When it comes to investing, sustainability is a term that is used often, but one that across the industry remains rather indeterminate. For us, the case for, and requirements of sustainable investing is clear. At the heart of our approach is a firm belief that it supports long-term investment resilience and management of material risks, as well as impacting positively on society. Increasingly, that belief is backed by evidence – companies that do good, tend to do well*.
When it comes to picking stocks, we frame sustainability as a set of characteristics that allow companies to operate with resilience and longevity: maintaining stability over the long term, meeting the financial needs of the present without reducing the ability of future generations to meet theirs. We believe that fundamentally incorporating sustainability into strategy encourages businesses to frame decisions through a long-term lens, instead of just focussing on the next quarter’s results. As long-term investors, we actively seek out businesses that approach their capital allocation decisions on a similar horizon to ours.
When examining companies, incorporating a thorough Environmental, Social and Governance factor analysis into our research process is an essential requirement. It provides us with a framework on which to examine existing and potential investments. On a basic level, this allows us to remove certain industries and companies from our investment universe – companies whose products or business practices are fundamentally harmful to the broader society are ones we will never invest in. Additionally, it allows us to evaluate whether certain ESG issues pose material risks. For example, carbon-intensive industries and companies are particularly exposed to so called ‘’transition risks’’ – increased regulation and changing societal expectations as we move towards a low carbon economy – potentially leading to stranded assets.
Avoiding those that are responding inadequately to ESG risks and/or doing harm is a good place to start, but we believe we can do more. Taking a proactive approach, and incorporating the insights of our dedicated Responsible Investment team, we actively look for businesses whose products, services and practices are driving positive societal impact, helping solve some of the biggest problems facing the world – e.g. inequality, climate change, and enormous healthcare challenges like obesity and diabetes. We believe that many of these businesses will continue to see strong demand for their products and services for years to come; some of them will also grow to develop strong competitive barriers, underpinned by focussed leadership and differentiated corporate cultures, loyal customers and suppliers.
Clearly – and proverbially – the global economy is, and traditional market forces are, a big ship to turn around. Progress is also unlikely to be linear, as many short-term analysts on Wall St. would have investors believe. Wherever possible, we actively engage with the companies we invest in to help them frame business decisions better, and to ensure the right incentives are in place to deliver on sustainability targets. In order to be able to drive sustainable change, businesses need access to long-term, patient investor capital. With a typical investment horizon of several years, the Kames Global Sustainable Fund is able to provide that capital and play a small but real part in putting the capitalist system on a more sustainable footing.
*Source: Sustainable Finance
About the author
Andrei Kiselev is an investment manager in the global equities team with responsibility for co-managing our Global Sustainable Equity Fund. He joined us in 2020 from Border to Coast Investment Partnership, where he worked as a Senior Research Manager in global equities. Prior to Border to Coast Investment Partnership, he worked for Baillie Gifford as an Investment Manager in global and US equities. Andrei has a MA in Economics from Edinburgh University and has 11 years’ industry experience.