It has been quite interesting to observe how the largest institutional investors around the world have very clearly communicated that their investments are more and more dependent on sustainability issues. The trend has been going on for many years but has really accelerated during 2018/2019. There is pressure on the companies from investors and customers and also from legislation/regulation. Even government budgets and subsidies have conditions regarding environmental impact. Most of the listed companies are, not surprisingly, adapting rapidly and are not only investing in product development but are getting much more transparent regarding the employees’ working conditions, supply chains, logistics, energy usage, raw material sourcing and the environmental footprint in general. The pace of change for companies will accelerate during the coming years as the pressure from the different stakeholders is rapidly increasing.
From an investor’s point of view this creates a very interesting opportunity. If one is able to identify the companies that are optimally positioned to provide solutions for the environmental threats we are facing, it will most likely be a good investment. This combined with a company culture that is also socially and, from a governance perspective, responsible makes for an interesting investment opportunity in our view. From an investor’s point of view the main focus has to be, however, on the service and product of the company and how well it fits into the current ambitions of reducing Co2 and efficient use of natural resources. The reason is that at the end of the day it is the product/service that defines the end-demand and the pricing power (profitability) of the company.
This investment philosophy and strategy has so far been successful in the Fondita Sustainable Europe fund. By developing a systematic investment process in order to find European companies with carefully defined sustainability features, we have been able to deliver stellar outperformance to our investors.
I think it is quite clear that environmentally responsible companies will be an even stronger theme/megatrend within the investment community than it has been during the past few years. I strongly believe that the big investment themes during the coming 10 years will be environment, digitalization, and healthcare. The reason is that it is within these areas that there is likely to be structural growth, decent pricing power and regulatory tailwind. As we will most likely have an ultra-low interest rate environment in the foreseeable future, any prospects of growth and profitability will be even more valuable than before.
Text written by portfolio manager