Chris Hiorns, EdenTree’s Head of European Equities and Multi-Asset, and manager of the ABN AMRO EdenTree European Sustainable Equities Fund, says the prospects for a value approach to sustainable investing in Europe have rarely been rosier.
The seemingly inexorable recent rise of sustainable investment from a niche area into the mainstream has offered active investors increased differentiation and their clients’ strong investment returns aligned with positive environmental and societal change.
There is no doubt that the increasing realisation of the need to address climate change has provided a strong backdrop for the growth in sustainable investment. Still, the attractiveness of sustainable strategies was heightened by the decade-long bull market for growth stocks that preceded 2022, as many of sustainable funds tend to follow growth strategies and as a result attracted strong inflows.
2022 highlighted the concentration risk of investment in highly rated growth and thematic names with many sustainable funds experiencing sharp falls as the bubble in technology stocks burst and the strength of the energy sector on the back of higher oil and gas prices provided a significant headwind.
The sharp downward reversion of growth-focused sustainable investment styles in 2022, triggered by the significant rise in interest rates, has underscored the place for a value-based, contrarian approach in a diversified sustainable investment portfolio.
Chris Hiorns said: “Taking a value-orientated approach to sustainable investing has several benefits, most notably offering a potential margin of safety and returns at a time when central banks are pulling back from the highly stimulatory policies that have dominated for over a decade. This approach encourages a more constructive allocation of capital, and we would argue that embedding responsible and sustainable analysis within the stock selection process can lead to a well-managed portfolio of contrarian stocks which are well placed to benefit from structural shifts in the economy.
“In our view, the outlook for a value-based approach to sustainable investing in Europe has seldom seemed rosier.”