking into account a company’s unique circumstances where relevant. BlackRock informs voting decisions through research and engages as necessary. BlackRock reviews its voting guidelines annually and updates them as necessary to reflect changes in market standards, evolving governance practice and insights gained from engagement over the prior year.
BlackRock’s market-specific voting guidelines are available on its website at https://www.blackrock.com/corporate/about-us/investment-stewardship#guidelines.
In 2021, BIS explicitly asked that all companies disclose a business plan aligned with the goal of limiting global warming to well below 2ºC, consistent with achieving net zero global greenhouse gas (GHG) emissions by 2050. BlackRock viewed these disclosures as essential to helping investors assess a company’s ability to transition its business to a low carbon world and to capture value-creation opportunities created by the climate transition. BlackRock also asked that companies align their disclosures to the TCFD framework and the Sustainability Accounting Standards Board (SASB) standards. For 2022, BIS are evolving its perspective on sustainability reporting to recognize that companies may use standards other than that of the SASB, and reiterates its ask for metrics that are industry- or company-specific. BIS is also encouraging companies to demonstrate that their plans are resilient under likely decarbonisation pathways, and the global aspiration to limit warming to 1.5°C. BIS is also asking companies to disclose how considerations related to having a reliable energy supply and just how transition affects their plans. More information in respect of BlackRock’s investment stewardship approach to sustainable investing can be found at https://www.blackrock.com/corporate/ literature/publication/blk-commentary-climate-risk-and-energy-transition.pdf.
BlackRock has been a member of Climate Action 100+ since 2020 and has aligned its engagement and stewardship priorities to UN Sustainable Development Goals (including Gender Equality and Affordable and Clean Energy). A map of how BIS’s engagement priorities align to the UN Sustainable Development Goals (SDGs) can be found at https://www. blackrock.com/corporate/literature/publication/blk-engagement-priorities-aligned-to-sdgs.pdf.
BlackRock is committed to transparency in terms of disclosure on its engagement with companies and voting rationales and is committed to voting against management to the extent that they have not demonstrated sufficient progress on ESG issues. This year, BlackRock voted against or withheld votes from 6,560 directors globally at 3,400 different companies driven by concerns regarding director independence, executive compensation, insufficient progress on board diversity, and overcommitted directors, reflecting our intensified focus on sustainability risks. In the 2020-21 proxy year, BlackRock voted against 255 directors and against 319 companies for climate-related concerns that could negatively affect long-term shareholder value. More detail in respect of BIS’s engagement and voting history can be found at https://www.blackrock.com/corporate/literature/ publication/2021-voting-spotlight-full-report.pdf.
BIS also publishes voting bulletins explaining its vote decision, and the engagement and analysis underpinning it, on certain high-profile proposals at company shareholder meetings. Vote bulletins for 2021 can be found at https:// www.blackrock.com/corporate/about-us/investment-stewardship#vote-bulletins.
BLACKROCK’S REPORTING AND DISCLOSURES
In terms of its own reporting, BlackRock believes that the SASB provides a clear set of standards for reporting sustainability information across a wide range of issues, from labour practices to data privacy to business ethics. For evaluating and reporting climate-related risks, as well as the related governance issues that are essential to managing them, the TCFD provides a valuable framework. BlackRock recognises that reporting to these standards requires significant time, analysis, and effort. BlackRock’s 2021 TCFD report can be found at https://www.blackrock.com/ corporate/literature/continuous-disclosure-and-important-information/tcfd-report-2021-blkinc.pdf
BY ORDER OF THE BOARD
SARAH BEYNSBERGER
FOR AND ON BEHALF OF
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
Company Secretary
3 February 2022
RELATED PARTY TRANSACTIONS AND TRANSACTIONS WITH THE AIFM AND THE INVESTMENT MANAGER
BlackRock Fund Managers Limited (BFM) was appointed as the Company’s AIFM with effect from 2 July 2014. The management contract is terminable by either party on six months’ notice.
BlackRock Investment Management (UK) Limited (BIM (UK)) acts as the Company’s Investment Manager under a delegation agreement with BFM. BIM (UK) also acted as the Secretary of the Company throughout the year. Up to 16 March 2020 BFM received a management fee of 0.95% on the first £250 million of gross assets and 0.90% thereafter. With effect from this date the Company’s management fee was amended such that BFM now receives a fee of 0.80% on gross assets. In addition, and also with effect from 17 March 2020, BFM has agreed, if required, to rebate a portion of the Company’s Management fee each year to ensure that the Company’s Ongoing Charges, as set out and defined in its annual report (and for avoidance of doubt including the management fee) do not exceed 1.25% per annum of net assets. Further details in relation to the management fee are given in note 4 below. The Board believes that the current fee structure is appropriate for an investment company in this sector.
The Group contributes to a focused investment trust sales and marketing initiative operated by BIM (UK) on behalf of the investment trusts under its management. For the year ended 30 November 2021, the Group’s contribution to the consortium element of the initiative, which enables the trusts to achieve efficiencies by combining certain sales and marketing activities, represented 0.025% per annum of its net assets (£97.2 million) as at 31 December 2019, and this contribution is matched by BIM (UK). For the year ended 30 November 2020, £34,000 (excluding VAT) has been invoiced and paid in respect of this initiative. The purpose of the programme is to ensure effective communication with existing shareholders and to attract new shareholders to the Company. This has the benefit of improving liquidity in the Company’s shares and helps sustain the stock market rating of the Company. The total fees paid or payable for these services for the year ended 30 November 2021 amounted to £34,000 excluding VAT (2020: £32,000). Marketing fees of £22,000 excluding VAT (2020: £20,000) were outstanding as at the year end.
