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Setting sustainable investment objectives

Capitalism has lifted hundreds of millions of people out of poverty over the past 200 years. While you can’t argue with the huge leap in living standards, profit has often come at a cost to people and the planet. But increasingly capitalists have been paying more attention to those costs. That’s why it’s such a hopeful time to run money in an age of responsible investment. There’s a whole wave of people who have a chance to harness the good that investment can do, while attempting to cut out the bad.

 

We spent more than a year designing our range of sustainable multi-asset funds, because we wanted to ensure that we offered something that would focus on owning those companies that are truly trying to do right by people and who are making the world a better place, but without compromising on the financial objectives.

 

Just doing the right thing

Our sustainable multi-asset funds only invest in businesses whose operations make decent profits while also supporting the UN’s Sustainable Development Goals. These 17 goals just make sense, and they can be summarised in one theme: looking after people and the planet. Treating employees and communities right, reducing poverty, and looking after the planet so we all have a healthier home. We wanted to make funds for people who want their investments to make the world a better place but who also need their investments to grow, to pay for their retirement and their children’s university fees.

 

To further these ends, we need to talk with the companies we invest in and get to know them. We bring the same constructive scepticism to our sustainable objectives that we use when assessing companies’ performance prospects. We’re trying to focus on those that can point to facts and results regarding diversity, environmental impact and supply chains. We are impressed by honest and unvarnished transparency about businesses and credible strategies to do the right thing, all backed up with evidence, rather than a pitch-perfect story belying the truth.

 

Better products, better practices

Take Trex, a US composite decking company that we added to our funds at launch. Composite decking uses over 90% recycled materials yet looks almost identical to wood. Trex beats wooden decking hands down: the amount of greenhouse gas and air pollutants is roughly halved compared with treated wood products, and the amount of acidification and ecological toxicity is slashed by about 90%. Trex lasts much longer too. Composite penetration in its main US market is still relatively low, at about 20%, so there’s plenty of customers to convert. We have been positive on the US housing cycle for a while and think spending on these sorts of DIY products is likely to continue increasing for some time.

 

Another holding is Japanese electric motors manufacturer Nidec. These motors are used everywhere, from shock-resistant cooling fans for computer hard-disk drives, to motors for wind turbines (helping bring them to a stop) and automobiles and electric bikes and scooters (helping them go). The pandemic has catalysed change in vehicle electrification and renewable power generation to a staggering degree. Renewable energy made up 80% of all new generation in 2020. Nidec should also get a boost from increased industrial production, warehouse activity and general economic growth because its motors go into forklifts, cars and other machines that companies and households tend to buy more of when things are going well. Especially if people take the opportunity to switch to cleaner-energy alternatives. Nidec’s electric motors are more efficient, so this would mean less energy for the same output and lower costs overall.

 

Then there’s Canadian ecommerce platform Shopify. This carbon-neutral business is popular among small and mid-sized companies, offering a full white-labelled digital sales system, from website design and hosting to payment, shipping and after-sales care. It’s helping in other ways as well. It offers free entrepreneurship and marketing courses for adults, free coding lessons for kids, and is committing millions of dollars annually to its own sustainability fund to fight climate change. Over recent years there has been a trend towards shopping quirky or local: boutiques are in the ascendance, and Shopify is helping give them a leg up. This has accelerated during the pandemic. As more people work from home, smaller retailers in the suburbs are benefiting from the fragmented foot traffic that would normally be sucked up by larger centres. Shopify offers a decent way to get exposure to this if it continues.

 

All of these companies can back up how they are doing the right thing, and they all have strong investment cases as well. We engage with companies, make our own enquiries and when necessary firmly challenge them.

 

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