15 April 2019
I think you have to look at a company with a 360 degrees approach.
My name is Vincent Durel. I'm a portfolio manager at Fidelity International with a focus on sustainable investing and corporate engagement.
I take part in some 80 to 100 ESG-focused corporate engagement meetings every year. It is integral to my due diligence process with companies in which I invest.
I believe any non-financial risk could become a financial risk over time.
It is a collaborative process. I engage with companies and then monitor and advise on their sustainable targets.
It is very interesting to see how companies now are much more engaging with investors; how they are willing to disclose and to communicate more about their sustainable policies.
As such, you would be surprised to see how often during my ESG meetings I meet more than five people. Each person representing a particular department. It is a good sign for rich sustainable practices.
To have an exposure to a specific risk - it's not wrong. I think what is interesting is to see companies leveraging this exposure by providing best practices in the industry.
I've been engaged and I've monitored the progress made by the supply chain management from Beiersdorf on palm oil and from Symrise on vanilla, showing best sustainable practices.
One of the business worries for them was to avoid the risk of shortage in terms of raw materials and the way how now they have invested in a sustainable way in the supply chains reduces dramatically that risk and provides them a key competitive advantage in its growing industry.
What I've particularly liked with the initiatives from Beiersdorf and Symrise is the way you can have strategic long-term sourcing relationships with farmers in emerging markets.
On a pure financial matter I would say that a company which has a great sustainable development policy should have a cost of equity lower than its peers. And the main reason for that is because they have a much better risk management policy. So by definition, the probability to have a non-financial risk is lower and also the probability that they will outperform the market and the sector is also much higher because they are thinking long-term and in a sustainable way.
I think what I've learned over these past years is definitely that I cannot implement my investment process without doing an ESG analysis. I think you have to look at the company with a 360 degrees approach, to look at every single pillar: the environment, the social, the government, but also the financial criteria.
By focusing on the best sustainable economic models I know that I'm doing something good and I'm doing something good for the society and for the environment.
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