BFM and BIM (UK) are subsidiaries of BlackRock, Inc. which is a publicly traded corporation on the New York Stock Exchange operating as an independent firm.
The Board consists of five non-executive Directors, all of whom are considered to be independent of the Manager by the Board None of the Directors has a service contract with the Company. For the year ended 30 November 2021, the Chairman received an annual fee of £38,000, the Chairman of the Audit and Management Engagement Committee received an annual fee of £32,000 and the other Directors received an annual fee of £27,000.
The related party transactions with Directors are set out in the Directors’ Remuneration Report contained within the Company’s Annual Report for the year to 30 November 2021. At 30 November 2021, £10,000 (2020: £10,000) was outstanding in respect of Directors’ fees.
As at 30 November 2021 and 2020, the Directors’ interests in the Company’s Ordinary Shares were as follows:
| 30 November 2021 | 30 November 2020 | |
| Ordinary shares | Ordinary shares | |
| Ed Warner (Chairman) | 94,000 | 94,000 |
| Dr Carol Bell Adrian Brown1 | 44,000 25,000 | 33,500 14,603 |
| Andrew Robson2 | 24,000 | n/a |
| Michael Merton | n/a | 17,000 |
| Carole Ferguson3 | n/a | n/a |
1 Mr Brown acquired 10,397 shares on 16 September 2021.
2 Mr Robson joined the Board with effect from 8 December 2020 and acquired 14,000 shares on 11 December 2020 and an additional 10,000 shares on 28 July 2021.
3 Mrs Ferguson joined the Board with effect from 22 December 2021 and held no shares as at that date.
All of the holdings of the Directors are beneficial. No other changes to these holdings have been notified up to the date of this report.
STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT AND FINANCIAL STATEMENTS
The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable United Kingdom law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have elected to prepare the Group and Parent Company financial statements in accordance with International Accounting Standards in conformity with the Companies Act 2006.
Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company as at the end of each financial year and of the profit or loss of the Group for that year.
Under the Financial Conduct Authority’s Disclosure Guidance and Transparency Rules, Group financial statements are required to be prepared in accordance with International Financial Reporting Standards (‘IFRSs’) adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.
In preparing these financial statements, the Directors are required to:
· present fairly the financial position, financial performance and cash flows of the Group and the Company;
· select suitable accounting policies in accordance with IAS 8, ‘Accounting Policies, Changes in Accounting Estimates and Errors’, then apply them consistently;
· present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
· make judgements and estimates that are reasonable and prudent;
· in respect of the Group financial statements, state whether International Accounting Standards in conformity with the Companies Act 2006 and IFRSs adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union have been followed, subject to any material departures disclosed and explained in the financial statements;
· in respect of the Parent Company financial statements, state whether International Accounting Standards in conformity with the Companies Act 2006 have been followed, subject to any material departures disclosed and explained in the financial statements;
· provide additional disclosures when compliance with the specific requirements in IFRS as adopted by the European Union is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group’s financial position and financial performance; and
· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and/or the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s and the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and the Company and enable them to ensure that the financial statements comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of the Group and for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are also responsible for preparing the Strategic Report, the Directors’ Report, the Directors’ Remuneration Report, the Corporate Governance Statement and the Report of the Audit and Management Engagement Committee in accordance with the Companies Act 2006 and applicable regulations, including the requirements of the Listing Rules and the Disclosure Guidance and Transparency Rules. The Directors have delegated responsibility to the Manager for the maintenance and integrity of the Group’s corporate and financial information included on the BlackRock website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Each of the Directors, whose names are listed on pages 31 to 33 of the Annual Report ended 30 November 2021 confirm to the best of their knowledge that:
· the consolidated financial statements, prepared in accordance with International Accounting Standards in conformity with the Companies Act 2006 and IFRSs adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Company and undertakings included in the consolidation taken as a whole; and
· the annual report and financial statements include a fair review of the development and performance of the business and the position of the Company and undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that it faces.
The 2018 UK Corporate Governance Code also requires Directors to ensure that the Annual Report and Financial Statements are fair, balanced and understandable. In order to reach a conclusion on this matter, the Board has requested that the Audit and Management Engagement Committee advise on whether it considers that the Annual Report and Financial Statements fulfils these requirements. The process by which the Committee has reached these conclusions is set out in the Audit and Management Engagement Committee’s Report on pages 72 to 76 of the Annual Report for the year ended 30 November 2021. As a result, the Board has concluded that the Annual Report for the year ended 30 November 2021, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s and the Company’s position, performance, business model and strategy.
FOR AND ON BEHALF OF THE BOARD
ED WARNER
Chairman
3 February 2022
For more information on BlackRock Energy and Resources Income Trust and how to access the opportunities presented by the energy and resources markets, please visit www.blackrock.com/uk/beri
