Our approach to sustainable investing

Our goal is to generate positive returns for our clients. We believe that companies that deliver benefits to society and the environment face fewer risks over the long term and are therefore better placed to deliver positive returns to shareholders. We also know that we have a role to play that goes beyond that.

Companies are living, breathing entities that affect the world around them. They have the power to change people’s lives for the better and to contribute to solving some of the biggest challenges we face. We understand therefore that when we buy a share in a company, we are buying more than a piece of paper. We’re also purchasing influence and the ability to effect positive change.

We can choose, for example, to allocate money to a company producing healthier foods that reduce the risk of diabetes, rather than one producing sugary drinks. And we can choose to invest in a company that manufactures vaccines and plasma protein biotherapies or one that contributes in other ways to economic development or human welfare and safety.

Each of us in the Sustainable Funds Group investment team signs up to a code of conduct – our Hippocratic oath – in which we promise not to pursue returns to the extent that our actions will knowingly harm others. 

We also promise to allocate funds where they can be used for the future benefit of all.

Investing in companies that are socially useful, that support and work within environmental system limits, and that have responsible business practices, helps us to protect and grow our clients’ capital, while at the same time honouring our promises to contribute to making a real and positive difference.

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How we think about sustainability

While the Sustainable Development Goals and other frameworks are extremely valuable for understanding sustainable development issues, we have found the chart below, by the Global Footprint Network, to express it most simply.

It plots human development against environmental impact per head of population. Each circle represents a country and the diameter of the circle is proportional to that country’s population.

The further a country is to the right of the diagram, the more developed it is considered to be, in terms of things like income, health and education. But because of the world’s predominant model of growth, which is resource-intensive and consumption-driven, the more developed a country is, the greater its consumption of resources. At present, humanity is using up natural resources 50% faster than nature can regenerate.

The green, dashed horizontal line, which represents the globally sustainable ecological footprint, highlights the problem we all face. As countries get richer, and move to the right, they tend to move vertically upwards on this plot, well beyond the green line – that is to say, they consume an unsustainable amount of resources.

The challenge for all societies is to shift their development paths towards the green rectangle at the bottom right, i.e. high human development with a sustainable environmental footprint.

The challenge we set ourselves is to find high-quality companies that are both contributing to and benefiting from this shift.

Why sustainability is important for long term investing

We believe that companies that deliver benefits to society and the environment face fewer risks over the long term and are therefore better placed to deliver positive returns to shareholders.

We don’t accept – as the prevailing resource-intensive development model implies – that sustainable outcomes are somehow a trade-off against a company’s long-term profitability. On the contrary, we would not consider a company with poor sustainability positioning to be one of good quality and worthy of investment.

Sustainability is part of our investment philosophy because it makes sense, both at a financial level and at a societal level.

Headwinds and tailwinds

We’re living through a time of growing sustainable development challenges, including depletion of resources, scarcity and degradation of land and water, and increasing population density, particularly in the developing world.

In our view, it would be foolhardy as long-term investors not to take into consideration both the risks these challenges pose to a company and the opportunities they present.

We like to think of these challenges as winds, and we ask ourselves: Are they likely to propel a potential investment forwards, or to blow it off course? Are they tailwinds or headwinds?

  • A company whose operations reduce negative environmental and social impacts, for example, or firms that provide food, beverages and consumer staples that are positive for human health and hygiene are likely to benefit from sustainability tailwinds.
  • A fossil fuel company, on the other hand, that could see its business model completely disrupted by electric vehicles or solar energy is likely to face stiff sustainability headwinds.

The identification of long-term sustainable development challenges thus becomes an extremely important part of minimising risk and maximising returns for our clients.

We believe that the best way to understand what headwinds and tailwinds mean in practice, is through the stories of the companies we invest in. For this reason we provide full portfolio disclosure including our view on each company’s sustainability positioning, the risks they face and areas for improvement which we engage with the company on.

What we don’t do

  • We don’t have a separate sustainability team determining an ‘investable list’. All judgments are made by members of our investment team.
  • We’re active investors so we don’t rely on ESG agencies to rate the sustainability positioning of companies, to point us in the direction of reputedly sustainable companies or to exclude others through a top-down screening process.
  • We don’t focus on themes or ‘green’ sectors; rather we focus our analysis on individual companies. We invest in many companies that have excellent sustainability positioning but do not appear on thematic lists because the contribution is indirect, e.g. companies that develop the equipment used to test the safety of electric batteries.
  • We don’t put sustainability positioning above, or hold it distinct from, company quality, or vice versa. As much money has been lost on companies that have great sustainability positioning but unethical management teams or deep financial frailties as there has been on companies who lose their social license to operate.
  • Our focus on positive contributions to sustainable development means we avoid harmful and controversial companies.

You can view our position on harmful and controversial products and services here.

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