ELM Responsible Investments Global Fund Impact Report

30 June 2024

Introduction

ELM Responsible Investments is at the forefront of aligning investor capital with positive environmental and societal impact. Our core philosophy is that innovative companies driving positive change can also yield strong financial returns. This report aims to provide a comprehensive overview of the fund's targets and the impact it has delivered.

The Fund uses the Impact Management Project’s 5 Dimensions of Impact and classification system to measure and quantify the level of impact a company has on its stakeholders. The Fund also employs a robust investment analysis process to identify companies that possess superior future return potential. By combining the two distinct processes, the Fund aims to invest in impactful companies that are also well poised to deliver strong future returns.

By following our process, we have identified 3 Investment Themes for the Global Fund: Health and Education, Environment and Climate, and Digitization and Future Technology. These themes align closely with the United Nations Sustainable Development Goals, reflecting a commitment to a more equitable and sustainable future. Within these themes, we have identified 10 Key Areas of Investment. These are more specific and targeted investment opportunities.

A closer look at some of the Fund's holdings illustrates the synergy between financial performance and positive impact. Tesla, a key holding of the Fund, has significantly contributed to reducing greenhouse gas emissions through its electric vehicles (EVs). Tesla's commitment to recycling batteries, reducing city pollution, and enhancing vehicle safety underscores its contribution to environmental and societal betterment.

Another noteworthy holding, Orsted, exemplifies a commitment to green energy, crucial for reducing carbon emissions and addressing global challenges such as social injustice and biodiversity loss. Orsted’s approach to sustainable energy focuses on coexistence with nature and communities, aiming to give back more to society and nature than what it takes.

Similarly, Novozymes, a leader in sustainability, has contributed to the United Nations Sustainable Development Goals through its biosolutions. The company's milestones in sustainability, including its commitment to gender equality, circular production, and climate targets, illustrate a profound commitment to a sustainable future.

This report aims to shed light on the significant environmental and social impact these investments have generated. We also appreciate that despite the positive change our companies drive, every company has flaws, so we will also discuss the opportunities for improvement for our holdings and how we have engaged with our companies throughout the year.

Financial returns and positive global impact are not mutually exclusive but can be symbiotically achieved.

Our Philosophy

We see ourselves as having two objectives:

Upholding our fiduciary duty to our clients, and to manage their capital responsibly for long-term returns.
Upholding an investment approach that considers all stakeholders – customers, suppliers, employees, environment, society – and investing to facilitate the transition to a more sustainable future.

We are nearing a tipping point on many global issues such as climate change and inequality. While government policies have a major impact on these issues, companies – particularly large and publicly listed ones – have a wide-reaching impact on society, and have the ability to shape the sustainability landscape, both positively and negatively.

Our goal is to help steer the world towards a more sustainable future by investing in companies that are facilitating this transition. We support a new investment framework, one that doesn’t prioritise short-term profits, but rather considers all stakeholders including customers, staff, the environment, and society, as well as shareholders.

We believe in generating financial returns and rewarding entrepreneurs by investing in companies working toward a sustainable future through the products and services they sell, their investments, and their corporate policies. We identify companies making progress on the United Nations Sustainable Development Goals and support their path to growth as they expand their sustainable business operations.

At ELM Responsible Investments, we seek to invest in companies making a positive impact (now and for the future) that also represent excellent long-term investment opportunities.

Our Sustainability Framework in Detail

We take a holistic view of how companies impact all stakeholders.

We first use a quantitative screening tool to analyse both the positive and negative contributions companies are making to the UN SDGs. A quantitative screen allows us to analyse vast amounts of data in a short timeframe, but we lose the qualitative context associated with the data. Guided by quantitative results, we then conduct a more detailed analysis, focusing on the targets and indicators of the UN SDGs and Impact Management Project's classification system.

Following the Impact Management Project’s classification system, we strive to classify each company as:

Causes Harm
Acts to Avoid Harm (A): Minimum obligations and requirements a company has to all stakeholders including their customers, staff, the environment and shareholders are met. These companies mitigate operational and reputation risk, but do not contribute to positive change. These companies are usually managing their ESG risk.
Benefits Stakeholders (B): These are companies that are actively benefiting stakeholders in addition to avoiding harm. Such companies may be offering an attractive working environment for staff, or converting their energy usage to renewable energy. B companies are generally motivated by financial out-performance over the long term, and often referred to as pursuing ESG opportunities.
Contributes to Solutions (C): These are companies that are contributing to solutions using their full capabilities. They tend to focus on finding solutions to pressing problems impacting the most under-served individuals.

