ESG leaders focus on sustainability and business fundamentals
(Runtime: 4:58. Read the audio transcript.)
The combination of a durable business and strong, ESG-focused leadership creates a truly sustainable business model for the long run, says Tim Woodhouse, portfolio manager with J.P. Morgan Asset Management.
“There’s a critical link between ESG and durable, resilient businesses,” he said. “You can’t truly have one without the other.”
As manager of J.P. Morgan Asset Management’s Global Sustainable Equities Fund, Woodhouse looks for companies that meet a broad definition of ESG excellence. Criteria include exemplary internal operational leadership (marked by high efficiency, low emissions, and an inclusive, motivated workforce), and positive external contributions that help companies and communities meet global sustainability challenges.
The search is getting easier, he said, as ESG priorities become more prominent in global boardrooms.
Among the bright stars in his portfolio is Schneider Electric SE, the France-based global manufacturer of energy management and industrial automation parts and systems. Woodhouse said Schneider Electric’s efforts to help other companies meet sustainability targets have not distracted the company from instituting strong internal practices.
“They have a AAA rating by MSCI [Global Sustainability Indexes]. They have very strong governance practices. And, importantly, all employees and executives have part of their variable compensation based on ESG targets,” he said.
The company has set a goal to fully decarbonize its operations and reduce Scope 3 emissions — emissions from the suppliers and customers in its value chain — by 35% by 2030.
Another European company Woodhouse likes is Dutch life sciences company Koninklijke DSM N.V. The company’s core business includes manufacturing nutritional supplements for humans, but it is the nutritional products for animals that have really caught his eye.
“On the animal nutrition side, there are some really exciting initiatives around some of the ways to reduce emissions,” Woodhouse said. “One great example, which they originally termed ‘Project Clean Cow,’ is a feedstock for cows which reduces the methane emissions by up to 90%.”
He pointed out that persuading people to stop eating beef can be difficult, “so by reducing the emissions involved in producing beef, that’s going to be a very important step.”
He also likes Walmart de México y Centroamérica, the Mexican and Central American division of Walmart (known as Walmex), which he said demonstrated remarkable sensitivity toward freelance baggers during the early days of the Covid-19 pandemic.
“What Walmex did was they paid those people a salary and they sent them home,” Woodhouse explained. “They felt that was the responsible thing to do to protect them from the virus, and really make everyone within the store much more comfortable, just by reducing the number of people that were there.”
In addition, Walmex supported local suppliers through prepayments, ensuring they would be able to continue to function throughout the disruption.
“By treating your workers and the community as a whole with respect, it benefits everybody,” he said.
Woodhouse credits independent research for unearthing unsung sustainability stories at companies like Walmex and HDFC Bank Limited, the largest private bank in India.
Headquartered in Mumbai, HDFC lends money to aspiring homeowners and entrepreneurs who would not normally qualify for loans.
“They put small branches in towns all around India. They put advisors there who actually get to know their customers. They get to know the local community,” he said. “By positioning themselves close to those that they are lending to, they can ensure that they lend the appropriate amount, and they ultimately protect consumers from taking on too much debt.”
HDFC is quick to work with its clients through tough times, Woodhouse said.
“It’s a very sustainable way of lending, and it is really expanding access to financial products to those that never had access to them before,” he said. “It’s nice to have an example of a very large company that is publicly listed making that kind of lending a big part of its business.”
Woodhouse said Europe has a head start on the U.S. in appreciating the value of ESG thanks to its earlier awareness of climate issues.
“Europe is clearly leading on ESG overall,” he said. “The U.S., I would say, is making real progress. We have a lot more conversations with companies now around every aspect of sustainability.”
He said anti-racism protests have focused attention on social issues like diversity and inclusion.
“It’s been a real step forward. There’s still an awful long way to go, but it’s been encouraging to see the number of companies really starting to step up in a major way there,” Woodhouse said.
“We’re a global fund, so we’re picking from companies all around the world, and so we firmly believe there is no trade off between returns and sustainability. You can absolutely have the same return as in a non-sustainable fund but in a way that really drives a better future.”
This article is part of the Soundbites program, sponsored by Canada Life. The article was written without sponsor input.
- Canada Life Sustainable Conservative Portfolio – Mutual Fund
- Canada Life Sustainable Balanced Portfolio – Mutual Fund
- Canada Life Sustainable Growth Portfolio – Mutual Fund