Ninety One Global Environment

Launched in December 2019, Ninety One Global Environment is a global equities fund that includes emerging markets, but which has a unique approach of only investing in companies that are contributing to the decarbonisation of the world economy. The portfolio has complete conviction, with just 20-40 holdings, and will have limited crossover with peers or its benchmark. Managers Deirdre and Graeme try to make the overall portfolio style neutral, with the stock selection set to be the primary driver of returns.

Previously Investec Global Environment

Our opinion

This fund’s approach is genuinely unique. The proprietary screen that is used to build the investable universe is impressively comprehensive and dynamic to ensure the futureproofing of the strategy in the event of considerable technological enhancement. It means that the fund is set to benefit from the massive tailwind of the some $2.4 trillion of annual spend required to meet global temperature goals.

Fund manager

Deirdre Cooper and Graeme Baker co-manage the Ninety One Global Environment fund. Graeme has been at the company since 2009 and is part of the Natural Resources team, having had previous experience as an alternatives and global equities analyst. He has a degree in Economics from the University of Bristol, as well as being a CFA Charterholder.

Deirdre has been at the company since 2018, having joined from Ecofin where she was Head of Research and had roles that included running a sleeve of money for the Norwegian Sovereign Wealth Fund. Deirdre has also had roles at Morgan Stanley, where she built an investment franchise. She holds an undergraduate degree from University College Dublin and an MBA from Harvard.

If the world is going to get anywhere close to its emissions-reduction targets, we need to support companies driving the transition to a low carbon world. We do this by “following the carbon emissions” and focussing on the winning businesses in each industry. This is our ultimate goal in Global Environment.

Deirdre CooperFund manager

Investment process

The environmental label on the Ninety One Global Environment fund means a focus on CO2 and the necessary decarbonisation of the global economy. It is estimated that, in order to reach global temperature goals of a maximum 2C rise, $2.4 trillion per year will need to be spent or reallocated. This fund looks to tap into the companies that will benefit from that spending.

Deirdre and Graeme have developed a proprietary screen to reduce the global universe of stocks to around 700 companies that are set to benefit from sustained decarbonisation by providing environmental solutions. This screen works by analysing the levels of carbon dioxide that will be avoided by using one company over an alternative – going right through the business’ products and services, supply chain and areas of activity. For example, it looks at the emissions created onsite, or by company vehicles, emissions generated from the energy the company uses, and indirect costs such as employee commuting, the use of their products and downstream transportation.

If a company’s total activities generate less carbon emissions than the average company in their sector, it is included in the investable universe.

As well as avoiding creating carbon emissions, companies will also have to have at least 50% of their revenues from three sectors: renewable energy; efficient use of resources, and electrification. Due to the dynamic nature of global markets, this means that the universe is regularly updated and constantly looks to improve the carbon footprint of its final portfolio.

From this screened universe, Deirdre and Graeme’s analyst team will examine the credentials of each company further, looking specifically at financial and ESG criteria, as well as a company’s competitive advantage, the opportunity for sustainable returns and revenue exposure to decarbonisation. This will leave a list of around 100-150 companies.

From here, Deirdre and Graeme will lead the process, producing a full level fundamental analysis of each company. The team builds all its own models, primarily based on cash flow and growth levels. It will also meet management teams, often multiple times, with strong engagement around their commitment to further decarbonisation. The analysis is put to the whole team who will be encouraged to question assumptions and test the investment case. The final consideration is the valuation of the company.

ESG

ESG - Explicit
ESG factors are put first and foremost in the construction of this fund. The process starts with an environmental screen, looking for companies where at least 50% of their revenues come from activities that create a quantifiable reduction in carbon emissions. It also excludes companies with more than 5% of their revenues from oil, gas and coal. As a firm, Ninety One also has a general exclusion policy which means the portfolio will not have exposure to sectors such as controversial weapons, tobacco, gambling and alcohol.

A company’s carbon emissions are considered throughout the operational value chain. This means Graeme, Deirdre and the team will source data from a wide array of sources, allowing them to look at outputs from the companies own facilities, through to their purchased electricity and employee commuting. This includes granular data all the way to factors such as business travel, the uses of their products and the end-of-life treatment of assets.

Any ESG issues that have been identified are discussed and monitored as part of the team’s regular engagement with company management. A deterioration in the ESG assessment of a held company also contributes to the sell decision.

Risk

The managers will take insight from Ninety One's risk team. Volatility will be the primary risk metric reviewed, though correlation and will also be considered. The target is volatility that is in-line with the market, despite the fact that the portfolio composition will be very high conviction and will look very different to that market. The majority of the risk is in stock selection, rather than in sector or country bets. Similarly, having too much of a swing towards growth or value styles will be avoided.

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