East Capital Sustainable Investment Report 2018
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Sustainable investment report: ESG — a key tool for emerging and frontier market investments Sustainable investment report About East Capital East Capital is an independent asset manager Long-term specialised in emerging and frontier We focus on companies with long-term markets, founded in Sweden in 1997, with growth prospects and position our strategies offices in Dubai, Hong Kong, Luxembourg, to outperform their respective benchmarks Moscow, Oslo, Stockholm and Tallinn. We within three to five years. While we can make manage public equity funds, real estate funds some short-term adjustments, we do so with- and separate accounts, for a broad out sacrificing the overall long-term focus and international client base, including the low core turnover of the portfolios. leading institutions. Our investment strategy is based on in-depth Local company knowledge gained through Meeting frequently with company owners, proprietary fundamental analysis and management teams and policymakers is an frequent company meetings. We care fully integral part of the investment process. Such consider ESG-related risks and opportunities meetings give us in-depth local knowledge in our investment process, and favour that help us make better informed investment companies with long-term, sustainable decisions. growth prospects and responsible owners. Since day one, we have set out to be a long- Research-driven term, active and responsible investor. Over Diligent research is essential for identifying the years, our investment teams have key performance drivers and correctly interacted with thousands of companies, assessing risk. We rely on our own research, management teams, regulators, governments including risk scenarios and a proprietary and other investors. We have consistently ESG analysis, in our investment process. worked on developing how we address sustainability and ESG to ensure that we are able to offer sustainable investment products Active stock pickers to our clients. This has resulted in a unique We are index-agnostic in idea generation, and proprietary approach that has been contrarian at times, and invest by conviction diligently carried out by our investment on a company by company basis. Our teams for over 20 years. portfolios typically have a high active share. Our ultimate goal remains the same: to make better informed investment decisions and Global research platform and enhance the value of our portfolio companies regional teams with local know-how through active ownership, while contributing • 5 research/investment offices to the advancement of sustainability in our • 30 investment professionals investment universe. • 20 languages Important information Every effort has been made to ensure the accuracy of the information in this document, but it may be based on Cover page: Shenzhen, China. unaudited or unverified figures or sources. Full information about East Capital’s funds, such as the prospectus, key In four decades the city has transformed itself investor information document (KIID) and other fund documents can be obtained free of charge from East Capital, from a small fishing town to a 20 million people from our local representatives and are available on East Capital’s website. The availability of East Capital’s funds may be megalopolis and is now a global powerhouse of limited or restricted in some countries. The information about East Capital’s funds is only directed at those investors innovation and technology, where we can find located where East Capital is authorized to make this information available, and is not intended for any use which some of the fastest-growing and most exciting would be contrary to local law or regulation. companies. Investment in funds always involves risk. Past performance is no guarantee for future performance. Fund units may go up or down in value and may be affected by changes in exchange rates. Investors may not get back the amount invested. © East Capital 2019 Graphic design and production: East Capital & BjornSthlm AB. Photos by East Capital staff, Gui Jun In Dubai this document is distributed by East Capital (Dubai) Limited (“ECL”), which is regulated by the Dubai Financial Peng/Shutterstock (cover), Fredrik Reuterhäll (page Services Authority, (“DFSA”). The information contained in this document is intended for Professional Clients with 5,7), SIPA Asia/Suma Wire (page 6), Peter Nguyen/ sufficient investment knowledge and experience as defined in the DFSA COB Rules and no other persons should act Unsplash (page 8), Maria Kukatova (page 13), upon it. Further, the information contained in this document is not intended as financial advice and should not be Snežana Vučetić Bohm (page 11, 23), PRI Association treated as such. (page 12, 13), Rensource/Adamola Adesina (page 31). 2 Sustainable investment report Erik Haukaa (Sales Contents Director), Olle Olsson (Head of Sales Europe & Latin America) and Partners Karine Hirn & 4 Rising ESG imperative Peter Elam Håkansson A word from Peter Elam Håkansson, Chairman and CIO at PRI in Person 2018. 