We identify broader market-wide and systemic risks and themes by combining bottom-up company research and portfolio management. Oversight is provided by several groups, including our Investment Risk, Analytics and Research Department, and the firm's Investment Risk Committee. These groups help ensure that portfolio investment risk levels and concentrations are consistent with client expectations. Baillie Gifford's Business Risk and Compliance functions, assisted by other functions such as Legal, Finance and Human Resources, support these groups and committees. This 'second line of defence' provides policy direction and oversees and monitors the risk framework to determine whether all key risks are being identified, assessed and controlled by management commensurate with Baillie Gifford's applicable risk appetite and regulatory needs.
Our Investment Risk, Analytics and Research Department conducts regular portfolio-level investment risk reviews, focusing on topics such as equity duration, valuation and growth rates, behavioural risk and portfolio construction, and geopolitical risk. More information on how we consider these factors can be found in our 2024 report. We also considered artificial Intelligence (AI) as an investment theme and concentration of active risk, engaging with investment strategies to review the valuation, growth and quality aspects of companies with AI thematic investment exposure – both directly (such as in semiconductors manufacturers) and indirectly (in sectors which may be beneficiaries of, or seeing disruption or changing economics from, the integration of AI).
In 2025, we completed market-level risk reviews focusing on tariff policy and its impacts on global markets. This involved analysing company quality, resilience and sources of revenue, and regularly incorporating this analysis into ongoing engagement with and reporting to several strategies. This work remains timely as geopolitical volatility increases. Additionally, we deepened our efforts to embed physical climate risk into our oversight of investment risk. This is a complex and evolving topic, with the state of the art still developing. We will continue refining our approach and deepening our understanding throughout the coming year.
We also considered artificial Intelligence (AI) as an investment theme and concentration of active risk, engaging with investment strategies to review the valuation, growth and quality aspects of companies with AI thematic investment exposure – both directly (such as in semiconductors manufacturers) and indirectly (in sectors which may be beneficiaries of, or seeing disruption or changing economics from, the integration of AI).
Additionally, we deepened our efforts to embed physical climate risk into our oversight of investment risk. This is a complex and evolving topic, with the state of the art still developing. We will continue refining our approach and deepening our understanding throughout the coming year.
Climate change and global efforts to mitigate and adapt to its impacts continue to present risks and opportunities relevant to our task of delivering long-term value for clients. Such risks and opportunities can manifest at individual holdings or at the market and system levels. One example of how we assess these risks and opportunities is through our climate scenarios, which are detailed in our Climate Scenarios Project report. These describe how the climate and energy transitions may unfold in the coming years. In 2025, our Climate Team worked with several of our largest investment teams to help them consider the implications of these scenarios for their investment portfolios.
We also built on our 2024 work by introducing an additional scenario that explores the consequences of an energy ‘addition’ rather than the energy ‘transition’ narrative. Some of this work flows into our product-level TCFD-aligned (Task Force on Climate-related Financial Disclosures) climate reports, which are a regulatory requirement for our UK-managed investment funds. These reports can be found on the relevant fund literature pages of our website.