Putting the impact at the heart of the stock-selection process | WHEB

I think it is very exciting! The level of understanding of what it is to be an impact investor has evolved and matured quite dramatically in recent years. These foundations are now more embedded in standards (such as the GIIN guidance on impact investing in listed equity) and regulation (such as the UK’s Sustainability Impact label) and embrace a broader spectrum of asset classes including listed equities. As the social and environmental challenges facing humanity continue to escalate, impact investing is better placed than ever to contribute solutions.

Ultimately investing is a part of a much bigger financial system. This is a strength because impact investors can help drive the systemic change that is essential to solve key sustainability challenges. It is also a weakness because it is difficult to draw a direct line between an investment and a specific outcome. This is particularly true in listed markets (but is also true of other markets). Our approach is to put positive impact at the heart of our investment process. We select companies that through their products and services enable the transition to a zero carbon and more sustainable economy. By enabling the transition, they also benefit from it; their impact grows in lock-step with their revenue and the two are aligned.

I think this approach – of putting the impact at the heart of the stock-selection process – is still very unusual. A lot of other investors have a team that screens the universe for ‘impact’ (probably using a third party’s data set which in our experience are often low quality) and then a totally separate team that has no real interest in impact investing, does the actual stock selection. I think it is very difficult to claim intentionality if the investment process is structured this way. We have also developed tools to systematically assess the ‘intensity’ of impact offered by different companies. This allows us to compare companies and use this as a framework in our stock selection. We think very few other investors – at least in listed markets – think this deeply about impact.

We think developing more standardised approaches to measuring avoided emissions is absolutely critical. At the moment the positive impact of products and services is largely invisible to investors. For example, one of our largest contributors to our strategy’s carbon footprint is a company that makes solar modules. Clearly, like all companies, they need to reduce their scope 1 and 2 emissions, but at the moment there is no accepted way to quantify and report the positive impact of the solar modules. Quantifying the avoided emissions associated with the use of the solar modules clearly shows that the company’s products have a positive impact. Without it the investment just looks like it has large scope 1 and 2 emissions.

 

 

I have not yet read Will’s book, but I certainly recognise that there are stumbling blocks. Last year we interviewed five companies to get their perspective on what it feels like on the other side of the engagement. One clear message from this was that stewardship professionals are often disconnected from their investment colleagues. They therefore focus on the issue that they are engaging on without understanding the commercial context that surrounds it. Investors ultimately are not campaigners. Campaigners only care about the issue. As investors, our interest is in the long-term success of our investments. Crucially though, we believe that successful businesses understand and address stakeholder concerns because otherwise they become business concerns. It is really important to have this frame because it clarifies that, like company management, we fundamentally want our companies to succeed. This gives us a platform for constructive engagement.

I studied ecological management at university and am a keen ornithologist so I am really pleased that biodiversity is finally getting the profile that it deserves. The collapse of biodiversity around the world is enormously worrying and something that should concern us all. But we do need to be very careful when we think about biodiversity and investment. It has taken us twenty years to develop the market infrastructure, technologies and business models to really factor climate change into investment processes. While initiatives like the Taskforce on Nature-related Financial Disclosure (TNFD) are very helpful, most market actors are still a long way from recognising what biodiversity risk (let alone biodiversity opportunity) mean for their investments. To accelerate progress I think investors should focus attention on the handful of sectors such as agriculture, extractive industries and infrastructure that are primarily responsible for negative impacts on biodiversity. Investor attention should really be focused directly at companies in these sectors.

 

 

We are very pleased that the UK’s new Sustainability Disclosure Requirements (SDR) have formally given ‘impact’ official recognition as an investment strategy that is differentiated from other types of sustainability investing. Again and again end consumers say they want to invest in funds that give them a financial return and have a positive impact on the world around them. We think that official labelling will help to spur more interest and innovation from investment managers as they seek to meet this client need. Undoubtedly this will include more and better reporting on how investors are able to show real-world impacts in the investments they make. We also expect that there will be more focus on how investment managers are delivering improvements through their engagement with investee companies and with other stakeholders.

Seb has spent nearly 30 years working at the nexus of business, investment, and sustainability. Since 2012 he has been a partner and head of research at WHEB Asset Management where he is a member of the senior management and impact investment teams.

Prior to WHEB, Seb was head of SRI Research at Henderson Global Investors. Seb also spent ten years in senior roles in both the UK and US at SustainAbility, a leading think-tank and consultancy.

Seb has contributed to the development of industry standards and regulations through participation in several expert and advisory committees including with the BSi, the GIIN, with the Financial Conduct Authority and with groups like the Future-Fit Foundation and the Big Exchange. He has two degrees in environmental science and environmental technology from the University of East Anglia and Imperial College London and is a Chartered Environmentalist.

WHEB Asset Management are pioneering, global equity impact investors, managing ~£1.4bn for institutional and retail clients. The team, led by partners George Latham, Seb Beloe and Ted Franks, have been working in sustainable investments for over 25 years and trace the track record for the strategy back to 2005.

As positive impact investors, WHEB’s mission is to advance sustainability and create prosperity through positive impact investing for its clients and the world. WHEB believes in the fundamental connection between long-term positive change and long-term growth.

Known as ‘the impact people,’ WHEB have been investing in companies to achieve a measurable positive social/environmental impact alongside a financial return since 2005. (That’s around when ‘ESG’ was coined and a decade before the UN Sustainable Development Goals, SDGs, were created.)

As established specialist impact investors, WHEB’s equity impact strategy has been tested across market cycles and developed over the long-term by a team of highly experienced investors. Ted Franks, Fund Manager and Head of Investments was a co-founder of WHEB and is supported by a team of eight other analysts including Seb Beloe as Head of Research.

WHEB manages three funds:

As a B Corp certified company, and actively engaged across influential organisations – including the Impact Investing Institute, GIIN and more – WHEB is committed to transparency and Integrity. The latest annual impact report is the ninth in a series that has garnered multiple awards and has set the standard of impact reporting in listed equities.

More information: https://www.whebgroup.com/