The evolution of sustainability
Environmental, social and governance (ESG) investments have had a long journey over the past 30 years. Once regarded as a niche strategy that sacrificed performance for principle, investors are fast recognising the client benefits offered by a sustainable investment approach that focuses on resilient profits and attractive business practices. By extension, it offers clients the opportunity to align their savings to the highest quality companies best positioned to lead the transition of our global economy to a more sustainable framework. We think this alignment, will support improved client outcomes.
How do we define high quality?
For us quality is companies who actively balance the needs of three core stakeholders: Planet, People and Profit. We look to find companies who understand the long term economic success of their business is dependent on their impact on the planet and the treatment of people across their value chain (employees, customers, suppliers, communities).
The financial benefits of a sustainable approach
Sustainability is a long-term investment theme that identifies opportunities and adds value. Put simply: companies that approach financial risk responsibly, treat their employees and customers well, and manage their environmental impact carefully are likely to be better positioned to deliver sustainable returns for all their stakeholders. This principle lies at the heart of the Jupiter Global Sustainable Equities Fund.
We believe that integrating ESG factors within the investment process helps to strengthen it by concentrating on high-quality, financially stable companies that are likely to be leading for the long term, whilst also recognising companies whose long-term financial stability is vulnerable.
Abbie Llewellyn-Waters, manager of the Jupiter Global Sustainable Equities Fund:
“There is a perception in the market that when investing sustainably the fundamental starting point should be ‘what sustainability theme should we target?’ [But] the more important focus for us is actually to identify companies with strong, robust and disciplined business models. Consistent economic sustainability is underpinned by environmental and societal sustainability. In our view, you can not separate the stakeholders when investing for the long term.”
Focusing on quality and financial stability
Despite this, some investors still regard ESG considerations as a means to “screen out” or exclude companies that do not measure up to specific non-financial criteria. Should this still be the case?
It is a question that is at the heart of the investment philosophy followed by fund manager Abbie Llewellyn-Waters and her team. For her, the highest-quality companies are those that have sustainable business models in economic, environmental and social terms. Our focus is to identify the most attractive companies leading the transition to a more sustainable world economy. Thereby aligning our clients to the direction of travel, not obstructing their opportunity due to legacy issues.
“We do not use sustainability as a tool to exclude stocks from the investment selection process or direct us to areas to invest. It is a completely unconstrained approach designed to capture the direction of travel.”
Strength, breadth and depth of analysis
Rather than only using traditional investment models, Abbie enhances her analysis with sustainability measures. This enables her to assess the long-term intrinsic risks within a company, which in turn helps recognise structurally sound global businesses. When a company is evaluated using sustainable criteria, it can often reveal detail about the quality of the management team, or its operational approach, its strategic horizon, which helps to build deeper knowledge of the company overall.
“In the strategy overall, we firstly aim to identify well-capitalised businesses with strong or improving cash flow characteristics and resilient operational efficiency. ESG metrics are then used to enhance this fundamental analysis and help us understand how a company is positioned on a forward basis.”
Driving long-term performance
Importantly, in identifying companies with high-quality, sustainable strategies, Abbie aims to avoid businesses that focus on short-term gains. The economic sustainability of a company is crucial because it is the key driver of long-term performance.
“We can focus on the material impact of the company on the environment or society, and how management teams are managing that impact. Companies who are not thinking about these risks are unlikely to be the highest quality companies in the market.”
Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested. The Key Investor Information Document, Supplementary Information Document and Scheme Particulars are available from Jupiter on request.
Get in touch
This content is for informational purposes only and is not investment advice. We recommend you discuss any investment decisions with a financial adviser, particularly if you are unsure whether an investment is suitable. Jupiter is unable to provide investment advice. The views expressed are those of the fund manager at the time of writing and may change in the future. This is particularly true during periods of rapidly changing market circumstances. Every effort is made to ensure the accuracy of the information, but no assurance or warranties are given. Issued by Jupiter Asset Management Limited (JAM), registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ, United Kingdom, which is authorised and regulated by the Financial Conduct Authority. No part of this content may be reproduced in any manner without the prior permission of JAM.