Ethical investing may provide solutions to environmental and other challenges, but investors are often in the dark when it comes to understanding the environmental impacts of their investments. One player is showing its investors the quantitative outcomes of their investments.
Pengana Capital Group and the investment manager of its sustainable impact fund, WHEB Asset Management, has released its Prosperity With Purpose report which quantifies the positive impact of investment in the fund.
The report reveals that in 2018, the fund contributed to avoiding 218,000 tonnes of C02 emissions, generated 464,000 megawatt-hours of renewable energy, recycled 49,000 tonnes of waste, treated 2.6 billion litres of waste water and provided 29,000 days of tertiary education.
The $30.6 million Pengana WHEB Sustainable Impact Fund was launched in 2017 and its objective is to achieve capital growth over the medium to longer term. Since it was launched the fund has produced a return of 5.5 per cent a year, compared with 5.6 per cent for the MSCI World Total Return Index.
George Latham managing director at WHEB Asset Management says: “Population growth, resource scarcity, environmental degradation, and a myriad of social issues are increasingly motivating investors to examine the social and environmental impact of companies and how these businesses adapt and respond to these investor pressures.”
Ethical investing has developed from primarily focusing on negative screening then shifting to the idea of environmental, sustainability and governance (ESG) analysis. But according to Latham, while this was a step in the right direction it was not a holistic approach.
Latham says: “This typically ignored what the business was selling and whether or not it was selling something sustainable. So, we only invest in a business where we can say that selling more of that product is leading to a better environmental or social outcome.”
Impact investing is now focused on company output as well as positive screening, ESG analysis and a multi-thematic investment approach but not all products are delivering on their word.
According to SelectingSuper, Australia currently has $30 billion invested in ESG products with one quarter of Australian ESG investment providers being superannuation funds.
With the increased popularity of ESG and sustainable investing, Latham warns that impact washing is increasing as firms are misleading investors about the real impact of their investment products.
Latham says: “One of the critical things is around transparency and governance. The more that we can be open with the outside world about what it is that we are investing in, the more our customers can see that it is consistent with what they are looking for.”
WHEB’s single strategy is investing in businesses where the product or service that is the source of revenue is a solution to a sustainability challenge whether it be environmental or social.
The fund’s nine investment themes are cleaner energy, resource efficiency, sustainable transport, environmental services, water management, health, safety, well-being and education.
Of those themes, seven deliver positive impact in support of the UN sustainable development goals.
Latham says: “It leads us to quite a diverse investable universe as the social themes tend to have defensive characteristics whereas environment has more GDP sensitivity and more industrial characteristics.”
The fund invests in companies such as waste sorting and resource recycler China Everbright International, wood-based fibre producer Lenzing AG and fitness equipment manufacturer Nautilus Inc.
In addition, WHEB has developed an investment calculator to show investors a measurement of their investment.
Latham says: “This is allowing investors to really personalise the impact of their own investment portfolio and see how it is contributing to making a better society.”