Australian Shares
Monash evaluates the environmental management and performance of the 200 largest companies (by market capitalization) listed on the Australian Stock Exchange (ASX). This occurs on four levels:
Strategy - reveals the extent to which a company addresses environmental management as a strategic concern, providing a clear indication of management responsiveness to changing business drivers, risks and market conditions. For example, a positive business strategy would be where a company signals its intention to decrease its coal assets, given the known global warming issues associated with fossil fuels.
Management - shows the extent to which good environmental management is integrated into day-to-day business management processes, systems and functions. For example, a company shows extensive use of recycled paper and reduced energy consumption of buildings and office equipment.
Operations and products/services - demonstrates the implementation of best practice environmental techniques, technologies and product design. For example, a company agrees to reduce their packaging waste across all business activities - a positive for the environment.
Management of stakeholders - demonstrates the capacity to develop appropriate environmental strategies and responses. For example, management provides clear and transparent communication with key stakeholders in relation to 'environmental events' such as toxic spills. Monash finds this information from the following key sources:
- Proprietary survey for companies
- Publicly available records. eg: annual reports, National Pollutant Inventory
- Environment Protection Agency data
- Media coverage
Monash also uses accepted environmental standards and benchmarks, such as international standard IS014000 (the international standard for environmental management systems) and World Business Council for Sustainable Development environmental criteria.
International Shares
Generation Investment Management 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 25-60 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.