Jens Peers, CFA®, Chief Investment Officer, of Mirova, explains their distinct approach to delivering returns with impact, mega-trends reshaping the world and the investment opportunities that coincide with these trends.
What would you say is the Mirova difference?
Mirova has specialised in sustainable investing for over 30 years. It’s in our DNA. For those who don’t know exactly what sustainable investing is, we see it as a long-term approach to investing that incorporates Environmental, Social and Governance considerations into the investment process. Our philosophy is grounded in the belief that businesses which adhere to positive ESG policies and which generate solutions for some of the mega-trends our planet and our society is exposed to, can create long-term value for investors. We are not your traditional SRI (Socially Responsible Investing) investor who takes a relatively simple exclusionary approach – not investing in companies that have a negative impact on society, such as tobacco, alcohol or firearms companies. We take a thematic approach to investing, which we think could lead to very good long-term performance. We believe that focusing on trends that will change the world can help investors avoid companies that may look good on paper, but may actually be in secular decline.
Why do you think integrating ESG throughout your process offers you stronger results?
In order to generate sustainable performance, it is important to identify the right opportunities and also to manage risks properly. We strongly believe that companies who offer solutions for some of the bigger problems our world is facing, are well positioned to generate superior growth and returns. Also, many investors don’t believe ESG risks are financial risks and are therefore not properly pricing in those risks when valuing investment opportunities. That this could be a costly mistake has been proven many times in the past. Recent examples of how poor ESG practices could lead to significant losses are for instance BP and Volkswagen. Our process is based on deep fundamental research and frequent interactions and engagement with the companies we invest in. Contrary to most other investors, Mirova uses a large in-house team of analysts, each specialised in one or more ESG themes.
Can you explain the role of global mega-trends in your portfolios?
Our philosophy is based on the fact that the world is changing – and the world as we know it today will look quite different in ten years’ time. Our current life styles, combined with the fact that the world still has to deal with population growth for the foreseeable future, means that we see four major transitions happening: demographic, environmental, technological and governance. These transitions are slow and constant and heavily influenced by almost unstoppable mega-trends. In terms of demographics, an ageing population and the fact that millennials and women play a much more important role in our economy than ever before, mean that companies have to rethink how they do business and what products they want to bring to the market. Urbanisation and a rising middle-class in emerging countries are other important trends creating both opportunities and risks as they have an impact on our demographic transition. We are also convinced that natural resource depletion and climate change will force us into an environmental transition towards lower carbon energy sources and more sustainable ways of dealing with precious natural resources such as water and food. The technological transition is probably the most visible at this stage as technological advancements are impacting all aspects of our lives, from energy to retail, healthcare, education etc. We also see a transition in terms of governance short term profit maximisation is no longer tolerated in the context of systemic risk (think about the subprime crisis). Topics such as gender equality, corporate compensation and fair tax payments are also popular topics on social media, forcing companies to adjust their policies in these fields. We believe those transitions are real and important and think as a results that companies who are taking those already into account will fare better than those who don’t.
How does a mega-trend lead to an investment idea in Mirova’s process? Can you speak about the importance of sustainable water solutions?
Our water and food resources are two daily essentials for which you don’t really have an alternative. We need them to survive. And what I don’t understand is the little exposure people generally have in their portfolios to sustainable water and food investments. By the way, historically, those two themes have had good performance. But because water and food are not really present in the major indices, investors generally don’t have much exposure to these areas. On top of that, water is becoming increasingly important. For example, in the United States roughly 14% of all water flowing through pipes is leaked out. The quality of pipe systems is really bad. So, we believe, this presents an investment opportunity because there is a very strong need – and also because there is no alternative to resources like water.
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