126. Rising inflation: We’re on the brink of something different for the first time in decades
Chris Bowie, manager of the TwentyFour Absolute Return Credit fund, talks us through bond markets...
Having enjoyed a feast of pancakes last night, today marks the start of Lent: forty days of prayer, fasting, self-examination and repentance for all Christians around the world.
My son has given up the Xbox (we’ll see how long that lasts), I’ve given up biscuits (see previous comment), Juliet our research director, has given up cheese, and our millennial writer Staci has given up ice cream.
When it comes to self-examination, there is always room for improvement – for individuals as well as businesses.
But which ‘bad’ companies have been repenting by doing some good?
We take a look at five examples.
Graeme Anderson, chairman of TwentyFour Asset Management says that he and the team regard ‘momentum’ as one of the most underestimated factors in promoting progress on environmental, social and governance (ESG) issues. Their view is that capital markets should support rather than shun a company if it has a credible plan to improve in a key area or areas.
He cited SSE, the Scottish energy company that is held in the TwentyFour Absolute Return Credit fund, as an example: “SSE took its usage of coal as a production input from 59% in 2013 to 5% in 2018,” he said. The company was aiming for zero by 2025 and is on track to achieve it this year – a result that would have been made more difficult had capital markets shunned SSE in 2013.”
Andy Marsh, co-manager of Artemis Income fund, told us about Boliden, a Swedish quoted mining company that the team has recently invested in, in his recent podcast. “It scores incredibly highly, for ESG because it’s actually in a highly regulated economy: Sweden,” he said. “It’s focusing very much on its carbon footprint and we think increasingly businesses are going to have to prove what they’re doing in their supply chain from an ESG perspective.
“Copper is actually going to be the bedrock of electrification because we’re going to need lots of copper cabling for the renewable infrastructure assets that are required to meet the carbon targets. We think, by leading from a sort of cradle at the mining end of the perspective, right to the end of the market where it’s focusing, is incredibly ESG-friendly in terms of its relative score. And we think that’s going to be really important to people – certainly relative to some of its competitors that are mining in places like Latin America.”
Bertie Thomson, co-manager of Brown Advisory Global Leaders, cited Microsoft. Back in the early 2000s the European Union found the company guilty in the European Union Microsoft competition case, and it received a 899 million euro fine. It has also been in trouble for overworking employees and was referred to as the “Velvet Sweatshop”.
Today it is concentrating on better things: “The firm’s Azure cloud-computing solution frees customers and developers from intense management of on-premise hardware and software, and helps them drastically reduce energy usage,” Bertie said. “Microsoft has also been a 100% carbon-neutral operation since 2012, thanks to ongoing energy and emission reduction efforts as well as the implementation of its own innovative carbon fee. Microsoft charges each business unit an internal tax based on estimated energy usage, carbon emissions and prevailing electricity prices. The fees go into a common fund that invests in environmental sustainability/efficiency improvement projects. The initiative currently generates about $10 million in cost savings per year, and the company expects this to ramp up in the future as improvements stack up over time. The carbon fee has been instrumental in spreading sustainability across the company and embedding sustainable thinking into Microsoft’s corporate culture.”
Laura Bottega, lead portfolio specialist on Morgan Stanley Global Brands, spoke about Philip Morris in her ‘Investing on the go’ podcast recently. A tobacco company is possibly the epitome of a ‘sin’ stock and the Swiss-domiciled multinational cigarette and tobacco manufacturing company – which sells its products in more than 180 countries – has been the subject of litigation and restrictive legislation from governments.
“We’re very clear we’re not approaching ESG from a moral perspective,” Laura said. “We’re looking for companies which exhibit high and sustainable returns on capital and, for those clients who don’t want to hold tobacco, our team offers a portfolio that excludes it. However, Philip Morris is the leader in next generation reduced harm technology, helping drive the consumer towards a smokeless future.”
Estée Lauder has been in trouble in the past for a number of things, including the use of child labour by one of its brands and animal testing, but has generally been swift to act and is doing a lot of positive things today including its breast cancer awareness campaign.
“A lot of people talk about stakeholders in terms of shareholders and employees,” David Coombs, manager of Rathbone Strategic Growth Portfolio, told us in his podcast last year. “We think the most important stakeholder is actually the customer because if you don’t get it right with them, your employees will struggle, the shareholders will struggle and management will struggle. It’s really important that companies focus on the customer and what the customer wants.
“A great example is Estée Lauder. It is looking at reducing plastic use and moving toward glass because it is seeing a huge shift in consumer behaviour. That’s a company that clearly is up to the minute in terms of what its consumer wants and desires and is moving accordingly, even if it’s going to cost it money to do so. It is taking a long term approach.