A Legg Mason boutique that manages $20 billion has launched a new sustainable equity strategy that will use proprietary sustainability analysis instead of just relying on negative screening.
Martin Currie Australia Sustainable Equity Strategy will be managed by the boutique's 17-strong Australian investment team with Will Baylis, Naomi Bant and Matt Lambert as the managers of the strategy.
It will use fundamental analysis and proprietary sustainability assessments, as the Martin Currie takes the view that a simple SRI strategy with negative screening alone can have limitations for benchmark-relative strategies.
Hence, the new strategy will have some exclusions (companies with child labour breaches, companies manufacturing tobacco products and companies involved in production or distribution of cluster munitions).
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But it will focus on identifying and scoring companies that: provide more benefit than harm to society, have a management focused on sustainability risk and have a clearly articulated path towards a sustainable environmental, social and economic future.
"We invest on the basis of a forward-looking evaluation of future returns, not on past performance. We believe that screens put undue precedence on the past activities of a company and penalise companies who are in fact moving in the right direction," the strategy's lead portfolio manager Will Baylis said.
It will hold about 55 securities and aim to beat the S&P/ASX 200 Accumulation Index over rolling three-year periods. The fund is priced at 64 bps per year in management fees (negotiable, according to the PDS) and admin and other costs estimated at 13bps per year. The new strategy is targeted at institutional clients via segregated mandates.
As examples of its limited screening but stock-level sustainability analysis, Martin Currie cited three stocks: Harvey Norman, Amcor and AGL Energy,
"Harvey Norman would have passed most negative screens that RI funds use, but for us this fails our ESG analysis on fundamental governance issues," the managers said.
"Amcor has significant revenue from tobacco revenue and would fail a typical negative screen, but we see Amcor on a positive sustainable pathway given it targets by 2025 to have 100% recyclable packaging which is the key growth focus, especially for the packaged food and beverage industry."
"An example of a stock that would fail a typical negative screen, and we also don't include in the current portfolio is AGL Energy. AGL have very high GHG emissions and as a consequence is not in the portfolio, but we continue to monitor AGL's investment into renewable energy and its sustainable pathway."
Martin Currie Australia chief investment officer Reece Birtles said: "Companies can be nudged in the right direction, and as a significant asset owner in Australia, Martin Currie can and do use our position to actively engage with company management and boards to influence positive change towards sustainability."
"Each year, the investment team conduct over 1000 meetings with company management, and also their competitors, customers and suppliers, and this gives them an ability to influence corporate behaviour to change for the better."
Martin Currie is an affiliate of Legg Mason and managed about $20 billion at March end, of which $9 billion was in Australian equity assets.
Martin Currie's co-head of global distribution Kimon Kouryialas said the development of the strategy was a direct result of discussions and engagement with investors.
"...[They]...have told us that they increasingly want to align their investments with achieving a more sustainable society, environment and economy, but also do not want to forfeit financial returns," he said.