this has always been important to us, in more ways than one and we strive to achieve some of the highest standards of our peergroup*
Sustainable risk-adjusted returns from sustainable businesses, managed and run on sustainable principles and setting the standards for sustainability in their industries globally, in a fund strategy that investors may be able to commit to and sustain for the long-term.
*(Morningstar Sustainability Ratings).
The heart of the Endeavour investment process has always been the search for sources of return that the managers feel can be sustained over the long-term, from businesses that they believe can be relied on to deliver to expectations, consistently. These businesses are typically operating in secular growth markets with strong competitive positions and possessing brand leadership, technology advantage, and pricing power, with high barriers to entry or protective regulatory frameworks around their businesses. Seeking out the consistency of dividends, the security of bond coupons and steady growth, at least as a starting point, the Endeavour process naturally captures a lot of businesses where management strategy and culture reflect the highest operational standards, including increasingly environmental, social, and governance, or ESG.
Environmental, social and governance issues rank increasingly prominently and often distinguish our invested companies as leaders in their fields precisely because they do. The managers of the Endeavour Fund do not negatively screen for ESG investments based on a sense of historical or subjective ethical judgement. Rather the starting point for us is that company management set their goals and responsibilities prioritising the interests of the widest stakeholder community and, with pragmatism, should set the standard in their sectors for how they go about it. Environmental, Social and Governance issues are directly evaluated in the Endeavour investment process, both directly with the companies we are engaged with and through third party industry analytics providers such as Morningstar and Sustainalytics who have rated the Endeavour Fund highly ever since inception of their ratings services.
The managers take a pragmatic and progressive approach to the sustainability of the companies they invest in and the issues they engage those companies with as shareholders. Here are some examples of this thinking on the principal Environmental, Social and Governance issues as they are developing.
The managers do invest in the energy sector but we avoid businesses retaining their legacy coal assets. The oil and gas sector is not considered as unethical or uninvestable per se. Far from it, it would in our opinion actually be unethical to withhold capital investment from an industry that is today the mainstay of affordable energy and the basis of 100 years of relief from poverty and improved living standards for billions. However, the energy companies we invest in should also rightly be expected to be progressively shifting their operations towards cleaner fuels and investing in the development of the next generation of sustainable, renewable energy sources and committing to the optimal and credible timelines to do it in the best interests of all stakeholders. This includes the acknowledgement by the IPCC, the International Panel on Climate Change, that the global economy has an interest in utilising the cleanest fossil fuels for baseload power supply for at least a part of the next generation.
Snacks & sodas
Likewise, it is not all carbonated drink and snack food makers who contribute to the inexorable rise in obesity and diabetes rates globally; some are leading the way with healthier ingredients, lower sugar content and replacement products and in educating their customers into new consumption habits.
The managers do not invest in the tobacco industry, though the managers would say it is generally of little utility to society and the companies themselves admit to their products shortening normal life expectancy! The manager happens to believe this is not a very sustainable business model long-term and would go so far as to suggest the products would be made illegal if it wasn’t for the aggressive lobbying and tax revenues harvested from the industry by all governments around the world.
Gambling and alcohol may be considered evil – by some, on principally religious grounds – but in moderation the managers believe they are can be a welcome right to enjoy for mature self-determining adults and have typically tended to play a traditional healthy role in social cohesion though should continue to be carefully regulated.
The managers do not invest in defense and military hardware manufacturers. Instead we see the provision of armaments as better placed in departments of government. In and of themselves they may not be considered unethical investments as defense capability in our opinion has always played a vital part in the framework of international peace. That said, some defense companies and some defense products supplied to some countries and regimes may well be considered unethical, in the managers’ opinion, and on ethical or even legal reasons investors of any ethical bias should probably avoid such an investment.
Diversity of people and cultures, perspectives and talent is always a good thing for any business and is increasingly to be expected for businesses with themselves diverse markets and customers. However, setting pejorative quotas for diversity the managers do not feel to be constructive for companies to answer to, facing as they already do tremendous challenges in the market for talent and recognising the obvious advantages diversity brings to breadth of thinking, innovation and understanding.
Almost needless to say, the managers of the Fund would abhor the thought of any of their investments being involved in modern slavery or pornography. The managers go to reasonable lengths to ensure these standards in investee companies, bearing in mind the Fund is relatively concentrated, overwhelmingly large market-capitalised, very well covered by market analysts, and forensically scrutinised by sustainability industry research providers whose ratings are woven directly into the Endeavour investment process.
A philosophy of stewardship
We are fortunate in western democratic countries to have the structures of government, institutions and accountability to trust that what is legal in our societies is broadly and increasingly – and ultimately – ethical. We believe our investment and corporate engagement process makes a modest but relevant contribution to that evolution, a philosophy of stewardship rather than outright performance. Endeavour naturally appears to capture a lot of ESG characteristics: by country and by capitalisation, by dividend and by growth, by conviction and by success, the Endeavour Fund appears to have captured more ESG factors than over 90% of the Morningstar rated fund universe in the years since their rating service was launched in 2015 (source: Morningstar, Tellsons, Sustainalytics).
Probably one of the most naturally sustainable funds available in a much greenwashed market today, it is ESG that seems to have found Endeavour.