The summer season has brought further anomalous weather conditions. This reminds us about climate issues which are among the most important ESG criteria and relate to sustainable development and its objectives presented by the UN.
The legislative offensive of the European Union has introduced the need to take into account the risks involved in sustainable development in investment activities. This refers to, among other things, the activities of investment fund companies. Nevertheless, in addition to setting out the obligation to define and disclose ESG related information, it has opened and regulated a number of possibilities to create investment solutions in which sustainable development issues play a crucial role
A type of product classification in terms of ESG has been created as a result. Thus, ESG neutral products (or products which may, but do not have to, take ESG into account in their strategies), as well as “light green” products (Article 8 of the SFDR) and “dark green” products (Article 9 of the SFDR), having a positive impact on sustainable development, can be distinguished.
Sustainable development offers many opportunities
The mainstream ESC and sustainable development communication is based on stressing the risks and hazards arising from the absence of sustainable human activity. From investors' perspective, however, the key issue is to see new opportunities deriving from the need to transform economic activities in such a manner that they generate values consistent with the sustainable development objectives. Therefore, changes relating to ESG factors can already be observed in a number of areas of our reality.
Changes in business models are forced, on the one hand, by regulations and, on the other hand, by the increasing awareness of consumers. Consumers become more and more aware of e.g. environmental aspects and change their consumption habits. This, in turn, forces further changes and favours innovations in the activities of companies which aim at implementing ESG principles while increasing profits.
In environmental terms, green profit is possible in virtually any industry. The most attractive opportunities are available in areas relating to food production and consumption, urban development, and energy and resources. This is illustrated by the following graph.
Green or not green – how to look for a right fund?
When choosing funds investing in compliance with sustainable development principles it is extremely important to pay attention to a proven, high-quality process of selecting portfolio companies. Such a process should be a combination of a system of finding companies which are best suited for our ESG objective and a traditional selection process based on a classic fundamental analysis. After all, we want our portfolio to include companies characterised by high-quality investments and, at the same time, highly positioned in terms of implementing ESG principles. The best way to build an investment portfolio is to apply the research, methodology and achievements of renowned external entities and an own system of assessing the value of investment candidates, developed by a dedicated, battle-tested ESG team.
SPICE – environmental investments “seasoned with” ESG
The Generali Akcji Ekologicznych sub-fund is Generali Investments TFI's answer to the growing awareness of the importance of sustainable development. It is a master-feeder sub-fund created on the basis of the Sycomore Eco Solutions fund managed by Sycomore Asset Management. SAM belongs to the Generali Group and is a pioneer in ESG investments in which it also specialises.
Sycomore Eco Solutions is a stock fund investing in companies benefiting from environmental transformation, operating in five sectors: transport, energy, construction, circular economy and ecology. The fund excludes companies which destroy the ecosystem or have a low ESG score.
The environmental investment filter applies the Green Label methodology (a certificate guaranteeing that investors finance environmental transformation), SRI (i.e. the Socially Responsible Investment principles) and, which is crucial, the NEC model.
The NEC (Net Environmental Contribution) model is the only comprehensive model for assessing the economic activities of companies (in the -100% to 100% scale) based on actual data from the entire value chain (for more information see: https://nec-initiative.org).
Companies carefully selected with the application of the environmental filter subsequently undergo an assessment process based on the SPICE system being Sycomore AM's internal proprietary system. SPICE is an integrated analysis of the company's approach to five areas: Society & Suppliers, People, Investors, Clients and Environment, based on the belief that the company may create long-term sustainable value only if this value is shared with all its stakeholders.
The last phase of the process of selecting portfolio companies is the selection of companies with the greatest growth potential. The entire process is shown on the graph below:
Sycomore Eco Solutions is classified as a dark green fund (it satisfies the requirements set out in Article 9 of the SFDR).
Results are also green
Because of the strong ESG megatrend supported by governments, companies applying sustainable development principles in their operations and demonstrating good ESG indicators, or considerably improving their operations in this respect, are preferred by retail and institutional investors. Especially the latter group will feel more and more pressured (both by regulators and the market) to support sustainable finance. The financial outlays to be deployed in the upcoming years in, among others, the European Union and the USA, will continue to be another important factor.
Such structural demand can already be noticed and is reflected in the financial results of funds investing in the ESG spirit, including Eco Solutions (see the graph below). Thus, the prospects of the Generali Akcji Ekologicznych fund are very promising.
Source: https://en.sycomore-am.com/, own calculations.
This document is distributed in order to advertise and promote the services provided by Generali Investments Towarzystwo Funduszy Inwestycyjnych S.A. (the “Company”) which operates under decision no. KPW-4073-1\95 of the Polish Securities and Exchange Commission (currently: the Polish Financial Supervision Authority) of 1 June 1995.
The Company does not guarantee that the assumed investment objective or a specific investment result will be achieved. One should take into account the possibility of a reduction in value, including the loss of part of the funds invested.
The results of the Generali Akcji Ekologicznych sub-fund may not reflect the results of the Sycomore Eco Solutions sub-fund. The presented financial results of the Sycomore Eco Solutions sub-fund relate to a designated period in the past and do not guarantee similar results in the future, do not take into account fees relating to investments in a given sub-fund and taxes and may be reduced by the fees charged and the applicable taxes.
The sub-fund is addressed to investors who accept high investment risk and whose investment horizon is at least five years. The investment policy principles and investment restrictions of Sycomore Eco Solutions are laid down in the bylaws of Generali Fundusze SFIO in the chapter concerning the Generali Akcji Ekologicznych sub-fund.
This document does not contain full information necessary to assess the risk relating to investing in participation units. Investment decisions as regards investing in investment funds should be made only after reading the funds’ Prospectuses including detailed information on risk factors, principles of sales of funds’ participation units, table of fees, as well as tax information.
Prospectuses, Key Investor Information, AIF Client Information, tables of fees, information on investment risk and taxes are available at www.generali-investments.pl.
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We have prepared this document with due diligence and using our best knowledge. Information presented and described herein is based on the author’s opinion as at the document publication date and on then applicable legal situation and tax laws; amendments hereto do not require previous notification. This document uses information from own sources.
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