The Kames Global Sustainable Equity Fund was set up to be deliberately different from other sustainable strategies already in the marketplace. Three years in, despite all the interest in ESG, new fund launches and rebranding of existing stuff, it still feels like that’s the case. Why?
Difference 1 – Disruptive growth
Take an existing investment approach, overlay with an off-the-shelf ESG rating product and yee-haw, get on board the ESG bandwagon. But as we’ve outlined before, these approaches tend to result in vanilla funds with similar investment outcomes – a tilt towards low volatility and quality and away from momentum. Fine. Let the me-toos keep investing in all the same best-in-class stuff and we’ll focus on those parts of the market where considering sustainably has been proven to add the most value, but requires more intelligent thinking.
Active Factor: ESG vs. Benchmark (Feb. 2019)
Active factor exposures: Difference in exposure between the index and its benchmark. Eg: MSCI World ESG Leaders vs MSCI World for the year ending Feb 2019
* While Momentum for 1 year ending Feb 2019 is high, historically its low
Source: Bloomberg Intelligence
Difference 2 – Highly active
44% of US domiciled funds are passively managed today. Passive share has more than doubled since 2009. Vanguard, one of the biggest passive asset managers, now owns more than 5% of almost all S&P 500 stocks. Passive ESG is the latest thing and maybe passives can be effective stewards of the economy. Or maybe not. Regardless, perhaps we should view it as an opportunity. Much like vanilla active ESG, as passive ESG grows, perhaps so will the need for complementary concentrated highly active alternatives (99.5% active share and actively engaged) like ours.
Difference 3 – Honesty
We have always been candid with ethical fund clients about the portfolio impact of the client-led exclusions that we apply. We need to be similarly honest about ‘impact’. Despite what companies might tell us about themselves, everything is not awesome or aligned with the UN Sustainable Development Goals (SDGs). We are happy to tell you the fund’s carbon footprint (it’s great btw), but we would rather spend time explaining our philosophy and chewing over the nuances of how we think about sustainability.
To end, I know we have talked about Everbridge before, but if we must put a number to ‘impact’, how about the following, taken from the company’s recent earnings call…powerful stuff
Just this past Friday, a major cyclone landed on India shores, directly impacting our recently won customer, the state of Odisha.
To highlight the relevancy and value of our solutions, let me read from a recent New York Times’ article entitled: How do you save a million people from a cyclone? Ask a poor Indian state. Appearing in the Times on May 3, 2019, and I quote “Flights are canceled. Train service was out, one of the largest biggest storms in years was bearing down on Odisha, one of India’s poorest states, where millions of people live cheek to jowl in low-lying coastal areas in mud and stick shacks. The government authorities in Odisha, along with India’s – along India’s eastern flank hardly stood still. To warn people of what was coming, they deployed everything they had: 2.6 million text messages in local languages and very clear terms, a cyclone is coming, get to shelters.”
The article goes on to detail, all of these efforts and ends with the following. And I quote, “Seems to have largely worked, Cyclone Fani slammed into Odisha on Friday morning with the force of the major hurricane, packing 120-mile-per hour winds, trees ripped from the ground and many coastal shacks smashed. It could have been a catastrophe. But as of early Saturday, mass casualty seems to have been averted. While the full extent of the destruction remains unclear, only a few deaths have been reported in what appears to be at early warning success story*.
*Everbridge’s 2019 Q1 Earnings Conference Call transcript
Disclaimer – At the time of writing, we held a position in Everbridge.
About the author
Ryan Smith is Head of ESG Research. He joined Kames Capital in October 2000 as an SRI analyst and was appointed to his current position in September 2002. He has 18 years’ industry experience*. His role involves managing the team that conducts the ESG screening process for our Responsible Investing funds. Ryan’s team also provides corporate governance screening and research for all equity investments, and conducts research into environmental and social issues. Before joining us, he worked as an environmental chemist for Severn Trent Water. Ryan has an MSc in Environmental Chemistry from Nottingham Trent University and is a CFA charterholder.
*As at 30 April 2019.