CT (Lux) Responsible Global Equity Fund
Our CT (Lux) Responsible Global Equity Fund was founded in 2005 and is following the same strategy as its sister fund in the UK, which adopted its global remit in 1998 and is celebrating its 25th anniversary. At the time it was among the first, but responsible investment has since seen rapid development, especially in recent years, with environmental, social and governance (ESG) orientated investment funds moving from esoteric to mainstream options.
The last two-and-a-half decades have seen significant shifts in the awareness of sustainability-related issues and throughout this period the fund has continued to evolve – transitioning our approach to ensure we remain to the fore of developments with a modern sustainability-orientated global equity portfolio.
Applying a clear philosophy
Our ‘avoid, invest, improve’ investment philosophy has been a constant over the years, although the emphasis has shifted over time. ‘Avoid’ was a primary focus in the early days with exclusion criteria designed to align our strategy with investors looking to avoid investment in areas doing harm through the application of negative screens. We have applied exclusions since launch and the criteria have continued to be refined as debates evolve and new challenges emerge. Our responsible investment team own the exclusionary criteria with oversight from an external Responsible Investment Advisory Council.
Figure 1: A clear philosophy
Certain industries or securities excluded based on products and services or business conduct.
Proactive selection of securities for their favourable ESG profile or positive contribution to society and the environment.
Active ownership activities conducted post investment to drive positive change in the management of ESG issues.
Invest – embracing the positive
The avoidance of harm remains critical – you won’t find weapons manufacturers, firms involved in fossil fuel production or alcohol in our portfolio. But with issues such as climate change climbing up the global agenda, we have been keen to embrace the positive by increasingly investing in companies making a positive contribution to the environment and/or society. There are multiple sustainability themes at play in today’s world and we have identified seven within which to focus our research efforts.
An increasing emphasis on sustainability themes
The last decade has seen the portfolio increasingly orientated around our seven sustainability themes. It’s a shift that’s entirely aligned with broader recognition of sustainability-orientated challenges and the emergence of a raft of related investment opportunities in well placed pioneering businesses.
Figure 2: 'Invest' - Sustainability themes over time
Source: Columbia Threadneedle Investments. Factsheet From 31 December 2012 – 30 December 2022
Hardwiring sustainability into the portfolio
Our view is that innovative, well-managed and strongly positioned businesses within our seven themes look set to enjoy long-term structural tailwinds. The next steps are pinpointing sustainable companies, or those that actively support sustainability, and using fundamental analysis to assess businesses against our quality criteria. For the former we use our proprietary assessment of a company’s sustainability profile – the Additionality, Intentionality & Materiality (A.I.M) framework.
In short, we want to see the innovation required to tackle a sustainability challenge, evidence that management is orientating the business around sustainability, and a clear linkage between sustainability and revenue. Alongside an analysis of A.I.M we also consider a company’s contribution to the UN Sustainable Development Goals (SDGs) – a widely adopted route map to a more sustainable world. If a company clears our sustainability hurdle it is then subject to deep fundamental analysis to ascertain its business model, competitive advantage and management, as well as a robust assessment of value.
Long-term thinking
The themes we invest within are inherently long-term ones – for example, the transition towards a more circular economy characterised by efficient resource use requires a structural shift over many years. As a result, when seeking individual companies, we do so with a long-term mindset – an ambition that also sits well with our desire to drive positive change through engagement with investee companies. We want to build strong long-term partnerships with company managements, and if we look at the current portfolio around 33% have been held for more than 10 years (as of March 2023).
Osaka-based Keyence has been in our portfolio for over 20 years – this developer and manufacturer of automation sensors is geared into our ‘connect and protect’ theme, within which we expect factory automation to proliferate. The coronavirus pandemic showed how fragile global supply chains were, and increased adoption of automated processes could help increase resilience and counter the demographic challenges within certain geographies as labour pools shrink.
Figure 3: Seven megatrends, including sub-themes with transformational potential
Connect & protect
Factory automation
Digital empowerment
Artificial intelligence
Energy transition
Energy storage
Health & well-being
Personalised medicine
Resource efficiency
Circular economy
Sustainable cities
Net zero cities
Sustainable finance
Financial inclusion
Improve – driving positive change
We believe in the power of active investment, but also in the importance of active ownership – an ethos we have applied over many years. Considered engagement with investee businesses affords multiple potential benefits. It can serve to reduce risk, enhance scope for long-term performance and drive positive change in company behaviours across a host of ESG issues. For engagement to be impactful, however, it needs to be conducted in the right way. As an investment desk we work very closely with our colleagues in our Responsible Investment team, which includes specialists across a range of ESG topics.
Effective engagement requires:
- A deep understanding of how ESG issues impact mainstream
business strategy - Long-term relationships with company management
- Specific expertise, local knowledge, and context
- Access to senior management and boards
Stewardship activities also form part of our approach to reducing our carbon profile, having committed to aligning the portfolio to net zero emissions by 2050 or sooner. Through engagement and voting we want to encourage investee companies to improve their own alignment to a net zero emissions future.
Our aim is to constantly improve not only our approach but also the ESG profile and impact of the portfolio. Robust analysis of how we stack up relative to a host of sustainability-linked metrics is integral to this and since 2016 we have been producing an annual deep dive into the portfolio. With analysis including intensity of water use, gender, carbon emissions and executive pay, together with portfolio alignment with the SDGs, we believe that by measuring our impact we can take actions to improve our profile over time.
Where next?
After two-and-a-half decades the broader strategy, including SICAV and segregated accounts, now encompasses more than £2.8 billion under management (28 February 2023), which is testament to how it has kept pace with – and often moved ahead of – developments in the sustainable investing arena. We are proud of this heritage and fully committed to continuing to develop our approach – one that we believe can safeguard our clients’ ethical and sustainability concerns and deliver competitive risk-adjusted returns.
