The strategy was launched in November 2013 and transitioned to the Sustainable Funds Group in October 2016. The strategy invests in global companies which generally have a stock market value of at least USD 3 billion, and are positioned to contribute to, and benefit from sustainable development.
1 July - 30 September 2021
During the quarter we had an opportunity to initiate a position in two companies we have long admired; Natura in Brazil and MonotaRO in Japan.
Natura is a Brazilian beauty and personal care group with operations across the world. We have been lucky to have known Natura since it listed and have held it in various client portfolios over the years. The company was founded with an ethos of sustainability and is an exemplar of balancing profitability with looking after other stakeholders. Natura is a world leader in its approach to a whole range of sustainability issues ranging from biodiversity in sourcing, fair treatment of staff and environmental design of products and packaging.
In 2014, Natura became the world's first publicly listed B-Corp, joining a select group of companies legally committed to driving positive change in society through sustainable business practices. Recent share price weakness gave us an opportunity to make an investment. Veeva Systems is our other B-Corp investment.
MonotaRO is a business-to-business online platform which sells maintenance, repair and operations products such as cutting tools, safety kit, bearings and fasteners as well as office equipment and medical products, mainly to small and medium sized enterprises. It has been growing at over 25% compound annual growth rate over the last decade with a very low capital intensity. Once again, a bout of share price weakness helped us to make an initial investment although it remains an expensively valued company.
We have continued to increase our investments into Ansys, bioMérieux and Deutsche Post DHL Group where valuations seem acceptable.
After seven years of an investment in Nestlé, we completely sold out of the company. In many ways, the company is an imperfect giant and it is hard to tell whether enough has changed in the sustainability thinking at this huge food behemoth. The product portfolio has certainly improved vastly and the commitment to tackle plastic packaging is also commendable. Ultimately, we were concerned about the level of growth that it offered on valuations that were expensive.
We also sold out of Microsoft. Although there are no imminent threats, we cannot help but worry about regulatory risks in this giant.
Finally, we trimmed some of our semiconductor related holdings.
1 April - 30 June 2021
In a quarter that continued to set new market highs, we remained wary of valuations that are even more stretched.
We sold out of Tokyo Electron Limited and Novozymes on valuation grounds. The quality of these companies remains good and we would be happy to own them again at more reasonable valuations. We also sold out of Tech Mahindra. Although not particularly expensive, its performance is more volatile in comparison to our other top holding Tata Consultancy Services.
Two new companies were added to the portfolio this quarter. The first, Techtronic, is a company we have known and admired for a long time through our Asian portfolios. Well stewarded by the Pudwill family, the company has an excellent position in its power tools and appliances business. The company leads the industry in replacing high-polluting, fossil-fuelled products with environmentally-friendly, clean, cordless powered technology. Their early investment in battery technology, as well as strong brands in consolidated areas has meant they enjoy pricing power too. The company is also a leader in making its batteries compatible across tools and the batteries are compatible with products up to 12 years old.
Another company we added to the portfolio was Cognex, a research and development driven franchise that should continue to benefit from the growth tailwinds of automation and inspection across a variety of industries. The company has a very sound financial foundation to endure the cyclicality of end customers and remains expensive. As their products and services help improve manufacturing quality and reducewaste, we expect plenty of growth in the years ahead. Although founder-chairman and chief culture officer, Bob Shillman has now retired and stepped down from the board, the company continues to be well stewarded by long tenured Cognoids (employees and management of Cognex are known as Cognoids). The company also produces the most original annual reports that we have come across.
We continued to add to other significant holdings in bioMérieux, Deutsche Post and Philips as valuations remain very attractive.
1 July - 30 September 2021
Worldwide Leaders Sustainability
During the quarter there were 56 resolutions from four companies to vote on. On behalf of clients, we did not vote against any resolutions.
1 April - 30 June 2021
Worldwide Leaders Sustainability
During the quarter there were 317 resolutions from 23 companies to vote on. On behalf of clients, we voted against 16 resolutions.
We voted against Adobe’s equity compensation plan and executive compensation as we believe the CEO’s median pay ratio is too high and the plan is unnecessarily complex, and we do not have enough information to determine whether the plan will benefit solely employees or will be very top heavy. (two resolutions)
We voted against the approval of Texas Instruments’ executive compensation as we believe the CEO’s median pay ratio is excessive. (one resolution)
We voted against the approval of Alcon’s executive compensation and their compensation report as we believe the CEO’s pay is excessive and we have reservations on the company awarding bonuses for the year despite all financial targets being missed. (two resolutions)
We voted against the approval of Edward Lifesciences’ executive compensation because they changed the goalposts of their plan in light of COVID-19 and the company was not achieving the threshold performance level for any of the corporate financial metrics. (one resolution)
We voted against Ansys’ equity compensation plan and executive compensation as we believe they do not reflect long-term thinking and are unnecessarily complex. (two resolutions)
We voted against Illumina’s executive compensation because they changed the goalposts of their long-term incentive plan in light of COVID-19. (one resolution)
We voted against Constellation Software’s request to appoint KPMG as their auditor for the 26th year, and their ability to set the auditor fees. We believe the non-audit fees are excessive, given they exceed those paid for audit related services, and a change in the auditor would be in shareholders’ best interests. (one resolution)
We voted against a shareholder proposal relating to Synopsys where shareholders were requesting the company lower the recently introduced provision for shareholders with a 20% holding for over one year to be able to a call a special meeting, to a 10% holding and no minimum holding period. We do not want to encourage any activist-driven change in the company’s culture to a more short-term focus. (one resolution)
We voted against two shareholder proposals relating to Texas Instruments and Edwards Lifesciences which would have enabled shareholders to take action with written consent on important issues that arise between annual meetings. We consider ourselves active shareholders and voting an important responsibility in our investment management duties. (two resolutions)
We voted against a shareholder proposal relating to Nestlé where shareholders were requesting the use of an independent proxy to vote on additional or amended proposals from shareholders at annual general meetings (AGMs). We consider ourselves active shareholders and voting an important responsibility in our investment management duties, as such we do not wish for any other business to be transacted at the AGM. (one resolution)
We voted against a shareholder proposal relating to Ansys where shareholders were requesting the company eliminate the super majority vote they have in some circumstances and replace it with a simple majority vote. We believe the current arrangement better protects the company’s independence and growth over the long term. (one resolution)
We voted against a shareholder proposal relating to Veeva where shareholders with 15% of the company’s outstanding shares would be able to call a special meeting. We do not want to encourage any activist-driven change in the company’s culture to a more short-term focus, and believe the company’s proposal of 25% and one year holding requirement is better for long- term stewardship. (one resolution)
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