WHAT DOES SUSTAINABILITY MEAN TO YOU IN TERMS OF DEFINING IT?
I think we are very quick to label or pigeonhole terms in our
industry. The widely accepted definition of sustainability
in an investment context is quite clinically interpreted
as incorporating environmental, social and governance
factors into company analysis with an over-arching
responsible philosophy. For me, it requires broader
and deeper analysis of what the company is making or
providing and how this output will effect society in the
long-term. Personally, I would say we are experiencing a
generational shift towards holding companies to account
for their impact on society. Increased transparency and
reporting has been augmented by digital search, while
social media vehicles can quickly mobilise opinion and
change market behaviours. As investors, we need to be
fully aware of these powerful forces.
WHAT DO YOU LOOK FOR IN A STOCK WHICH OFFERS SUSTAINABLE SOLUTIONS OR IS A TRANSITION CHAMPION?
Fundamentally, we are assessing whether the product
or service the company is offering is solving a significant
challenge or problem in society. Our Amity Insights
represent our differentiated thought-leadership around
identifying many of these key issues, but they should
not be seen as exhaustive. Whether it is reducing global
carbon emissions, or tackling obesity, or reducing our
enormous waste footprint, there are often multi-faceted
opportunities to address the issue. It is critical to assess
both the materiality and intentionality of the company’s
approach, as well as the effectiveness of the company’s
broader strategy and execution. Conversely, we also
need to guard against greenwash and creative marketing
and hold companies to account for over-stating the
sustainable nature of their offering.
IN A GLOBAL EQUITIES PORTFOLIO, WHAT IN YOUR VIEW IS THE BALANCE BETWEEN SELECTING 'OLD ECONOMY' STOCKS AND SUSTAINABLE SOLUTIONS IN TERMS OF STOCK DIVERSITY?
We remain acutely aware of the need to build resilient,
diversified portfolios that can withstand periods of
market volatility. The perception that old economy
firms that harness physical assets and industrial
processes are unable to innovate is misplaced. We see
significant sustainable opportunities in manufacturing
and agriculture alone to address resource efficiency,
and have identified a number of incumbent stocks that
are transitioning as exciting investment opportunities.
Traditional companies can often make small, technology-enhancing acquisitions that can be transformative in terms
of sustainability. Conversely, new economy stocks should
not automatically be seen as solutions providers, and
experience would suggest value creation is not a given for
disruptive companies. Overall, in constructing companies,
we look for sustainable solutions across a broad range
of industries, encompassing a variety of factor risks,
geographies and business models to ensure we achieve
appropriate diversification and risk management.
"Traditional companies can often make small, technology-enhancing acquisitions that can be transformative in terms of sustainability."
IS THERE EVER A TENSION IN YOUR VIEW BETWEEN DELIVERING LONG-TERM FINANCIAL PERFORMANCE FOR INVESTORS AND CHOOSING SUSTAINABLE OPTIONS?
On the contrary, I feel that this is especially aligned
to long-term investing. The sustainable products and
solutions that our target companies are providing are
often aimed at addressing problems and challenges that
are likely to persist over periods lasting more than a few
months or years. In terms of financial performance, my
experience of back-testing data over the long-term is
particularly supportive, but increasingly independent
academic studies support this thesis. Stepping back from
the granularity, it is a coherent argument – companies
that are successfully providing solutions or products
to some of the biggest global challenges are more
likely to see demand in excess of the broad economy,
through the cycle. All other things being equal, if that
product or service is seeing above trend demand, there
is a greater chance of having a degree of pricing power
and healthy profitability. Moreover, we have regularly
found that companies that have robust environmental
policies, enabling accurate measurement and effective
management of key cost items, have superior and less
volatile margin structure. But, before we get too carried
away, there is no one-size fits all sustainable formula
– just because a company is creating a sustainable
product or solution doesn’t necessarily make it a
suitable investment. We undertake the same rigorous
fundamental analysis as a non-sustainable investment
process, and critically we are particularly sensitive to
valuation which can often be excessive in high-profile
SO, DOES SUSTAINABLE INVESTING THEREFORE LEAD TO BUYING HIGHER GROWTH COMPANIES?
While we would expect companies that are providing
sustainable solutions to grow in excess of the economy
over the long-term, how well the market anticipates
this and values that company accordingly is a critical
determinant in delivering superior investment returns.
Using our contrarian approach, we aim to identify those
companies that are not well recognised as sustainable
leaders, and this often takes us into areas where those
characteristics are under-researched, outside of largecap companies, and into regions such as Asia where
there is a nascent focus on sustainable investing. It is
critical that we avoid paying a very full valuation for a
sustainable solution provider, only to find the company
is subject to industry disruption.
OVERALL, DO YOU SEE SUSTAINABILITY AS A FAD, FASHION OR THE FUTURE OF INVESTMENT?
Clearly the demand for sustainable investment has
increased significantly of late, but the suggestion that
this is merely a passing phase or fad is misplaced.
Personally, I believe we are just beginning a journey to
much wider adoption. Obviously, my answer is inherently
biased, given I have chosen to focus my career on
investing sustainably. What was originally seen as niche
is now seeing significant demand from end clients, and
we expect this dynamic to increase further as wealth
transfers to a generation that has grown up with a values
framework that is aligned with sustainable investing. It’s
not just a question of how much my portfolio will return,
but increasingly the question of how their portfolio is
invested is being asked. It’s incumbent on us as both
responsible and sustainable investors to deliver both
outcomes to the end client.