As a human being, I care about the damage we are doing to the environment and the inequalities within our societies. As a fund manager, I care about delivering consistent, above-average investment returns to shareholders. These two considerations are not mutually exclusive; I believe that as an investor, you are not forced to make a choice between profit and having an ESG conscience.
At its simplest, my investment process focuses on two key elements; the quality of a business and the long term approach of management. When thinking about those two things and the analytical work that goes behind identifying high quality business with a long-term mind-set, that there is naturally a high degree of overlap between my analysis and that of an “ESG-driven” approach. I will give a couple of examples.
EuroTrust has a longstanding position (a top 3 holding in the Trust) in the Danish pharmaceutical business Novo Nordisk (‘Novo’). Since 1923, Novo has been involved in providing products that help to control the symptoms and side-effects of diabetes; Novo initially focused on insulin and more recently have broadened their portfolio to include other more efficacious and easier-to-use products. The success of Novo over the years has been inextricably linked to their ability to be part of the solution of one of society’s great medical problems; this has also been a major component of my investment thesis for the company. The entire mindset of the company is focused on helping to solve long-term issues within our society. In management’s own words, “We believe that a healthy environment, society and economy are fundamental to long-term business success, and we will play our part, also on the long-term.”
Another example is a more recent position in the Trust, the Swiss business SIG Combibloc (‘SIG’). SIG manufactures machines that package food and liquids into aseptic packaging; they then sell sleeves of the aseptic packaging, over multi-year contracts, to the companies that buy their machines. This is a solid economic model that I believe will deliver attractive investment returns over the long term. It is also a model that is based around ESG considerations. First, their products enable the distribution of food to parts of the world with no suitable refrigerated supply chains; put simply, this enables consumers in these regions to have access to healthy, safe food products that they otherwise wouldn’t be able to obtain. Second, the raw materials from their products are always sustainably sourced and the sleeves that they manufacture have a very high degree of recyclability. One of the company’s mantras is as follows; “SIG aims to achieve a ‘net positive footprint’ in the long term. Very simply, this means that people and nature should be better off in a world with SIG than in a world without SIG.”
My investment process tends to ‘bias me’ towards investing in companies that have an attractive ESG profile. However, I go beyond this bias. For each company that I consider for investment, I analyse six different areas, score each area and total up the overall score to provide an overall view of the attractiveness of the investment opportunity. These six areas of analysis include work on the fundamental valuation of the company, the Return on Invested Capital (ROIC) profile and other fundamental factors. In addition, one of the six areas that I analyse is ESG; in other words, I explicitly consider issues relevant to a company’s ESG profile and this forms a quantitative part of my overall investment view of each company that I look at. I am well aware that as a fund manager and as an allocator of shareholders’ capital, I have a responsibility to invest in a long-term, socially- and environmentally-responsible way. I will continue to invest with this mind-set and with the support and guidance of the Board of EuroTrust, we will continue to consider how we can do more.
In a recent piece of analysis by Kepler Trust Intelligence, EuroTrust was identified as the highest ranking of all Investment Trusts in terms of our level of exposure to companies that scored well on ESG criteria. I was extremely pleased by this, especially as it was an outcome of our investment process, and not an objective. I am aware that any external “ESG score” is subject to the specifics of the process, but this provides support for my opinion that shareholders are not forced to make a choice between a financially successful investment and having an ESG conscience (see Figure 1 below).
I will finish with a link to a powerful video from the CEO of one of our largest positions, the Dutch ingredients business DSM; Feike Sijbesma’s views are very much aligned with my own.