We classify each company by assessing the experience or effect stakeholders (consumers, employees, suppliers, the environment and broader society) have had and will have by engaging with the company, or as a consequence of the company. We determine whether that experience or effect is directly contributing positively or negatively to the UN SDGs, and attempt to quantify that contribution. We then score the company along the Impact Management Project’s classification system.

Ideally we would invest exclusively in C companies making the biggest contribution to the UN SDGs. These companies, however, often represent higher investment risk as they tend to operate in difficult geographies addressing complex issues. We also need to ensure investment returns are acceptable, and build a balanced portfolio to deliver on our fiduciary duty to our clients. We construct profitable portfolios by investing primarily in B and C companies, as well as A companies, without the need to invest in companies that cause harm.

Our Sustainability Framework within the 7 Responsible Investment Strategies

The Responsible Investment Benchmark Report by Responsible Investments Association Australasia (RIAA) and the Global Sustainable Investment Review, outlines 7 strategies within the broad investment category of Responsible Investments:

ESG Integration is a popular strategy in Australia, and considers environmental, social and governance factors in the investment process. ESG Integration attempts to convert ESG risk into investment risk, and if there is still sufficient investment return on offer to compensate for the total risk, then the investment may proceed.
Corporate Engagement & Shareholder Action covers shareholders utilising their voting rights and other powers as well as engaging with management and the board to instigate a certain outcome or corporate behaviour.
Negative Screening explicitly excludes certain sectors or companies from the portfolio’s investable universe based on ESG criteria. This ensures that the portfolio is never invested in companies that are causing harm.
Norms-Based Screening involves screening investments based on compliance with international convention, provided by organisations such as the UN, OECD and ILO. This ensures that portfolio companies adhere to minimum global standards on sustainability matters such as labour, environmental and supply chain policies.
Positive Screening can be considered the opposite of Negative Screening, and involves explicitly including certain sectors or companies into the portfolio based on ESG criteria. This is also known as Best in Class Screening.
Sustainability Themed Investment involves investing only in certain sustainability themes such as climate change, renewable energy and water safety.
Impact Investing involves targeted investments with a specific objective or outcome in mind.

Our objective to facilitate a more sustainable future for all requires backing companies that are making a positive change (Positive Screening), withdrawing capital from those that are causing harm (Negative Screening) and also supporting companies that are trying to genuinely change their business practices for the better (Corporate Engagement & Shareholder Action).

We incorporate ESG Integration (with a particular focus on Governance) during the investment analysis and portfolio construction process, as companies with high ESG scores are more compelling investments which tend to have lower investment risk.

Key Areas of Investment and Holdings

Climate and Environment - Electric Vehicles

Electric vehicles (EVs) are gaining unprecedented momentum as a sustainable and environmentally friendly alternative to traditional internal combustion engine (ICE) vehicles. The importance of EVs in the larger context of sustainability and environmental protection becomes clear when considering the role of transportation in global greenhouse gas (GHG) emissions. In 2021, transportation accounted for 29% of total U.S. GHG emissions, making it a significant contributor to climate change. Globally, transport generates 20% of all GHG emissions, underlining the necessity for a shift to more sustainable forms of transportation.

The decarbonization of the transportation industry is crucial in the global effort to reduce GHG emissions and combat climate change. For automobiles, despite ongoing advances in fuel efficiency, the pathway to significant decarbonization lies in the accelerated adoption of electric vehicles. This shift is driven not only by regulatory pressures to reduce tailpipe emissions but also by increasing consumer demand. Global automakers are responding by ramping up EV production and sales. The transition to EVs is supported by the development of technologies that reduce or eliminate emissions throughout the vehicle’s lifecycle, from production to decommissioning. This holistic approach is integral to meeting the Paris Agreement's science-based emissions reduction targets.

Electric cars are witnessing exponential growth in sales, demonstrating their rising importance in the global market. In 2022, 14% of all new cars sold were electric, a significant increase from previous years. This growth is projected to continue, with electric cars expected to account for 18% of total car sales in 2023. The shift to electric cars is expected to have a substantial impact on oil demand and GHG emissions. By 2030, the use of electric cars is projected to displace over 5 million barrels of oil per day and avoid emissions of approximately 700 Mt CO2-equivalents.

The decarbonization of the aviation industry, while more challenging, is equally crucial. Commercial aviation accounted for about 3% of global CO2 emissions in 2019. Efforts in this sector are focused on reducing fuel-related emissions, primarily through the use of sustainable aviation fuels (SAFs), and developing zero-emission propulsion technologies such as battery-electric and hydrogen-based systems. Unlike automobiles, a larger proportion of an aircraft’s lifetime emissions come from fuel use, including sourcing and combustion, rather than manufacturing and maintenance.

