Our SDG Engagement Global Equity Strategy has just passed its three-year anniversary, and whilst the immediate global backdrop leaves few reasons to celebrate, we do feel this is a milestone worth recognising. Back at launch in March 2019, we believed that our small & medium cap focused, global equity product had the potential to offer investors a new approach to the myriad of sustainable development challenges our world faces. Since then, our conviction in this approach has strengthened.
Exploring how investors might use the Sustainable Development Goals (SDGs) as a roadmap to a better future has been a huge learning curve, and the Strategy was explicitly designed to address growing demand from investment to align investment decisions with values. Three years on, we can conclude that it is possible to drive real-world improvement and deliver attractive investment returns for investors.
Of course, we’ve learnt plenty along the way and we look back at three key themes that have emerged.
Businesses have dramatically improved sustainability disclosure – at launch we knew small-mid cap companies were lagging their larger peers – but we have seen numerous examples of companies significantly stepping up their reporting, with Daiseki (Japan) and Kontoor Brands (U.S.) just two of the companies that have embraced the SDGs and thereby helping us quantify the rate of change in their activities. We can only assess our companies’ real-world impact and report back on it to our investors with more hard data points, but we’re seeing a step-change in attitude.
A step-up in two-way dialogue – it takes persistence and thought to build up mutually respectful, strong two-way communications with our investee companies, especially those earlier in their sustainability journey – this is an essential component of our efforts to drive a clear SDG target-level engagement agenda. It has been interesting to see how companies have increasingly contacted us to help them navigate their path forward towards more strategic sustainability. Acuity Brands (U.S.) invited us to discuss our SDG engagement insight to their then recently formed sustainability council, and we were kindly asked by Tecan (Switzerland) to present our SDG perspectives to their top 100 most senior leaders at the Tecan Global Leadership Conference 2021.
When to walk away – naturally, we have high hopes for every investment we take, and whilst our ambition is to hold companies for more than five years, we also have to stay nimble and are happy to bring in superior opportunities. And we also have to act decisively when the facts change. For example, we divested from Anta Sports (H.K.) after it withdrew from the Better Cotton Initiative (BCI) and sold out of was Largan Precision (Taiwan) for persistent lack of access to senior management.
Engagement in action: Hoya Corp (Japan)
Hoya is a manufacturer of eyeglass lenses, contact lenses, and intraocular lenses for cataract operations, supporting healthy and improved vision care for a multitude of people worldwide. It also is a producer of glass disks for hard disk drives (HDDs) and EUV mask blanks for the semiconductor market. Its health and medical products are aligned to SDG target 3.8 (access to medicines and healthcare), and its electronics and imaging products are linked to SDG target 8.2 (achieve greater productivity through diversification, technological upgrading, and innovation).
Target 12.6: Hoya established an inaugural ESG committee in summer 2019
Target 3.8: Hoya has established partnerships with two organisations –Orbis International and Optometry Giving Sight –to advance vision care in developing countries
Target 6.4: In its Integrated report, Hoya disclosed efforts to re-use water in its operations in 2021, as well as a water re-use ratio
Target 13.2: Hoya has established a new mid-term emissions reduction target of 16% CO2/unit of net sales vs. 2019, for the period of 2021-2025
Engaging with ‘intentionality’ works
Our experience engaging with Hoya, and many others, demonstrates that it is possible to accelerate and, in some cases, precipitate positive change in the world around us, through our investee companies’ activities. How? By engaging with intentionality around the SDGs, and carefully crafting SDG-linked engagement agendas, and tracking our progress, as well as our investee companies through time. In other words, we firmly believe that with the right framework and intentionality, impact in listed equities is not only possible, but essential to progressing the SDGs. We will continue to mobilise client capital with intent and purpose, in the aim of delivering real world impact alongside attractive financial returns.
Whilst we hoped the Strategy could help define the frontier of what specialist ESG global equity funds can achieve, we have also been determined to offer a differentiated style exposure to ESG investors. From inception we have actively embraced, and maintained, a low beta, low volatility, high profitability, mid-cap tilt as we believed this could deliver a superior risk-adjusted return profile – and that has largely proven to be the case. We thank investors for the trust they’ve placed in our Strategy and we look forward to continuing to report the positive changes we’re able to make.
Past performance is not a guide to future performance.
The value of an investment is dependent on the supply and demand for the shares of the Investment Trust rather than its underlying assets. The value of an investment will not be the same as the value of the Investment Trust’s underlying assets.
Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned.
Many net zero commitments made by companies either implicitly or explicitly rely on carbon ‘offsetting’. We outline our principles on when companies should use carbon offsets and explore our engagement with businesses, especially in high impact sectors.
Our daily lives are becoming increasingly digitalised. Read our perspective on the opportunities and challenges this profound shift presents to businesses and some of the companies well placed to benefit.