In this interview, Hamish Chamberlayne, Head of Global Sustainable Equity, discusses the team’s commitment to managing clients’ assets in support of long-term sustainable business practices in line with Environmental, Social and Governance (ESG) principles.

What kind of companies does the Global Sustainable Equity Fund seek to invest in?

We have long observed a strong link between sustainable development, innovation and long-term compounding of growth. As active managers, the Global Sustainable Equity Fund seeks to invest in companies that are strategically aligned with the powerful environmental and social trends that are changing the shape of our economy. It is our view that these businesses can deliver attractive returns and strong capital growth for our clients by virtue of having products or services that enable positive change.

Some three decades ago, the United Nations defined sustainable development as that which meets the needs of the present without compromising the ability of future generations to meet their own needs. In our view, four environmental and social megatrends challenge that goal: Climate change, natural resource constraints, population growth and aging populations. Each of these megatrends is putting the global economy under enormous pressure, with far-reaching investment implications. We seek out businesses that enable positive change by combatting the threats posed by the four megatrends; this helps us to stay on the right side of disruption.

How do you apply an ESG lens to your investment approach?

We see myriad of investment opportunities arising from the migration toward a more sustainable global economy. Based on the four megatrends described above, we have established 10 environmental and social sustainable development themes – which include Clean Energy, Knowledge & Technology and Quality of Life – that act as a framework for our idea generation and decision making. Each theme has been carefully selected as, in our view, being a major contributor to the development of a sustainable economy and each investment we make relates back to one of these 10 themes.

At the same time, we seek to avoid certain businesses that are contrary to the development of a sustainable economy as we believe these companies to be at higher risk of disruption through an increasing regulatory burden and social change. Our negative avoidance criteria guides us away from these types of businesses, which include entities that are engaged in fossil fuel extraction, corruption and bribery and intensive farming, to name a few examples.

We do not think that it is enough to apply an “ESG lens” at the end of the investment process. Rather, an ESG focus is integrated throughout the Global Sustainable Equity Fund. In doing so, we believe the Fund is best placed to add value for our clients by being aligned to those businesses that have a positive impact on the environment and society and are therefore more likely to benefit from environmental and social trends.

How does sustainable investing help drive positive investment results?

We believe that strong cash flow generation and resilient, compounding growth characteristics are attributes that are more often found in companies with strong ESG credentials. And research has shown that ESG strategies have demonstrated resiliency during market downturns compared to non-ESG funds. According to Morningstar, 70% of sustainable equity funds – which incorporate ESG factors in their investment mandates – finished in the top half of their respective Morningstar categories during the first quarter of 2020, when global markets fell sharply on worries about the COVID-19 coronavirus.

How has the COVID-19 crisis shined a light on sustainable investing?

The COVID crisis has served to underline the importance of sustainable investing for the environment, society and investors alike. COVID-19 has changed the way that we live and operate around the world and the unprecedented economic and social dislocation brought about by the pandemic has affected people and businesses globally. But this dislocation has not been uniform. Many have been quick to adapt, and we believe a common link among these businesses that have demonstrated resilience through the crisis is digitalization. Cloud computing, cashless payments and online everything are features of the digital economy that have enabled us to successfully navigate the challenges related to social distancing mandates and the resulting economic shutdowns globally. And while the “digitalization of everything” is not new, the crisis has certainly highlighted the developments that have already been made, even accelerating them in some instances. We consider digitalization and sustainability to be two sides of the same coin in their ability to empower people and businesses to work, live and succeed without the need for an excessive carbon footprint. It is a structural shift that has been happening for a long time, now spurred on by the crisis, and we believe that it is key to reaching a sustainable economy.

Why should an investor invest in the Global Sustainable Equity Fund?

Momentous change is happening around the world and the concept of sustainability is becoming harder to ignore. This past year alone has seen a noticeable shift toward sustainable living, from reduced meat consumption to the adoption of electric vehicles. But it is not just society alone that is inciting change; accountability for sustainability has been thrust upon companies worldwide, with increasing regulatory burden and social demands becoming ever more in focus, forcing companies to act. The Global Sustainable Equity Fund seeks to benefit from this trend. We believe that strong cash flow generation and resilient, compounding growth characteristics can be found in those companies that have products which enable positive change. We truly believe that sustainability is the future and those who do not jump on board will be left behind.

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