In summary, the transition to electric vehicles in both the automotive and aviation sectors is a vital component of global efforts to decarbonize transportation and reduce GHG emissions. This transition is driven by technological advancements, consumer demand, regulatory pressures, and an increasing recognition of the environmental and economic benefits of electric mobility. As the world moves towards more sustainable modes of transportation, the role of electric vehicles in achieving climate goals becomes increasingly significant.

Our Investments

Description:
Tesla, a leader in electric vehicle (EV) innovation, significantly contributes to environmental sustainability by offering high-efficiency EVs, advancing battery recycling, and reducing greenhouse gas emissions. Their commitment to safety and reducing urban pollution aligns with the fund's focus on impactful, responsible investments.
Impact:
Tesla has made significant contributions in accelerating the world's transition to sustainable energy.
In 2023, the company delivered over 1.8 million electric vehicles, substantially contributing to the reduction of greenhouse gas emissions in the transportation sector. Their energy division deployed more than 6.5 GWh of energy storage systems, supporting the integration of renewable energy into power grids. Tesla's impact extends beyond its products; in 2022, their customers avoided releasing approximately 13.4 million metric tons of CO2e into the atmosphere. Their commitment to sustainability is evident in its supply chain management, with strong policies including supplier audits and direct sourcing of high-risk materials. Tesla's influence has catalysed industry-wide shifts towards electrification and sustainable practices, demonstrated by their open-source patent approach.
Overall, Tesla's holistic approach to sustainability, from product development to societal impact, positions it as a key player in the global fight against climate change and the transition to a more sustainable future.
Engagement Topics:
Environmental and social issues in the company’s supply chain when it comes to sourcing critical minerals. CEO Elon Musk’s resistance to oversight, public statements on social media and poor governance. We engage with the company via email, and continue to do so.
Description:
Joby Aviation is an innovative aerospace company focused on revolutionizing mobility with electric vertical take-off and landing (eVTOL) aircraft. They aim to transform urban transportation, offering a sustainable, efficient alternative to conventional ground travel, with a strong commitment to reducing urban congestion and carbon emissions.
Impact:
In 2023, the company assembled the first company-conforming eVTOL aircraft, advancing towards FAA type certification, and successfully conducting test flights. The company is nearing its goal of commercial flights, with the launch of their air taxi service by 2025. Joby's commitment to sustainability extends beyond their zero-emission aircraft; they aim to operate using 100% renewable energy sources.
Description:
Lilium is an innovative aerospace company specializing in electric vertical take-off and landing (eVTOL) aircraft. They focus on developing a sustainable and scalable air mobility service, offering a revolutionary solution for regional travel, aiming to reduce travel time, urban congestion, and environmental impact through their cutting-edge aerial vehicles.
Impact:
In 2023, Lilium achieved key milestones: receiving EASA Design Organization Approval, progressing with FAA certification, transitioning from design to industrialization, and initiating fuselage production. They conducted extensive testing, confirmed performance with the Phoenix 2 demonstrator, and expanded globally through strategic partnerships. Notable deals in the U.S., China, Middle East, and Europe were secured, along with significant capital raising totalling $292 million, underscoring investor confidence and advancing their vision of transforming regional air travel with sustainable eVTOL aircraft.

Climate and Environment - Environment and Renewable Energy

The imperative of transitioning to renewable energy sources is underscored by the escalating crisis of climate change and nature loss. The link between these environmental issues is well-established. According to the WWF's Living Planet Report 2020, the impact of human activities on nature, primarily through habitat destruction for agriculture, timber, housing, and resource extraction, has been compounded since the late 20th century by the emerging threat of climate change. The report documents cases such as the Edith’s checkerspot butterfly in North America, which shifted its range due to a warming climate, and the 2018 Queensland heatwave that decimated a third of the global population of spectacled flying foxes.

The intertwined nature of climate change and biodiversity loss is exemplified by the concept of 'threat multiplier,' where climate change exacerbates existing environmental threats, leading to more severe impacts than either factor alone. This has prompted an urgent call for nature-based solutions that address both climate change and biodiversity conservation simultaneously.

The role of the fossil fuel industry in exacerbating climate change cannot be overstated. The burning of fossil fuels, industrial production, and land use changes are the primary sources of carbon dioxide (CO2), the most dominant greenhouse gas. Other significant greenhouse gases include methane, nitrous oxide, and fluorinated gases, all contributing to global warming. In the United States alone, approximately 29% of global warming emissions originate from the electricity sector, predominantly from burning coal and natural gas.

