By Nigel Yates, Portfolio Manager at AXA Investment Managers
As the world seeks to address its climate, demographic and social challenges, UK investors have an important opportunity to assess how to best contribute to these efforts.
It is our belief that the optimal approach is to find durable businesses through our proprietary qualitative ESG analysis. This analysis places importance on companies having a positive impact on all their key stakeholders – including being aware of their environmental obligations.
By identifying companies exposed to secular opportunities and with strong or improving responsible practices, investors can potentially enjoy attractive returns while encouraging businesses to be a force for good.
The AXA Framlington UK Sustainable Equity Fund aims to invest in UK companies that balance the needs of future generations without compromising on growth. Below are three companies we hold that are exposed to the sustainable growth themes which define our approach: People, Planet and Progress.
Treatt (People theme)
Treatt is an innovative yet long established company that produces natural extracts, flavour and fragrance ingredients for global fast-moving consumer goods (FMCG) companies. Natural extracts are a speciality for Treatt whereas the industry leaders are typically focused on chemically processed flavours. This a very strong trend as increasingly empowered, health-conscious consumers demand greater transparency of ingredients used in food and beverages.
Growth is also coming from the increasing desire for consumers to choose meat-free products, which tend to lack the flavours and aromas of meat-based products – this could provide a material opportunity for Treatt given its expertise in natural flavouring and fragrance.
Through our rigorous qualitative analysis we can see that Treatt’s supply chain practices are progressive and it also has a good health and safety culture with high levels of training and a low incidence rate. It has a strong corporate culture, good female participation in leadership roles and 73% of permanent Group staff are shareholders.
Auction Technology Group (Progress theme)
ATG provides digital marketplace technology that connects bidders from around the world to auctioneers. It provides a level playing field by giving regional auction houses the digital tools to compete in a very fragmented industry. It allows auctioneers to do what they enjoy – finding product, valuing it and building customer relationships.
The global growth opportunities for ATG are very exciting. The auction industry is huge and has not yet shifted online. There is no reason to believe why 75% of this industry could not be online in the next 10 years. ATG’s technology enables the auction house to make the selling process more efficient and enables the highest value per bid. Marketplaces often provide ‘winner takes all’ economics so the bigger ATG scales the harder a new entrant would find it given their domain authority.
ATG is doing everything auctioneers don’t like to do, and it allows both to grow. Auctions are a part of the world no one thinks about but they are a meaningful player in the circular economy – everything they do reduces waste and makes the world more efficient.
DiscoverIE (Planet theme)
DiscoverIE is a manufacturer and distributor of customised electronic components. Core to its value proposition is the understanding and solving of its customers’ design challenges, which helps it create recurring revenue streams. Its four target markets – renewable energy, transportation, medical, and industrial and connectivity – are long-term international growth markets driven by excellent fundamentals such as decarbonisation, autonomous vehicles, and ageing affluent populations.
We like its laser focus on its target markets which should allow it to organically grow well ahead of GDP over the economic cycle.
DiscoverIE has set a 50% carbon emissions reduction target by 2025 and is making good progress to achieve this through efficiency savings, installation and purchase of renewable energy. It has also launched a supplier code of conduct, integrated diversity principles in hiring practices and improved health & safety reporting.