6 Thanks to China, solar power has Sharing our perspectives on ESG entered a new era During the year, members of East Capital’s investment team were frequently quoted in the media and we were invited to Francois Perrin, Head of Asia, reflecting on how China’s share our investor perspective on ESG as speakers at numerous leadership in clean energy is transforming the economics of our conferences and other events globally. Notably during 2018, we global energy system joined one of the plenary panels at the PRI in Person event. Page 12 8 Frontier markets through the ESG lens Five questions to Portfolio Advisor Emre Akcakmak We believe that responsible investment 10 East Capital as an active investor is a great alpha contributor and risk David Nicholls, Senior Analyst, illustrates our approach to management tool for long-term engaging with our portfolio companies investors, especially in emerging and frontier markets, where data can be 12 A lot of (green) energy at the extremely scarce and ESG challenges world’s largest responsible can be daunting. investment conference Our main take-aways from PRI in Person 2018 where we contributed to panels and conversations with peer investors, asset owners and service providers. More than 14 East Capital as owner Since day one, we have set out to be a long-term, active and 1,000 responsible owner. company meetings every year and our 15 How we generate value engagement to impact and drive change Our investment philosophy and portfolio management approach Page 21 16 ESG in each step of the investment process New role for Karine Hirn How we systematically select the companies with the best Partner Karine Hirn takes on the risk/return profile position of Chief Sustainability Officer, signaling the strategic importance we attach to the 17 Our ESG tools pursuit of Agenda 2030. 18 Sector exclusions (negative screening) Page 11 18 Controversy (norms-based) screening 19 Proprietary ESG scores 21 Active ownership: engagement and voting 3 Sustainable investment report accounting for most of the increase Rising ESG imperative despite strong renewables growth. The panel attributed the increase to the “robust global economy” and higher heating and cooling needs in The transition to a greener and more sustainable world is taking shape some regions. Energy-related CO2 — as we speak. This is undeniably a major convergence trend, and it which accounts for the vast majority reminds me of the Eastern European convergence story we identified as of all CO2 emissions — climbed by 1.7% last year, following a slightly an extraordinary investment case at the end of the 1990s, which went on smaller increase in 2017. China, to create the premise for East Capital. India and the U.S. jointly accounted for 85% of the net emissions growth. China is making progress however, What we saw then was the assess the true quality of these with a really interesting develop- combination of a harmonising companies and thereby adequately ment in the field of clean energies regulatory framework, of invest- price the risks and opportunities where we have reached grid parity, ments from the West into the East they were offering. Throughout the as my colleague Francois Perrin, and changes in consumption years, our ESG framework has Head of Asia based in Hong Kong, patterns to catch up with Western developed and has been fine tuned describes on page 6. Europe, and we understood that this to cover a broader scope and to 24% would create attractive invest-ment include additional tools, which are opportunities for active in- vestors described on pages 17–30. The ESG impetus able to navigate this sea of changes framework will keep evolving, as market growth and pick the winners. Regulations the world itself is evolving, with for sustainable Responsible investments are becoming stricter, investment flows accrued focus on planetary investments increasingly on the top of agendas and changing consumption patterns boundaries, and with the feeling globally since of asset managers, and investor are also major elements of the that time is running out in respect 2016* interest in ESG is reaching ongoing transition to a low-carbon of Agenda 2030, now less than 12 new heights across geographies economy and a more sustainable years away. There will also be – and asset classes. The concept model as envisioned by Agenda thanks to technological innovation – of sustainable investing remains 2030; and investment opportunities new tools made available to do a quite generic and covers a variety also pro-liferate – for investors able better job as responsible owners. of approaches. The four to identify and benefit from them, main types are negative exclu- that is. East Capital sionary screening (which is the Environmental threat embraces negative simplest and most popular, with exclusionary USD 20tn of Assets under Manage- From day one 2018 will be remembered as a year screening, ESG ment globally), ESG integration where climate change awareness integration, (which has grown the most, jumping We usually say that our active rose to new heights.