In contrast, renewable energy sources offer a sustainable and low-emission alternative. These sources produce minimal global warming emissions, even when considering the entire life cycle of the technology – from manufacturing to decommissioning. Transitioning to renewable energy can drastically reduce greenhouse gas emissions. For instance, a 25% renewable electricity standard by 2025 in the U.S. could lower power plant CO2 emissions by 277 million metric tons annually. Further, achieving 80% of electricity from renewable sources by 2050 could reduce the electricity sector’s emissions by about 81%.

In summary, the importance of renewable energy in mitigating nature loss and climate change is evident. As the world grapples with these intertwined crises, a shift towards renewable energy sources emerges as a critical pathway to a sustainable planet. This transition promises not only to curb greenhouse gas emissions but also to play a vital role in preserving biodiversity and the natural systems upon which human survival depends.

Our Investments

Description:
Ørsted, named after Danish scientist Hans Christian Ørsted, is a global leader in renewable energy. Originating in Denmark, the company primarily focuses on wind power, aiming to be carbon neutral by 2025. It's known for developing offshore wind farms and investing in green energy solutions for a sustainable future.
Impact:
Ørsted has made significant progress in renewable energy deployment and sustainability. By 2023, the company increased its installed renewable capacity by 4% to 15.7 GW, with an ambitious target to reach 35-38 GW by 2030. Their commitment to environmental stewardship is evident in their greenhouse gas emissions reduction, with scope 1 and 2 emissions intensity at 38 g CO2e/kWh and a 49% reduction in scope 3 emissions. Ørsted aims for net-positive biodiversity impact on all new renewable energy projects commissioned by 2030. Looking ahead, they plan to invest DKK 270 billion towards 2030 to support their renewable energy build-out, demonstrating their long-term commitment to sustainable growth and the global energy transition.
Engagement Topics:
The company incurred significant impairments on their assets in the U.S., and the previous management team were slow to acknowledge the issues. We engaged with the company via email to discuss governance and issues. Subsequently there was a management change at the company.
Description:
Nibe Industrier is a Swedish multinational firm specializing in sustainable energy solutions. Renowned for its heating technology products, including heat pumps, boilers, and water heaters, Nibe focuses on innovative, energy-efficient solutions to reduce environmental impact, catering to both residential and commercial markets globally with a commitment to eco-friendliness and technological advancement.
Impact:
In 2021, Nibe's heat pump sales in Europe led to a reduction of 360,000 tonnes of CO2 emissions, comparable to the total emissions from all buses, mopeds, and motorbikes in Sweden. This achievement supports their commitment to reducing carbon footprints and combating climate change. In Heerlen, Netherlands, Nibe is involved in transitioning an entire city from fossil-based systems to a fossil-free, heat pump-based system. This large-scale project exemplifies Nibe's innovative approach to sustainable energy solutions.
Engagement Topics:
The company still manufactures gas stove tops. Although declining as a proportion of total revenues, we engaged with the company via email to discuss this issue. The company insisted however that their stoves are more energy efficient than their competitors’.
Description:
Vestas, headquartered in Denmark, is a global leader in manufacturing wind turbines. Pioneering in the wind energy sector, Vestas designs, constructs, and services wind turbines worldwide. With a focus on sustainable energy solutions, the company plays a critical role in the transition towards a greener, renewable energy future.
Impact:
In 2023, Vestas' total installed fleet of turbines is expected to avoid 231 million tonnes of CO2e emissions, a substantial increase from previous years, bringing the total emissions avoided to 2.13 billion tonnes since 1981. This is equivalent to the CO2e emissions from approximately 4.9 billion barrels of oil. Vestas' turbines, generating 30 to 50 times more energy than consumed during their lifecycle, underscore their commitment to sustainable energy solutions. By focusing on innovation and sustainability, Vestas not only aims to achieve carbon neutrality in its operations by 2030 but also sets ambitious targets for its supply chain emissions.
Description:
Novonesis (previously Novozymes) is a global biotechnology company specialising in the research, development, and production of industrial enzymes, microorganisms, and biopharmaceutical ingredients. Their innovations are used in various industries, including agriculture, bioenergy, food and beverage, household care, and pharmaceuticals, focusing on sustainability and efficiency in production processes.
Impact:
Over the past five years, Novonesis has achieved significant sustainability milestones. In 2018, their products helped save 88 million tons of CO2 emissions. They've committed to a science-based target of net-zero emissions by 2050; 46% of their electricity was sourced from renewables in 2022, moving them closer towards their goal of 100% renewable electricity by 2025, and a 75% operational and 35% supply chain CO2 reduction by 2030. In 2022, their biosolutions played a critical role in mitigating carbon emissions, with innovations such as HiPhorius™, a fourth-generation phytase that reduces phosphorus use in animal feed, significantly lowering environmental impact. Recognised for their efforts, they received a Platinum Medal from Ecovadis in 2023, ranked on CDP’s Climate Change A List, achieved a AAA rating in MSCI ESG Ratings, and became a constituent of the FTSE4Good Index Series.
Engagement:
We engaged with the company via email with respect to the Novozymes and Chr. Hansen merger particularly on governance issues, and regulatory approval. There was assurance that both companies will nominate board members as well as Novo Holdings. Regulatory approval is also expected.
Description:
TOMRA is a Norwegian company that specialises in sensor-based technologies for resource optimisation. They design, manufacture, and sell reverse vending machines for automated collection of used beverage containers, as well as advanced collection and sorting systems for various industries including food processing, recycling, and mining.

