As consumers increasingly make choices about the products and services they buy based on how they perceive a brand’s values, that behavior is feeding into decisions about whether those businesses will attract sustainable investment funds.
Yet, sustainable investing should not be an all or nothing proposition, according to Kent Kwan co-founder of a new retail super fund Elevate Super which recently launched its retail super fund in Australia.
Instead, it needs to be based on a complete view of a company’s offering.
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Elevate Super bases it investment recommendations on how a business scores against the United Nations Sustainable Development Goals, its data is licensed from Sustainable Platform which tracks the performance of public companies against the UN’s SDGs around the world.
“We look holistically rather than just saying we only invest in these companies because they’re 100 per cent sustainable in all their good and services. ”
Instead, the fund looks to invest in businesses that outperform the market across a range of sustainability measures.
“Across our portfolio, the average sustainability score is 63 versus the ASX 200 where the average is 50. So our portfolio scores on a relative basis, about a quarter better.”
“We fundamentally believe that you can and should be able to aim for competitive returns while also investing in a way that’s sustainable for the world.”
The selection of investments is data-driven rather than determined by the claims businesses make about their approach to sustainability on their website.
Sometimes those selections are obvious and straight forward.
“The easy example is a tobacco manufacturer. They make cigarettes. They have a particular product and none of the dollars they generate from that product help any of the UN sustainable development goals. In fact, it detracts from them for health reasons and environmental reasons.”
“Then, at the other end of the spectrum, you have a wind farm or a solar company, whose products and services help with climate action by delivering competitive renewable energy costs. They will score very well, and they’re very sustainable, according to the UN sustainable measures versus tobacco.”
The reality, however, says Kwan is that most companies don’t operate at these extreme ends of the bell curve.
We asked if there are particular industries that stand out one way or the other. “Energy is obviously very topical and an obvious one because of what’s going on around the world and in Australia. Another is property, where it is easy for developers to demonstrate the sustainability of a building.”
“But, I think we’re seeing it across the board in more industries. Even in consumer goods, you can take into account things like sourcing, or packaging, or their approach to the supply chain.”
Whatever choices Elevate Super makes, there is always likely to be room for debate.
“The topical one perhaps for Australia is obviously mining. It is a big part of our economy. Some of the big miners have made certain statements about what they’re doing. It’s not as simple as saying ‘no mines’. The reality is there are parts of the world that do rely on certain resources to develop which means it is more nuanced than saying ‘everything is bad.”
Kwan is also a founder of Atlas Trend which likewise has a stake in the sector with its clean disruption fund.
“Sustainable technology represents a potentially massive opportunity for investors,” says Kwan.
“I think the classic example is the cost of solar. If you look at the amount of research dollars going into that, and the results they are getting in terms of dollar per watt for generation that’s really fallen dramatically.”