Eco Pool's Australian shares
The Australian shares component of Eco Pool is currently managed by BT Funds Management. The ratings research is conducted by Regnan Governance Research and Engagement (Regnan).
Regnan researches the 200 largest companies listed on the Australian Stock Exchange using questionnaires, site visits, interviews and corporate environment reports. Regnan rates each company’s environmental performance using criteria based upon established best practice in managing industry-specific risks. For example, they have used the International Standards Organisation’s ISO 14001 and World Business Council for Sustainable Development guidelines to formulate their environmental criteria. Regnan also rates these companies on corporate governance performance using its own specialist rating system.
BT invests in Australian shares based on the ratings provided by Regnan. It will seek to find the best companies in each sector – the ‘best in sector’ approach – in accordance with governance, environmental and financial factors. BT continuously monitors its investments from this perspective, and, where a stock no longer meets ‘best in sector’ standards, BT will withdraw its investment, typically within a month of the ratings change.
The Eco Pool for Australian equities screens out uranium mining and processing companies. This decision was based on member feedback objecting to this type of investment.
Eco Pool's international shares
The international shares component of Eco Pool is currently managed by Generation Investment Management (Generation). Generation is an independent, private, owner-managed partnership. It was co-founded by former US Vice President Al Gore and David Blood, former CEO of Goldman Sachs Asset Management.
Generation’s investment philosophy is that integrating sustainability research into the traditional investment process will deliver superior long-term investment results. The investment manager believes that long-term equity research requires a broad, systemic view of future business risks and opportunities by recognising social, environmental and governance challenges facing companies around the world.
The portfolio managed by Generation is a long-only, benchmark-unaware, international equities portfolio. It conducts bottom-up fundamental analysis on companies, while also researching sustainability themes that have the potential to impact businesses in the long term.
The process followed by Generation to identify and invest in companies includes:
1. Identifying companies for further analysis
The investment team develops what are called ‘industry roadmaps’ which build sustainability themes and traditional investment issues into outlooks on different sectors of the economy. The industry roadmaps give insights into which companies are likely to profit from changes associated with sustainability and those which will face greater risks over the long term. The roadmaps serve as an idea generator for identifying companies for further analysis. Generation’s Advisory Board assists the investment team to develop the key sustainability themes it believes will affect company profits over the long term. The themes that have been identified include amongst others: climate change, pandemics, water, demographics and real needs at the base of the economic pyramid.
2. Company analysis and selection
Generation takes great care to understand each company before considering it for inclusion in the fund. Each company is subject to rigorous scrutiny from both individual analysts and the entire investment team based on the quality of the business and its management. Sustainability research plays an important role in the assessment of both business and management quality. The output of this analysis is inclusion on what Generation calls its ‘focus list’ – a list of around 100 companies it would like to invest in if the price meets Generation’s valuation target.
3. Constructing the portfolio
While there may be as many as 100 companies on Generation’s focus list, only 30-50 companies will be included in the portfolio at any one time. The portfolio is benchmark unaware and the companies that make the final portfolio are those whose current share price is significantly less than Generation’s valuation of the company. The target price for each stock is determined by the analysts based on their fundamental and sustainability analysis.
Generation allocates 5% of the profitability of the firm to the Generation Foundation, which is dedicated to strengthening the field of sustainable development and sustainable research worldwide.