A performance opportunity
We believe that in the current context of low growth and collective awareness of the challenges of sustainable development, the growth of sectors that we identify as "sustainable" are more promising today than in the past.
Moreover, studies* have shown that companies whose non-financial performance (ESG) improved saw their prices outperform the indices, particularly in the case of companies with average or low ESG scores. Thus, the "momentum" of score improvement appears as a performance driver from which we can benefit.
Conversely, companies whose behaviours are "controversial" tend to underperform the market. Therefore, it is important to identify these extra-financial issues that are not taken into account by the market.
* cf Jeroen Bos, Sustainability Scores for Investment Funds, CFA Institute Magazine March 2017
Study the subject with lucidity
Within the framework of the French energy transition law and the regulatory obligation to publish an energy transition report reviewing our practices and the carbon footprint of our funds, we have carefully studied the subject of different measures and different approaches to sustainable development in portfolio construction. This work confirmed a number of intuitions that we had:
- Sectoral bias and exclusion short cut: highly carbon-intensive sectors such as Materials can be excluded from a portfolio to improve its carbon footprint, however this is too simplistic a short cut because these sectors remain necessary for the economy... and to other sectors with a better carbon footprint.
- The trap of a fixed image: businesses change and it may be preferable to value companies going in the right direction. The notion of trajectory is therefore key in our view.
- Disparate data quality: the quality of transparency and reliability of data published by companies remains uneven at present. Basing a portfolio construction on only quantified data and on "checked boxes" is therefore a pitfall for us to avoid.
As a result, none of our funds takes environmental, social and governance criteria into account in their investment policies in a systematic and binding manner. We wish to continue to choose investments on a case-by-case basis on their financial merits, with a strong desire to take part in financing innovative projects committed to sustainable development. The idea is not to pursue an exclusion policy or sectoral allocation determined by the various SRI labels.
Develop a thoughful approach
From these findings and our desire to remain stock-pickers, the concept of ‘innovative share’ was born. We will aim to prioritise investments in companies that have the following attributes:
- companies with highly innovative technology
- suppliers of innovation technology or energy services
- companies directly involved in the energy transition
- companies with a positive societal impact
Our ambition is therefore to increase this innovative share in our portfolios by studying more and more companies that could qualify in this group.
You will find below the reports of the Moneta Multi Caps and Moneta Long Short funds, which describe and report annually on our approach. In particular, they present information on the carbon footprint and the innovative share of funds.
Report Moneta Multi Caps - june 2018
Report Moneta Long Short - june 2018