Global Sustain Strategy
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Global Sustain offers the same long-term focus on high-quality companies and integration of material ESG factors – both threats and opportunities to long-term returns – as the team’s other global equity strategies. The strategy has explicit restrictions against investments in companies with a core business* in tobacco, alcohol, adult entertainment, bulk commodities (coal, iron ore, etc.) and fossil fuels, gas and electrical utilities, controversial weapons and civilian firearms.
The team believes investing with a conscience is fully compatible with generating attractive long-term returns and that the best way to compound shareholders’ wealth over the long term is by owning very high-quality companies with sustainable and high returns on operating capital. Material social and environmental risks to the sustainability of high returns are more important than ever, given political and technological change. Leading the way on such issues can be a positive force for corporate success if it drives consumer and/or employee engagement. The higher the quality of a company, the more important the governance, as management has more degrees of freedom to mismanage the business.
REASSURINGLY CARBON LIGHT |
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The investment process offers investors the reassurance that Global Sustain will maintain a significantly lower carbon footprint than the broader market, and the team actively engages with company management on their decarbonisation strategies. |
A ROBUST, ACTIVE, ESG-INTEGRATED PROCESS |
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ESG considerations are a fundamental part of the investment process and assessed directly by the portfolio managers using a proprietary ESG scoring framework: the Material Risk Indicator (MRI). The MRI helps to identify material risks and opportunities at company level, consider them in valuation and portfolio construction where appropriate, and identify priority areas for future engagement. |
INTEGRATING ESG WITHOUT COMPROMISING QUALITY |
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The investment team looks for companies that they believe have sustainably high return businesses that can compound over the long term. The team looks for any risks or opportunities (including ESG factors) that may materially influence long-term returns on a case-by-case basis as part of their investment process. |
A PROVEN INVESTMENT TEAM – SUCCESSFUL RECORD OF ENGAGEMENT |
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As bottom-up long-term investors, the team interacts directly with company managements on issues they believe are material, and has done so for over 20 years. |
| 1 | Identify High Return Companies (Post Exclusions) |
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• High unlevered returns on operating capital employed (ROOCE) • High gross margins (pricing power) • Capital-light business models driving free cash flow (FCF) generation • Strong balance sheet |
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| 2 | Make Sure Returns Are Sustainable |
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• Ability to remain relevant through powerful intangible assets including brands and networks, sustaining high barriers to entry • Returns sustainable against material threats or improvable through material opportunities, including environmental or social factors • Dominant market shares helping protect against new entrants • Stable sales–often repeat business driving recurring revenues • Steady organic growth and geographic spread |
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| 3 | Confirm Management’s Commitment to Sustaining Returns |
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• Focus on return on capital rather than sales or earnings per share (EPS) growth • Capital discipline (reinvest at high returns or return the excess capital to shareholders) • Committed to innovation and investment in franchises • Review management incentives • Sound governance structure • Engagement on material issues or opportunities where relevant, including ESG factors |
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| 4 | Valuation |
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• A focus on free cash flow, not accounting number • FCF yield, DCF, EV/NOPAT
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Team members may be subject to change at any time without notice. The investment team currently has 15 members; information on additional team members can be found on MSIM.com.