Sustainable companies with high scores on ESG, which are leaders in their markets, might sound few and far between, but in a deeply considered and researched sustainable investment strategy these exemplars are there to be found.
“A great sustainable company is one where the owners and management have established a business model which goes beyond simply becoming a market leader in its segment, but reaches for true sustainability in design and execution,” says Nicholas Condoleon, Portfolio Manager of the Ausbil Active Sustainable Equity Fund and Head of Research. “Our approach to sustainable investing starts with the best companies in their sectors, and then evaluates them across the full range of ESG measures before they are considered for the portfolio.”
“From an ESG perspective, great sustainable companies demonstrate leadership in a number of areas, which can include governance and board independence, sustainability practices and transparency, diversity and workplace flexibility, quality risk management and safety, information security and great staff engagement,” says Måns Carlsson, Head of ESG Research. “Great sustainable companies also demonstrate a strong awareness and ownership of the social purpose and responsibility in their business, an area of growing importance.”
“We look for future income streams that are linked to strong and sustainable thematics, excellent management, a low and reducing environmental impact, controlled risks, low or improving carbon impact, and a long, sustainable business model,” says Condoleon.
For example, with the pandemic, we have seen what we believe is a major step-shift upwards in the population’s usage of e-commerce and cloud-services, with the sudden impact of lockdown measures and the boom in work-from-home arrangements. These changes are driving companies with high ESG ratings such as NextDC (ASX: NXT) in data centres and storage, Goodman Group (ASX: GMG) and Charter Hall (ASX: CHC) in the sustainable warehousing and logistics that support this new economy.
Themes like decarbonisation and global warming are driving a growing energy thematic that will eventually tip the scales toward alternative energy, most likely faster than previously thought. Here, exposures to the materials that are used in sustainable battery storage technology includes exposures to companies in rare earths, like Lynas (ASX: LYC) and other base metals as in OZ Minerals (ASX: OZL).
“The need for clean and sustainable food and protein sources, relieving increased urbanisation, and making technology, communications and education accessible to all are themes sustainable investors can believe in, and capture in companies that also perform well on ESG measures,” says Måns Carlsson, Head of ESG Research.
In health and ageing, sustainable investment approaches are capturing themes like ageing-in-place real estate dedicated to socially enhanced ageing through companies like Ramsay Health Care (ASX: RHC), and service and medical industries that support the community’s evolving health needs, such as Sonic Healthcare (ASX: SHL). Furthermore, the need to increasingly democratise medicines and treatments, not just locally, but globally through biopharmaceutical companies with life-changing treatments essential for human progress is captured in exposure to companies like CSL (ASX: CSL).
Leaders in sectors such as consumer staples in The A2 Milk Company (ASX: A2M), in new financial services like Afterpay (ASX: APT), and the broadening of investment access for the community like Magellan Financial Group (ASX: MFG) are examples of firms with strong ESG scores and sustainable business models.
“It takes a lot of time and effort to find companies that are not just demonstrably superior in a valuation and financial sense, but are also sustainable leaders in an ESG sense,” says Condoleon. “Great sustainable companies are out there, and offer great rewards for the patience and effort in finding them.”
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Unless otherwise specified, any information contained in this publication is current as at the date of this report and is prepared by Ausbil Investment Management Limited (ABN 26 076 316 473 AFSL 229722) (Ausbil). Ausbil is the issuer of the Ausbil Active Sustainable Equity Fund (ARSN 623 141 784) (Fund). This report contains general information only and the information provided is factual only and does not constitute financial product advice. It does not take account of your individual objectives, financial situation or needs. Before acting on it, you should seek independent financial and tax advice about its appropriateness to your objectives, financial situation and needs. Securities and sectors mentioned in this monthly report are presented to illustrate companies and sectors in which the Fund has invested and should not be considered a recommendation to purchase, sell or hold any particular security. Holdings are subject to change daily. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Past performance is not a reliable indicator of future performance. Unless otherwise stated, performance figures are calculated net of fees and assume distributions are reinvested. Due to rounding the figures in the holdings, breakdowns may not add up to 100%. No guarantee or warranty is made as to the accuracy, adequacy or reliability of any statements, estimates, opinions or other information contained herein (any of which may change without notice) and should not be relied upon as a representation express or implied as to any future or current matter. You should consider the Product Disclosure Statement which is available at www.ausbil.com.au before acquiring or investing in the fund.
A short notice on the COVID-19 public health event, and how it can impact investments
Given the currently evolving issues around the Coronavirus (or Covid-19) globally, which has officially been designated a pandemic by the World Health Organisation, we wish to notify that, as with many firms, business may be disrupted. A public health crisis, pandemic, epidemic or outbreak of a contagious disease, such as the recent outbreak of Coronavirus (or Covid-19) in Australia, Italy, China, South Korea, the United States and other countries, could have an adverse impact on global, national and local economies, which in turn could negatively impact investment returns in any of Ausbil Investment Management Limited’s registered managed investment schemes (the Funds). Disruptions to commercial activity relating to the imposition of quarantines or travel restrictions (or more generally, an inability on behalf of authorities to contain this pandemic) may adversely impact any investment, including by delaying or causing supply chain disruptions or by causing staffing shortages. The outbreak of Coronavirus has contributed to, and may continue to contribute to, volatility in financial markets. The impact of a public health crisis such as the Coronavirus (or any future pandemic, epidemic or outbreak of a contagious disease) is difficult to predict, which presents material uncertainty and risk with respect to any investment or fund performance. You should consider the Product Disclosure Statement which is available at www.ausbil.com.au before acquiring or investing in the fund.