Reasons to invest
Businesses driving the sustainable transition operate on the right side of social and environmental change and are usually built on strong foundations. They are purposeful, resilient, innovative companies in control of their own destinies – consistently generating cash flow and profits through products, services and activities that help create a better world.
Sustainable investing seeks long-term financial outperformance and social and environment change benefiting current and future generations. By focusing on companies whose activities are aligned with clear themes – including health and wellbeing, inclusivity, efficient and circular production and a thriving natural environment – investors can make a real difference.
Markets can be relatively efficient over the short term, but they struggle to discount positive change over the medium and long term. This means quality businesses helping to improve society and the environment often have better long-term performance prospects than many of the largest stocks in the index today.
How we invest
The beliefs driving our investment approach
- Apply exclusions to the global equity universe
- Exclusions include weapons, fossil fuels, alcohol, gambling and tobacco
- Ensures that companies in industries restricting sustainable outcomes are omitted from the portfolio
- Searching the filtered universe through four thematic lenses which are aligned to the UN Sustainable Development Goals: environmental preservation, social inclusion, health and wellbeing and efficient production and resource usage
- Fundamental analysis of companies aligned with one or more of these themes for evidence of the durability of the business model, financial resilience, investment for growth, robust governance and sound capital allocation
- Combining these findings with sustainability factors to generate a proprietary Sustainability Score for each business
- Sustainability factors include companies’ alignment with the UN Sustainable Development Goals (SDGs), balance of positive and negative externalities and risk of regulatory interference
- Assess fair value on a variety of metrics, explore the bull, bear and base case and seek to identify mispricing
- Allows time for companies to realise their growth potential
- Engaging with companies – in collaboration with our stewardship business, EOS at Federated Hermes – to sustain or improve their positive influence on society and the environment
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