“We don’t have a sustainability strategy that sits separate from our business strategy, they go hand in hand.”

These were the words of Patrick K. Decker, President, CEO & Director of Xylem Inc, speaking during their Q2 earnings conference call on the 1st August this year.

If you don’t know Xylem, well the clue is in the name. They transport water. Xylem is the tissue found in plants that transports water from the roots to the leaves. Xylem (the company that is), says its mission is to solve water problems globally. They transport, treat and test water for government, municipal and industrial businesses. The name Xylem then, seems perfectly apt to us.

Some of this is less than glamourous. If you’re reading this in London then you have a lot to thank them for – they have delivered on huge infrastructure projects to upgrade waste water pumping and treatment infrastructure over recent years.

Given their end market (what we would call their product), then it’s not surprising that the company attracts a strong ESG investor base. It’s also not surprising to hear them talk about it during earnings calls.

Mr Decker’s words were music to our ears;

“In many industries and business models, positive sustainability outcomes are a cost of doing business. For Xylem, positive sustainability outcomes are a result of doing business.”

move well beyond, kind of, motherhood and apple pie – it always makes us cringe a little inside when we read sustainability reports and the emphasis is on cook-outs, cake bakes and fun runs. These are what we would class as ’immaterial’ disclosures and we see it all too often, these types of disclosure are so diluted, as it were, that they are irrelevant.

But companies such as Xylem understand that material ESG topics are now as important as any other financial disclosure.

 “All about making sure that we attract, retain the top talent across the landscape. And people nowadays, as you all know, they want to believe in something larger than themselves, and they want to work for a company that has a purpose.”

Investors more and more want to invest with a purpose too and like Xylem, we do not believe that ESG analysis is separate from our investment strategy, it is our bread and butter.  We spend as much time thinking about ESG as we do total addressable markets, competitive advantages, valuation, P/E multiples and cash flows.

“But that’s what’s really driving the sustainability goals. It’s good for business, it’s good for the planet, it’s good for everyone involved, and we have a unique opportunity and a role to play here in doing so“, Mr Patrick Decker.

At date of writing – Kames holds Xylem across a number of investment strategies

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