A new approach to delivering profit with purpose
A new approach to delivering profit with purpose
Cazenove Capital’s new sustainable growth fund has an unusual history. The fund was launched following the firm’s success in an “ESG Investing Olympics” competition. This public event was part of an innovative tender process organised by three foundations that were looking to invest in line with their charitable mission. You can read more about the event here.
In response, we adopted a whole-portfolio impact approach within a single multi-asset fund structure, with the three foundations acting as anchor investors. The fund is now available to all Cazenove Capital clients – either on a standalone basis or alongside other investments.
But this is no ordinary sustainable investment fund. With a shared vision, a high degree of transparency and active client participation, we are bringing together investors and managers in a new, collaborative approach to drive climate and social action and deliver profit with purpose.
The portfolio is designed to provide an attractive financial return (UK inflation + 4% per annum* over the long term) while making investments with a positive impact on people and the planet. Using Schroder’s latest sustainability analytics, we are able to quantify the fund’s impact - and will monitor its impact characteristics on an ongoing basis. We estimate that companies within the portfolio at launch generate approximately one fifth of the carbon emissions, and five times the social benefit, of companies in a global equity index.
Source: 31.12.2020. Carbon footprint is based on the average carbon emissions (tonnes CO2e) of portfolio companies, weighted by their position size based on MSCI data. Social benefit is calculated using SustainEx, a proprietary impact measurement tool created by Schroders: Index score +1.3% / Portfolio score +5.9%. For illustration purposes, not a recommendation to buy or sell.
Offsetting carbon emissions
The Sustainable Growth Fund has adopted a pioneering approach towards carbon emissions. As a firm, we are focused on reducing emissions within investment portfolios, as we explain below. However, we recognise that it is not yet possible to totally eliminate carbon emissions from most diversified, multi-asset portfolios.
We have therefore established an innovative partnership with social enterprise Ecologi, supporting projects that remove carbon from the atmosphere. Through this partnership, we will offset the measured emissions from the Sustainable Growth Fund at our expense. You can see our forestation project here.
The ABC of sustainability
The fund has a distinctive approach to sustainable investment. It is organised around three key principles, which we explain below:
- The fund adopts a formal screening policy to exclude areas of significant social or environmental harm – such as fossil fuels, tobacco and armaments.
- More broadly, by integrating analysis of environmental, social and governance factors into our investment decision-making, we aim to avoid exposure to controversial or unsustainable practices.
- Minimise carbon emissions at the portfolio level and offset remaining carbon emissions.
Benefiting society by investing in sustainable business
- We measure and manage the impact of our investments on people and planet, focusing on generating a positive impact overall.
- We look for companies and investment managers with a robust approach to the integration of sustainability considerations, delivering positive outcomes for their stakeholders.
- We look for evidence that companies are taking into account the needs of all of their stakeholders. We believe businesses that do so are best positioned to thrive over the long term. Engagement, increased disclosure requirements, as well as new sources of data, are all helping us assess companies’ relationships with stakeholders including customers, employees, regulators, the environment and local communities.
- We expect fund managers we invest with to take sustainability as seriously as we do. We look for evidence of this at both the specific strategy level and at the firm level.
Contribute to solutions to global challenges through impact investments and use of our influence
- We have deep expertise in thematic investments that target specific areas of unmet need – such as climate change and improving access to healthcare and education.
- We use our influence with companies and investment managers to encourage progress towards the UN sustainable development goals.
- We collaborate with other asset owners and managers to drive industry change. Earlier this year, we have joined 29 asset managers - representing more than $9 trillion of assets - in launching the “Net Zero” Asset Managers initiative. The managers behind the initiative have all committed to gradually transition their assets under management towards net zero greenhouse gas emissions by 2050.
Rigorous investment approach
In line with our other growth strategies, the fund is targeting a long-term return of UK inflation + 4% per annum*. By adopting a diversified approach, incorporating a range of asset classes, managers and investment styles, the fund aims to deliver smoothed returns.
The fund’s focus on sustainability does not involve sacrificing any financial return. In fact, we believe that a focus on sustainability will help us navigate the evolving investment landscape – and could help returns. As Schroders CEO Peter Harrison recently noted, there is now “a new dimension to investing. Investors must understand the cost of a company’s entire activities – they must value their stocks based on impact-adjusted profits.”
Take climate change as an example. It is now increasingly clear that it will require businesses across a range of industries to overhaul business models that have been in place for many years. For other companies, it will also create huge new opportunities. In other words, we expect the evolving investment implications of climate change to create new winners and losers in the years ahead. There are many other areas where thinking about environmental or social consequences can help us identify businesses which are well positioned for the years ahead – and avoid those which are not.
As an active owner, we use voting and engagement to encourage companies to improve their practices, using our scale to drive progress. Again, this is not done solely for moral reasons. There is financial benefit for the investors we represent. By encouraging companies to reduce environmental or social risks in their businesses, we can help to increase their long-term value. As a significant investor in third party funds we also use our influence to improve sustainable investment practices across our industry. For instance, in 2020 we encouraged an ETF manager to remove fossil fuels from their sustainable investment range, representing £9 billion of assets.
The Sustainable Growth Fund draws on Cazenove Capital’s disciplined investment research and risk management processes. It also benefits from the resource of a dedicated Sustainable Investment Committee and Schroders award winning Sustainability Team.
While a similar strategy has been available as a model portfolio, the new fund structure comes with a number of advantages. Within the fund, there is no tax liability when we buy or sell individual holdings, providing us with greater investment flexibility. It is also very easy to add or withdraw capital from the fund. The unique collaboration with Ecologi also ensures you can limit your investment’s impact on the planet.
Please get in touch with your usual Cazenove Capital contact for further information.
*Target return is not guaranteed.
When investing, your capital is at risk
The opinions contained herein are those of the author and do not necessarily represent the house view. This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Cazenove Capital does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Cazenove Capital has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Cazenove Capital is part of the Schroder Group and a trading name of Schroder & Co. Registered Office at 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. For your security, communications may be taped and monitored.