Learn more about ESG and AMC Investing, and its impact on performance.
Dominique Sekyra, Business Development at Carnot Capital, speaks with Stefan Wagner, Head of Business Development at vestr, on NaluFM about purpose investing.
Beyond the benefits of AMCs, we learn how we can contribute to a more sustainability-conscious world through impact investing:
- Impact Investing in Public Equities
- Effective Impact Measurement
- Impact Investing on Investment Performance
- Recommendations for a Purpose Investment Portfolio
Tune in to the podcast and learn more about recent private market evolvements on NaluFM: here.
Read below the interview Stefan hosted with Dominique:
Stefan: From CSR to ESG, where is the real impact?
Dominique: When you really break it down, impact investing is not really about CSR, nor about ESG. It’s just about doing the right thing. If you as a company produce or create products and technologies that, in some way, solve one of the big problems that our society faces today, you can consider yourself as making an impact.
As an impact investor, it is our responsibility to make sure that capital flows in that direction. We make sure that we’re not investing in companies that talk a big game, but don’t really make much of an impact.
On the other side – to go even further – to look at the products and technologies. Drill down to really find out how much energy is being saved. What is being done on the aquaculture side or the agriculture side, to increase efficiency at the end of the day? For us, that’s what making an impact is.
I presume that starts with negative screening and then use it to divest in a sense. then there is obviously indexing etc. you mentioned about understanding the technology but obviously that requires a bit of specialist knowledge about certain things.
You can obviously do positive screening to counteract negative screening. We positive screen in such a way that we have experience and we have a network within the industries we invest. Thus we have very quick access to the companies in our universe and at any point can ask about a new product that is being developed. We can go in and ask investor relations or the CEO.
But what’s even more valuable to us, is having a connection to the engineers: the on-site guys that know how the products work. We have them explain the product to us, at least to understand what makes it competitive, what makes it better than the competing product, and to gain an increased and enhanced conviction and confidence that we have invested in the right company.
You mentioned how you holistically look at the positive impact. that is one of the big problems. and clearly ESG-labelled stocks have done pretty well lately. there could be momentum. but a lot of these companies REPORT very differently and, In a sense, you invest in public equities. as such, there are different standards. the European Union is looking into certain aspects around this but how do you deal with this issue?
The problem really solves itself for us. When you’re a large asset manager, you have to report on 2,000 companies. You have to have a structure so that you can do the same thing for each company. We don’t do this for 2,000 companies, but for 20 to 30 companies. When you focus on that level, you have a lot of time that you can invest into looking at a company in detail, having a dialogue and, ultimately, assessing it properly.
How does impact investing or the standards that you use, improve the investment return? Do you notice certain things, e.g. the PE ratio is better, the return of the stock long-term is better? What do you find is most resilient in what happened over the last 6 months? and What makes it unique versus other investments?
There’s a structural shift towards sustainability right now. You have consumers demanding energy-efficient products and resource-efficient products. And the legislature is finally there. Not least the EU action plan, that has been linked to efficiency targets.
To be more specific regarding impact, for us it is more about asking companies different questions. As an impact investor, unlike a value investor, we don’t concentrate as much on PE and so on. It is an important factor that we analyse. However, we like to know if a company is innovative: can it solve problems and is it solving these problems? And so, being that we would more typically look into, for example, the return on capital employed, it is a much more valuable number for us.
Essentially, as an impact investor, you’re engaging with these companies and you’re asking different questions to assess them from different angles. This helps you to find not just green momentum – misalignments of ESG assessments – but also to find a truly hidden value. How a CEO answers certain questions, helps you: “Did you develop that product because you genuinely believe it saves energy, or was that a coincidence? Was it because you had good engineers, and as a company you couldn’t care less? It just makes you more competitive and you can charge higher prices for it.” The answer already gives you a feeling for the governance. But, at the end of the day, also ask yourself who is in charge, is it innovation, or is it a capitalist, profit-maximization?
Is there an example? Can you walk me through one of the successful impact investments that you are happy to share?
Absolutely, I think the best one, or my favourite, is Belimo. Belimo is a building technology company, not far from our offices here in Zurich. They do very clever measurement technology for the building. They also create sensors, ventilation flaps, heat exchangers, and other very crafty things. As we say, they are all over the building.
We wanted to find out what their impact was last year. For the first time, they produced a slide in their financial analyst meeting. Here they showed the carbon footprint and handprint of their ventilation flaps. They were able to not just show that it surpassed their previous assumptions, but also the product is more efficient and energy-saving than they previously thought. On the marketing side, that helps the company, as they now have tangible proven numbers. It helped us to understand the impact of the company much better.
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