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Funds fuelling environmental change

19 Jun, 2024 | Return|

Annually, in early June, global environmental stewards come together for World Environment Day in pursuit of driving meaningful environmental change and innovation. At this year's summit held in Saudi Arabia, delegates focussed on three critical themes: land restoration, desertification, and drought resilience – all pressing global issues. With the help of our 3D investing methodology that provides a forensic view sustainable credentials within a fund, we take a look at some key funds that we think are fuelling change in these areas.

Key takeaways:

  • At Square Mile, we believe that sustainable investing can play an important role in allocating capital towards funds that prioritise sustainability, allowing investors to play a part in addressing environmental challenges and promoting a more sustainable future.
  • Whilst Saudi Arabia doesn’t seem like the natural home for an environment-focused event, their commitment to exploring all avenues of environmental sustainability, including land restoration and reclamation, drought resistance, and desertification is a good place to start.

Saudi Arabia, a country best known for its vast oil production capacity and rising geopolitical status, isn’t without controversy over its credentials in hosting World Environment Day 2024. However, we could draw parallels with the City of Hull’s award of the “Culture Capital of Europe” in 2017, as a portent marking a significant development in the winner’s commitment to future improvement.

Saudi Arabia, notwithstanding its environmental and human rights record, is a prime example of the balance between economic development and environmental stewardship in the 21st century, with the vast swathes of oil profit being used to develop environmentally sustainable mega projects such as Neom and the Line. It may be easy to reach for the oil revenues and greenwashing arguments, however, you could contend that the nation is committed to exploring all avenues of environmental sustainability, including land restoration and reclamation, drought resistance, and desertification. These are all highly pertinent topics within the Arabian Peninsula and surrounding Middle East.

At Square Mile, we believe that sustainable investing can play an important role in allocating capital towards funds that prioritise these themes, thereby allowing investors to play a part in addressing environmental challenges and promoting a more sustainable future. Over the past 12 months, we have revised our fund analysis, moving away from company classifications to granular, revenue-based analysis. By distilling the entire global public market through c.400 unique revenue activities, we can now screen the UK investment fund universe for strategies with the highest exposure to specific activities through their investee companies. With the theme of this year’s World Environment Day in mind, our research team have identified several revenue activities which include; alternative energy, sustainable logging, recyclable materials, sustainable packaging, and environmental services.

The following funds were screened under this new 3D Investing framework and have a significant exposure to one of the revenue activities outlined above.

UBAM Biodiversity Restoration

The UBAM Biodiversity Restoration fund is a portfolio of c.50 global companies that aim to protect or restore the natural environment. At the time of analysis, the fund’s largest exposure is to Environmental Services, accounting for 8% of the fund. Two companies, Tetra Tech Inc., an American provider of water and environmental consulting and engineering services, and Clean Harbors, a leading provider of environmental and industrial services, including hazardous waste disposal and re-refining of used oil, were the largest contributors.

Environmental services are critical to addressing the World Environment Day objectives. This may be through remediation and restoration services, sustainable land management planning, efficient water irrigation, or the development of drought resistant crops.

Ninety One Global Environment

Deirdre Cooper and Graeme Baker, the portfolio managers of the Ninety One Global Environment fund, target investments in globally listed companies that they believe contribute to positive environmental change. Although the World Environment Day themes may not appear to be directly linked to decarbonisation, the fund’s managers principle focus, alternative energy sources offer an invaluable tool in the reduction of land use and thus the enablement of land reclamation and restoration. The revenue activities linked to renewable energy, such as Alternative Energy Wind, Solar & Biodiesel, jointly contributed around c.15% of the fund’s environmental solution alignment. Alongside alternative energy, prominent activities identified within the portfolio included recycling, waste-to-energy, and battery storage, which each contribute positively to environmental sustainability.

Foresight Sustainable Future Themes

The Foresight Sustainable Future Themes fund targets investments in five key sustainability themes. Of these, ‘Sustainable Land, Food & Forestry’ shone out as aligning well with the World Environment Day . As part of the team’s investment process, for a company to be included in the portfolio, it must derive greater than 80% of its revenue from a source tied to these themes, which is why under our analysis, it excelled in its exposure to environmental solutions.

Through exposure to companies such as Weyerhaeuser, a sustainable American timberland company; Potlatchdeltic Corp., another sustainably managed American timberland company; and UPM-Kymmene Oyj, a Finnish responsibly sourced forestry product manufacturer, we believe the fund has material exposure to companies linked to the land restoration.

Allianz Clean Planet

The core premise of the World Environment Day is to secure ‘our land & our future’, which aligns with the focus of the Allianz Clean Planet team. The core themes underpinning this fund include: Clean Land, Clean Air, and Clean Water. Particularly of interest is the fund’s exposure to the Clean Land theme due to its focus on areas such as circular economy, green infrastructure, and sustainable agriculture.

There are several companies within the fund that 3D has classified as offering benefits to society through enabling a more closed-loop, circular economy. Companies such as Ball Corp., the aluminium can manufacturer, and Smurfit Kappa Group, Europe's largest producer of sustainable, paper-based corrugated pulp for packaging, are just two examples of how the team has chosen companies that help minimise extraction and reduce waste destined for landfills.

Triodos Pioneer Impact

Managed by Dimitri Willems, the Triodos Pioneer Impact fund seeks to invest in global small- and mid-cap companies that contribute to one of the team’s five sustainability themes: Energy Transition, Food Transition, Resource Transition, Wellbeing Transition, and Social Transition.

There are several companies in the portfolio that align with both the manager's and the World Environment Day themes, offering a more nuanced positive impact. P/F Bakkafrost, for instance, is a Faroese salmon farmer that specifically targets sustainable fish farming through the use of sustainable fish feed and practices that ensure fish welfare. Sustainable fish farming’s contribution to World Environment Day stems from the reduced reliance on land-based farming, which, to the detriment of the world's climate, can contribute significantly to rising global temperatures and deforestation.

Similarly, investee company Chr Hansen also provides a sustainable food benefit that, in turn, helps reduce the need for deforestation and increased farming. The Danish company develops and manufactures natural solutions and ingredients within the food, nutritional, pharmaceutical, and agricultural industries, which help to improve the production of food stuffs by improving quality and quantity. While these two companies may not be directly linked to land restoration, if we look at the food system holistically, there are significant global benefits.

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