Why Active Management is Essential in Sustainable Investing
Hamish Chamberlayne, Head of Global Sustainable Equity and Portfolio Manager, Janus Henderson, discusses some of the trends guiding his investment decisions and key themes and megatrends his team is watching.
Interest in sustainable investing has grown tremendously in recent times, and Janus Henderson is no stranger to the theme. Its portfolio boasts a 30-year history, and has continued to register healthy performance despite recent volatility. As of March 2020, it is one of the lowest carbon equity portfolios in the world, with a 30.5% exposure to knowledge and technology sectors, including robotics and artificial intelligence. This high allocation indicates that companies in Janus Henderson’s sustainability universe are at the forefront of environmental and social sustainability, and they are harnessing technology to bring about positive change.
“Our sustainable investment framework helps us to select companies with resilient and compounding growth characteristics by virtue of being on the right side of environmental and social megatrends,” says Hamish Chamberlayne, Head of Global Sustainable Equity and Portfolio Manager, Janus Henderson.
The framework, as described by Chamberlayne, is built around four megatrends: population growth, aging, climate change, and resource constraints. These trends are then broken down into 10 long-duration themes, which fall into two categories: environmental and social. The environmental aspect includes efficiency, water management, and sustainable transport. Among the social themes are knowledge and technology, quality of life, health, and safety.
Investing based on these long-term themes serves two main objectives, Chamberlayne explains. First, it leads to investment opportunities.
“Companies with goods or services associated with our themes are going to have superior investment and growth characteristics,” he says.
Secondly, the themes help to ensure that the investments make a positive impact on people and the planet. Specifically, firms that are involved in decarbonisation, the circular economy, and digitisation hold long-term value, he adds.
As part of the investment process, companies in the portfolio are measured against how they are contributing to the United Nations’ 17 sustainable development goals to be achieved by 2030.
“These goals are aspirational, so there is a very strong philosophy of improvement in our investment strategy,” says Chamberlayne, adding that engaging and partnering with companies is an essential aspect of driving progress. This approach, in turn, is linked to another crucial component of sustainable investing – active management.
The active difference
When it comes to sustainable investing, Chamberlayne notes that an active management approach is critical because it is through engagement, in-depth analysis, and due diligence that managers can identify companies that are more likely to succeed over the long-term.
“A passive allocation is a direct abdication of the ability, as an investor or a shareholder, to make a conscious decision about how capital is being allocated into the world. Having an active approach helps the team make better investment decisions and leads to better outcomes for clients over the long term,” he says.
It is worth noting that to help companies achieve their climate goals, Chamberlayne and his team started what they refer to as a Net Zero Carbon 10 initiative to better engage with portfolio companies around the journey to becoming net-zero carbon.
The triple bottom line
There are sceptics who continue to question sustainable investing’s ability to generate returns, but Hamish believes that abiding by the triple bottom line framework of planet, people, and profit can lead to superior returns.
“We want to have all three aligned,” Chamberlayne explains. “Sustainability and generating returns are closely interrelated. What is required is a clear set of principles about the environmental and social issues, and how they influence and impact the investment process and selection. We invest for profit, people and the planet. We believe the best investment returns will be generated by companies with resilient, compounding growth characteristics, and these attributes are more often found in companies that are on the right side of sustainability trends.”
Chamberlayne emphasised that the current economic system had been operating on an infinite growth assumption, which means that companies risk running into problems with limited resources in the future.
“If you’re investing in companies that are creating the problems, causing environmental and social harm, you are taking a much greater risk with your capital,” he says.
Chamberlayne is careful to avoid predicting appetite for his asset class over the short term, but he is hopeful the ongoing crisis can serve to underscore the attractiveness of sustainable investing, and how it can lead to better outcomes not only for investors but also for the environment and society in the long run.
“We are living in a period of such exceptional change – characterised by the low carbon energy transition, the fourth industrial revolution, and the digitisation of everything – that we do not have an environment of broad-based growth ‘lifting all boats.’” In this environment, Chamberlayne observes, “there will be big winners and big losers.”
For more information, please visit our website.
Issued in Hong Kong by Janus Henderson Investors Hong Kong Limited, licensed and regulated by the Securities and Futures Commission (SFC). This advertisement has not been reviewed by the SFC. Issued in Singapore by Janus Henderson Investors (Singapore) Limited Company Registration No. 199700782N, licensed and regulated by the Monetary Authority of Singapore. This advertisement has not been reviewed by the Monetary Authority of Singapore.
The content herein is produced for information, illustration or discussion purposes only and does not constitute an advertisement or investment advice or an offer to sell, buy or a recommendation for securities in any jurisdiction and do not purport to represent or warrant the outcome of any investment strategy, program or product, other than pursuant to an agreement in compliance with applicable laws, rules and regulations. Not all products or services are available in all jurisdictions. Investment involves risk. Past performance cannot guarantee future results.
Janus Henderson Investors is not responsible for any unlawful distribution of this document to any third parties, in whole or in part, or for information reconstructed from this document and do not make any warranties with regards to the results obtained from its use. It is not intended to indicate or imply that current or past results are indicative of future profitability or expectations. In preparing this document, Janus Henderson Investors has reasonable belief to rely upon the accuracy and completeness of all information available from public sources. Unless otherwise indicated, the source for all data is Janus Henderson Investors.
This material may not be reproduced in whole or in part in any form, or referred to in any other publication, without express written permission.
Anything non-factual in nature is an opinion of the author(s), and opinions are meant as an illustration of broader themes, are not an indication of trading intent, and are subject to change at any time due to changes in market or economic conditions. It is not intended to indicate or imply that any illustration/example mentioned is now or was ever held in any portfolio. No forecasts can be guaranteed and there is no guarantee that the information supplied is complete or timely, nor are there any warranties with regard to the results obtained from its use.
Janus Henderson and Knowledge. Shared are trademarks of Janus Henderson Group plc or one of its subsidiary entities. © Janus Henderson Group plc.