Investing for a More Sustainable Tomorrow

Sustainable investing is actually a competitive advantage. Companies that are tied to the sustainable investing challenges are attached to some very big financial opportunities, and that creates opportunities for investors.

Our product appeals to investors who want to earn attractive financial returns but also want to own companies that provide some sort of environmental or social benefit. We go beyond just monitoring companies’ behavior. We invest exclusively in companies whose products and services are somehow enabling a more sustainable future.

We actually outsource the definition of what sustainability is to what we think is a pretty credible third party, the United Nations. The UN sustainable development goals – it’s a series of 17 goals. And it represents an aspirational view of what the world can look like by 2030.

The UN estimates that the cost to achieve sustainable development is about six trillion dollars a year, and just to put that in context, that’s about 8% of global GDP. That’s a massive number – as an investor, that certainly gets our attention.

There are actually 169 targets that sit underneath those 17 goals. So: our process – the first step was to actually look at all 169 and to try to understand which of those deal mostly with pure policy initiatives. In which case they’re very interesting to us but they’re not really investible. And in which of those do we see some role for private capital? Because if there’s a role for private capital, that’s interesting to us as investors. And, as it turns out, we found a little bit more than half of those 169 targets actually include some role for private capital, and so that’s where our theme discovery begins.

We see three broad buckets of opportunity for private capital within the sustainable development goal. And those buckets are climate, health and empowerment. Within each of those there are a number of subthemes that we think are very interesting and they’re very investible. Within climate for example, are subsequent themes of energy efficiency. Low carbon generation, clean water and sanitation.

Once we identify themes we still have a lot of work to do, because we need to get down to just 50 or so companies that are actually going to make it into the portfolio. And every single company has to fit a sustainable theme, but it also has to stand on its own as a good investment idea. And so, in our process, we build financial models out five years. We take a very long-term approach for every company that we look at. And we also spend a lot of time thinking about risk; for a company to make it through our process, it’s going to fit a theme, but we’re also going to estimate returns over the long term. Only the companies that look the best on that basis are going to make it into the portfolio.

Sustainable development is really about making the world a better place. It’s about generating economic growth in a way that doesn’t destroy the natural environment and in a way where the benefits of that growth are shared more broadly throughout society, rather than just by a few. By 2050 we’re going to have 10 billion people on the planet. And so these issues of sustainable development, they’ve really never been more urgent. It’s never been more important to get this right.