Population growth, resource scarcity, environmental degradation, and a myriad of social issues are increasingly motivating investors to examine the social and environmental impact generated by the companies they invest in.
London based WHEB Asset Management (‘WHEB’), portfolio manager of the Pengana WHEB Sustainable Impact Fund, have created an investment process with a focus on investing in companies that provide solutions to sustainability challenges.
WHEB have developed a bespoke methodology to measure the environmental and social impact of their investments.
With the rise of ‘impact washing’, transparency and authenticity have become more important than ever. The differentiation between investment products across the industry is becoming increasingly challenging. One solution to mitigate these challenges is providing better clarity over each asset manager’s approach to impact investing. It is in this context that WHEB has published a new white paper.
IMPACT CALCULATOR
The Pengana WHEB Sustainable Impact Fund invests exclusively in companies providing solutions to critical sustainability challenges.
The impact calculator illustrates the underlying positive impact that companies in the Fund’s investment portfolio help create.
This positive impact is ultimately generated by the end users of the products and services, for example: the owner of the electric vehicle, or the homeowner who installs insulation or buys renewable power. Investors in the Pengana WHEB Sustainable Impact Fund are aligned with these positive impacts by investing in the companies that manufacture these products.
At its core, WHEB is an impact investor. All the investments made through our investment strategy have positive social and/or environmental impact. This detailed methodology document sets out WHEB’s approach to assessing and measuring the positive impact associated with the products and services sold by companies held in the investment strategy.
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SUSTAINABLE DEVELOPMENT GOALS
The UN Sustainable Development Goals (UN SDGs) were agreed by the world’s governments under the auspices of the United Nations in 2015. The seventeen goals set out aspirational and demanding targets for the world to achieve by 2030. The SDGs send a powerful message to the investment community as to what the world’s governments consider as development priorities through to 2030.
Click on each Sustainable Development Goal to see examples of how WHEB’s investment strategy supports that goal.
IMPACT MAP
All products and services have an impact
We believe that understanding impact is becoming a ‘third dimension’ of investment expertise, alongside established disciplines in assessing investment risk and return. Our team of sustainability experts have developed bespoke tools that are used to analyse companies as part of our investment process.
- The Impact Engine is an analytical tool that helps us evaluate the ‘intensity’ of the positive impact from products and services offered by companies. This tool captures the different dimensions of positive impact that are created by products and services to provide an overall intensity rating for the company.
- The Fundamental Quality analysis is the second step in our process. This framework is used to assess the overall quality of the business, including how it manages critical Environmental, Social and Governance (ESG) issues alongside the quality of the company’s business model and financial management.
Our interactive Impact Map provides a visual representation of the outcomes of this analysis, plotting the impact intensity on the x axis and the fundamental quality on the y axis.
Click on the ‘dots’ plotted on the map to see the impact engine score and fundamental quality score we’ve given to each of our portfolio companies. There’s also the option to toggle the view to see how business sectors generating negative impacts (Businesses ‘at risk’) compare.
Considering negative impacts
When we analyse companies, we think carefully about any potential negative impacts associated with their products and services as well as their operations. Our disciplined approach means that we only invest in companies where we are clear on the overall positive impact of the business.
As a result, we have never invested in any company with activities significantly (>5% of revenues) involved in the production of alcoholic beverages, cosmetics where animal testing has been involved, gambling products or services, fossil-fuel exploration or production, intensive farming practices, nuclear power generation, pornographic materials, tobacco products, unsustainable timber products or weapons.
We consider these products to have a significant negative impact. Companies that have significant activities in these areas would not be considered to have an overall positive impact and would therefore be ineligible for investment.
Only 15% of listed companies reach our positive impact threshold criteria to be included in WHEB’s universe as potential candidates for investment .
* At risk’ businesses have been assessed at the level of the sector and are included for illustrative purposes only.
ENGAGEMENT CASE STUDIES
Stewardship & Engagement
Stewardship and engagement have always been core activities for WHEB. Critically, and still unusually, this work is undertaken by the investment team itself. As a long-term investor, we play an important role in advocating for more progressive practices. As importantly, we can also benefit from these improved practices.
Voting
Voting Summary (2021)
- Votes against management
- Votes with management
- Votes withheld 1
- Votes abstained 2
1 At some company meetings voting ‘against’ is not an option. In these cases, we elected to withhold our vote.
2 We elected to abstain on votes where the company had already indicated that it would withdraw the particular resolution.
Engagement
Company engagement in 2021 (by topic)
- ESG Disclosure and Governance
- Environmental
- Social
- Governance (not ESG)
In 2021, we engaged on 156 occasions with 41 companies representing 79% of the companies held in the strategy.
Corporate governance issues covering topics such as director and auditor independence and CEO remuneration continue to be the single largest area of engagement in 2021 representing 36% of all engagement. Environmental issues accounted for 30% with a particular focus on net-zero carbon commitments and strategies but also covering wider issues such as biodiversity, single-use plastics, packaging, and raw material sourcing.
ESG disclosure and governance was less of a focus in 2021 compared with previous years, accounting for 21% of engagements. Most companies are now disclosing some ESG data although we continue to engage on the quality of this data and on newer issues such as disclosure against the EU Taxonomy.
Social issues, including gender diversity, the response to the COVID-19 pandemic and specific issues for individual companies covering drug pricing, conflict minerals and employee welfare, accounted for the remainder of our engagement in 2021.
Reports
PENGANA CAPITAL LIMITED
ABN 30 103 800 568
AFSL 226566
Suite 1, Level 27, Governor Phillip Tower,
1 Farrer Place, Sydney, NSW, 2000
T: + 61 2 8524 9900
E: clientservice@pengana.com
Pengana Capital Limited, ABN: 30 103 800 568 AFSL 226566 is the responsible entity and issuer of units in the Pengana WHEB Sustainable Impact Fund (ARSN 121 915 526) (the Fund). A product disclosure statement for the Fund (PDS) is available and can be obtained from our distribution team. A person should obtain a copy of the PDS and should consider the PDS carefully before deciding whether to acquire, or to continue to hold, or making any other decision in respect of, the units in the Fund. This report was prepared by Pengana Capital Limited and does not contain any investment recommendation or investment advice. This report has been prepared without taking account of any person’s objectives, financial situation or needs. Therefore, before acting on any information contained within this report a person should consider the appropriateness of the information, having regard to their objectives, financial situation and needs. Neither Pengana Capital Limited nor its related entities, directors or officers guarantees the performance of, or the repayment of capital or income invested in, the Fund. Past performance is not a reliable indicator of future performance, the value of investments can go up and down.
