Investment analysts Morgan Ayres and Rachel Beechinor, the architects of our newly launched Global Impact Fund, talk about how it recognizes and addresses the growing desire for investments that are both sustainable and profitable.
As the world grapples with climate change, social injustice, and greenwashing, investors are beginning to understand the long-term benefit of investing in companies that truly integrate solutions for these challenges at their core while providing long-term returns.
The newly launched Global Impact Fund portfolio by Vancity Investment Management compiles a collection of these socially and environmentally driven companies as a response to not only the evolving needs of the planet but the financial trend towards impact investing in Canada and across the world.
Marc Sheard, Equities Portfolio Manager, sat down with analysts, Morgan Ayres and Rachel Beechinor from Vancity Investment Management, to discuss the launch of this latest portfolio and how it fulfills the need for impact investing, and the extensive selection process of companies that makes this fund truly impactful.
Q: Thank you for joining us today. Vancity Investment Management recently launched the Global Impact Fund. Could you tell us what inspired its creation?
Morgan: Thank you for having us. We've always been committed to delivering investment solutions that align financial success and global well-being at Vancity.
The inspiration came from a gap in options that provide a focus on profitable public companies expected to improve shareholder value by selling goods and services that create positive social and environmental impact. Specifically, one that doesn’t simply screen out negative impacts but actively improves the world. Unique from our other funds, our Global Impact Fund features an extended approach to impact analysis centered around four themes.
Q: That's a compelling vision. How did you choose the themes?
Rachel: I can answer that. Each impact theme in this portfolio bases its foundations upon the 17 Sustainable Development Goals (SDGs) adopted by the United Nations. These goals and themes were designed as a universal call to action to protect the planet and for peace and prosperity of its people.
So, at a very high level, we selected four impact themes with long term potential, and investable universes (meaning there are multiple investable industries and/or companies that fit within the theme), which then allowed us to create hunting lists of potential companies.
We chose 4 primary themes – Quality of Life, Sustainable Production & Consumption, Energy Transition, and Social Inclusion.
Q: How relevant are these themes and the companies included in the portfolio to a Canadian investor?
Morgan: We started with over 10 to 15 potential themes relevant to Canadian interests.
When we further refined our focus, we discovered that high-quality companies under some of these themes were either lacking in certain spaces or the businesses that existed didn’t have trackable KPIs for us to measure their long-term impact.
Many companies typically considered strong impact or ESG names were also ruled out after we examined their business model, operations and impact generation in depth.
This thorough evaluation led to the elimination of a significant number of companies from our list. Although the themes were relevant, we wanted to ensure that Canadian investors can see how their investment is generating a positive impact while balancing profitability. The companies that truly integrate sustainability into their operations and strategy are the ones likely to endure.
“We wanted to ensure that Canadian investors can see how their investment is generating a positive impact while balancing profitability."
Q: What does the selection process for these companies look like?
Rachel: Staying true to Vancity’s ideology, we always start with what’s called Negative Screening across of all our funds, where we automatically eliminate companies that derive a sizable proportion of revenue from the production of fossil fuels, military weapons, gambling, nuclear power, pornography or tobacco.
Companies that remain are analyzed across seven key ESG themes and are then assigned an eligible or ineligible investment label.
Our ESG analysis allows us to identify companies that have the potential to succeed in the current world of very quickly evolving environmental risk, increasing social expectations, and changing shareholder demands.
Another key piece of our ESG strategy is our use of shareholder engagement. Using our influence as shareholders we engage with company management to generate positive change within their operations. We plan to use this power to encourage companies held in the fund to disclose impact metrics and generate further impact.
For the fundamental analysis, we always begin with looking at the industries the companies operate in – the industry attractiveness identifies if these industries have a competitive advantage that’s getting stronger, weaker, or staying stagnant, and the barriers to entry.
And one of the most important things we look at is the management teams of these companies, as they’re the ones responsible for allocating the capital, making the important decisions and also creating a positive environment for their employees.
Lastly, we look at the valuation by using tools like free cash flow, yield, discounted cash flows and relative valuation to ensure we aren’t overpaying.
Q: That’s quite an extensive process. Effective, nonetheless. Looking ahead, do you ever expect to switch out the current themes and replace them at any point?
Rachel: Potentially! We are excited about the future and are committed to continuously enhancing our investment strategies. With any thematic fund, the themes represent industry tailwinds that you see over the long term – that's about 8 to 10 years. But we know that the world, especially within the impact universe, is constantly evolving and we want to make sure that we're following along and able to re-allocate our capital in sync to these changes. And this fund has been designed keeping that in mind.
Morgan: We also want to make sure that we're capturing the tailwinds and not jumping the gun too early or leaving them in until it's too late. Our goal is to make a meaningful difference while delivering value to our investors.
Q: That's a great goal. At the end of the day, investors want profit. What makes you think they will choose the Global Impact Fund instead of any other fund?
Morgan: That’s because this portfolio takes an intentional and measurable approach to impact investing. These companies have clear impact visions, which are evident in their historical and current disclosures. Combined with our hands-on approach to helping investors align their money with their values, members can achieve profits while also contributing to the betterment of the community.
Q: Lastly, how often can investors expect updates on the fund, and what type of material should they expect to see?
Rachel: Measuring the impact each company is generating is extremely rewarding for our investors and therefore, is a top priority for us. And like with any of our other funds, investors in this fund get quarterly and well as annual updates. They may also be provided with a case study or examples of what the companies are doing on the ground and how they’re making impact. Our investors are also always in the know about any updates or changes our team is undergoing with the portfolio handling.
The Annual Report details the SDG alignment of the entire portfolio, the carbon footprint, as well as case studies and a general impact thesis for each company and why we hold it.
"With regular updates, you’ll see how your money is being invested into companies that are having measurable impact and visible progress over time."
Q: That should be great news for many of our potential investors who are thinking about diversifying their existing traditional portfolio. Thank you for sharing these insights. The winds of impact investing are getting stronger and Vancity is ensuring their investors get to ride on this wave.
Morgan: Thank you. It's been a pleasure discussing our new portfolio and our commitment to making a positive impact.
Rachel: We've already seen it through the first set of earnings, and it has been rewarding to watch them move in the right direction.