Where Sustainability Meets Value

    Stockholm (NordSIP) – This week in Stockholm, we had a chance to meet David Osfield (left), manager of the Amity International Fund at London-based EdenTree Investment Management, together with his colleague Philip Baker (right). We were particularly interested in the fund’s value-based approach which contrasts with the usual growth and long-term opportunistic approach many sustainability-focused managers lean towards.

    “We don’t own any ESG darlings,” Osfield starts, “it is a major differentiator.” Many highly-ranked ESG companies currently trade at premium valuations as investors interested in sustainability will follow recommendations and rankings proposed by agencies, consultants or index providers like MSCI. “We try to identify companies before they are identified as leaders and included in ESG indices,” explains Osfield. “The danger with growth companies, which trade at 25 or 30x PE, is that they are very sensitive to disruptions, which are difficult to foresee.” As an example, Osfield mentions Danish pharmaceutical company Novo Nordisk, who specialises in diabetes care. When the company’s insulin product faced sudden price pressure in the US, the stock price fell sharply. The market can punish high-value stocks harshly, as there is no room for downward earnings revisions.

    Having covered the region for many years, Osfield finds a number of opportunities in Asia. “In Europe, well over half of all institutional investors apply some ESG screening. In Asia, ex-Japan, McKinsey estimates less than one percent do. Local investors have not been focusing on sustainability for a long time, but ESG-reporting is becoming mandatory in Hong Kong and Singapore. Companies need to adapt fast, and no one wants to be seen as a laggard.” Tarena is one example of Amity’s holdings. Also known as, the Chinese-based company provides professional education services, thereby contributing to improving digital skills of graduates. Another example Osfield gives us is Australian-based Bingo Industries, a company that brings the concept of circular economy closer to reality. “This is a very attractively valued stock, that was only listed in May last year. They manage industrial and commercial waste – reprocessing and selling it on. A key attraction is the waste solution they provide to their customers. For listed commercial companies, transparency and traceability of waste are critical issues, as they have to report on their emissions and environmental footprint. Bingo offers those services as part of a package and therefore competes less on price. This is a very strong service proposition.”

    It is not by chance that EdenTree offers a stock-picking strategy with such dedicated attention to ESG. EdenTree’s Amity qualifies as a true veteran in the sustainable investing arena since it now counts 30 years of existence in the field. “We launched our first responsible fund in 1988. All of our assets are invested responsibly, and the idea of sustainability has been one of the main pillars of our investment philosophy from the start. It is not a bolt-on concept,” says Osfield. “We are very proud to have a woman like Sue Round as head of our business,” adds Baker. “She joined the City in 1979, at the time when women were only a few in the finance industry. She is the one who launched our first Amity fund in 1988, and continues to contribute to the investment process today.” The fund was launched concurrently with the asset management arm of charity-oriented Ecclesiastical Insurance, called EdenTree since 2015. “A charity ultimately owns us, and all our profits are directed to good causes, which makes us the fourth biggest corporate donor to charity in the UK*,” Baker reminds us. “Our very existence is based on generating positive outcomes for society.”

    *as measured by the UK Guide to Company Giving 2017/18, published by the Directory for Social Change.

    Picture © NordSIP

    Aline Reichenberg Gustafsson, CFA
    Aline Reichenberg Gustafsson, CFA
    Aline Reichenberg Gustafsson, CFA is Editor-in-Chief for NordSIP and Managing Director for Big Green Tree Media. She has 18 years of experience in the asset management industry in Stockholm, London and Geneva, including as a long/short equity hedge fund portfolio manager, and buy-side analyst, but also as CFO and COO in several asset management firms. Aline holds an MBA from Harvard Business School and a License in Economic Sciences from the University of Geneva.

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