Our world is precious, and we are duty-bound to protect it.
Investors have a huge role to play. Companies need investment to function. But investors need companies to function ethically, sustainably, putting Environmental, Social and Governance (ESG) protocol, at the heart of their business.
At Ifamax, sustainable investing and ESG are extremely important to us. Not only do we believe that the companies we invest in have a moral obligation to operate ethically. Our research also shows that companies who prioritise sustainable energy sources, who build strong relationships with their employees, customers, suppliers and the communities in which they operate, and whose leadership teams operate with integrity, will ultimately deliver better investment returns over time.
Other factors have pushed ESG up the agenda; government targets like the Paris Agreement - a pledge by global leaders to work towards limiting global climate change - have made companies look at their carbon emissions. The cost of renewable energy is declining while fossil fuels continue to rise, meaning it’s commercially beneficial for companies to go greener with their fuel supply. Plus consumers are more aware than ever of the effects society is having on the environment; we all want companies to lead the sustainability fight.
ESG at the heart of our investment process
We believe that companies with strong ESG factors are more competitive than their peers. This competitive advantage can be due to the more efficient use of resources, better human capital development or better innovation management. In addition, high ESG-rated companies use their competitive advantage to generate higher returns, which ultimately leads to higher profitability, meaning higher dividends for investor
Firms that focus on sustainability benefit from a lower cost of capital and higher credit ratings than their peers. Those that have been ineffective in managing environmental risks have, on average, 20 per cent higher borrowing costs. Low scoring ESG companies also tend to have higher cost of equity.
Meta-analysis of more than 2,000 primary studies of company behaviour concluded that there is a positive relationship between corporate financial performance and sustainability credentials. This is supported by two other major research papers, which independently showed that ESG-focused companies tend to outperform peers, both in terms of share prices and financial results.
Our investment philosophy is to back assets we believe in over the long-term, following vigorous research and analysis. And our approach to ESG is no different. Every investment target we look at has to meet our high standards on ESG, a failure to do so may result in a smaller investment - it may stop us investing altogether.