We have held this company since the strategy’s inception in May 2013. Originally, we were invested in Gamesa Corp, which subsequently merged with Siemens Wind to create one of the world’s largest wind turbine manufacturers.
Wind power is a major force in the transition towards global sustainability and the delivery of the UN Sustainable Development Goals (SDGs) – and here Siemens Gamesa plays an important role.
Since the merger, the company has faced elevated governance risks and there has been a change in management. Nevertheless, we continue to see the investment as attractive given its strong growth potential in emerging markets such as China, Brazil and India.
In 2018, the new wind power capacity installed by Siemens Gamesa (7,434MW) resulted in CO2 reductions of 19m metric tons when compared to conventional fossil-based energy production sources1. In addition, it has committed to reaching carbon neutrality by 2025.
Danish healthcare group Novo Nordisk is uniquely positioned to take a leading role in the fight against diabetes. It focuses on diabetes care, offers insulin delivery systems and other products.
Together with its sustainable product offering, the company also employs sustainable business practices: it exhibits strong business ethics and maintains a compressive ‘Access to Medicine’ programme to ensure its products are available to those living with diabetes that would otherwise be unable to afford treatment. In addition, Novo Nordisk is guided by its Triple Bottom Line principle of financially, socially and environmentally responsible business and its performance across the Triple Bottom Line has been added to the company’s Articles of Association.
In 2016, our participation in Orsted’s (formerly DONG Energy) IPO elicited surprise due to the company’s exposure to oil, gas and coal-fired power plants. However, Orsted is perhaps the investment that most easily demonstrates the strategy’s desire to find companies that are increasing their focus on sustainability.
Orsted has since divested its oil and gas business and made a commitment to reduce its coal consumption to zero by 2023. Today, it is a global leader in offshore wind farms. Since its IPO, shares have doubled in price as investors have realised the power of the company’s transformation. In addition, the company has made a commitment to operate in a way that creates progress towards the UN SDGs.
An airline may seem an unusual choice for an ESG strategy: the high emissions of the industry will inevitably lead to increased costs for airlines through taxes and fleet replacement. However, global travel is an integral part of modern society and demand will remain strong.
Airlines that demonstrate a commitment to responsibility are more likely to be prepared for these future industry-wide disruptions.
Delta has an ageing fleet, which will need to be updated. But the company has committed to emission-reduction targets and recognises the importance of climate change, receiving a level four rating (the highest level) in a recent Transition Pathway Initiative analysis. The company was the first US airline to offer carbon offsets to customers. Since 2005, Delta’s fuel-saving efforts have contributed to a 13.3% reduction in absolute emissions since 2005, putting the company on track to meet its goal of reducing emissions by 50% over 2005 levels by 20502.
In addition, it has been prominent in fighting human trafficking: this is a company that continues to lead peers on sustainability issues.
US water utility company American Water Works has very transparent earnings growth. It has proven to be a successful investment as investors have sought safe yield and the regulated water business has offered a steady source of reliable growth.
As a water utility, the company's revenue is generated by addressing SDG 6 Clean Water and Sanitation, making this a very attractive thematic sustainability investment. It is reducing annual water use by 3.5bn gallons through conservation every year, while it is recycling over 1bn gallons of water annually and producing reuse water at 30 facilities3.
In addition, the company has good governance. Its continued infrastructure upgrades have resulted in a relatively better performance than its peers, with lower carbon emissions intensity and water leakage rates.
We recently took a position in Japanese firm Kurita Water Industries, which produces water treatment and purification systems and chemicals. We consider it a high-quality investment that trades at an attractive valuation.
The company mainly targets industrial customers, helping businesses reduce the amount of water they use as well as neutralise, reclaim and/or reuse wastewater. It is growing globally through acquisitions, yet it retains defensive characteristics thanks to its cash-rich balance sheet.
Another new holding of ours is Gaztransport Et Technigaz. Its structural growth opportunity emanates from concerns over climate change.
On a broad level, LNG is a key fuel that will help the planet transition to cleaner energy sources. It is estimated that this transition will see demand for LNG grow by 65% to 2040, partly driven by the substitution of coal as a source of energy.
Regulation will also create a further growth opportunity, which has yet to be recognised in market forecasts. More challenging shipping regulations have been brought into effect by the International Maritime Organisation that aim to reduce the amount of sulphur and nitrous oxide deposited in the atmosphere from emissions. In turn, this will reduce sulphur oxide emissions by 99.9%, nitrous oxide by 85% and carbon dioxide by 25%, making LNG the only viable alternative that will ensure new ships adhere to these regulations. In order to meet these new requirements, ships will need to be fitted with a membrane, known as ‘LNG Bunkering’, to ensure the LNG does not contact the ship’s hull. The company’s membrane technology forms an impermeable lining that prevents such contact and uses the space more efficiently than other solutions, which is particularly important for cargo ships.
Furthermore, as LNG becomes more widely used demand for more storage and refuelling infrastructure will increase, thereby benefitting the company. As yet, this opportunity is not reflected in any market forecasts, which assumes zero growth for the company. However, the improving outlook for LNG demand and fast-growing spot market alone provide ample evidence that forecasts are too conservative.