Impact
TOMRA's solutions have a significant impact on promoting the circular economy and sustainable resource management. In 2023, TOMRA's products reduced global CO2 equivalent emissions by an estimated 22.8 million tonnes. Their reverse vending machines collect over 40 billion empty beverage containers annually, significantly increasing recycling rates. TOMRA's sensor-based sorting technologies also help to improve recycling efficiency, leading to higher quality recycled materials and reduced contamination of recycling streams. In the food industry, their solutions help minimise food loss and maximise food safety throughout the production and supply chain.
Description:
Xylem is a global water technology company that designs, manufactures, and provides services for water and wastewater applications. They offer a wide range of products and solutions for water distribution, treatment, and efficiency across various sectors including public utilities, industrial, commercial, and residential markets.
Impact:
Xylem's technologies and solutions have a significant positive impact on water conservation, sustainability, and global access to clean water. In 2022, Xylem's products helped customers reduce water loss by 470 billion litres, and treated over 3.08 billion cubic meters of water for reuse. In the same year, their high-efficiency equipment enabled its customers to reduce their carbon footprint by 1.05 million tonnes of CO2 equivalent. Xylem has provided access to clean water and sanitation for an estimated 2.4 million people in disadvantaged communities, through their WASH (Water, Sanitation, and Hygiene) program. They have also made significant progress in transitioning to renewable energy, with approximately 85% of their electricity needs currently met by renewable sources.
Description:
Linde is the world's largest industrial gas supplier, operating in over 100 countries. They produce and distribute atmospheric gases such as oxygen, nitrogen, and argon, as well as process gases like hydrogen and helium. Linde serves various industries including healthcare, chemicals, manufacturing, and food and beverage. They are also at the forefront of developing clean hydrogen production and carbon capture technologies, positioning themselves as a key player in the energy transition.
Impact:
Linde's technologies and solutions have a significant impact on industrial efficiency and environmental sustainability. In 2022, Linde's products and services helped customers mitigate approximately 90 million tonnes of CO2 equivalent emissions. They have also enabled more than 230 million people to have access to safe drinking water through gases used for water treatment and desalination. Linde are advancing clean energy technologies by supplying liquid hydrogen for the world's first hydrogen-powered ferry for cars and passengers in Norway, and are directing at least one third of their annual R&D budget to decarbonisation, with $56 million spent in FY2022 and an aim to reach $1 billion cumulatively by 2030.
Description:
Veralto is a global leader in essential water and product quality solutions. The company focuses on safeguarding vital resources through two main business segments; Water Quality and Product Quality and Innovation. Veralto's water quality companies help manage, treat, purify, and protect water resources, while their product quality and innovation companies ensure the traceability and authentication of food, medicine, and essential goods in the global supply chain.
Impact:
Veralto's Water Quality solutions have a significant impact on society by providing clean drinking water, water recycling, and monitoring of water contaminants to help reduce waterborne diseases. Veralto’s operating companies help ensure safe water for more than 3.4 billion people every day (approximately 40% of the global population). Their recycling programs of over 12 trillion gallons of water annually have also helped improve access to clean water for more than 250 million people every day, and allowed customers to save over 80 billion gallons of water in 2022.
Description:

Ecolab is a global leader in water, hygiene, and infection prevention solutions and services. Ecolab's offerings include water treatment, purification, cleaning, and hygiene technologies tailored to meet the specific needs of their customers in more than 170 countries and 40 industries; including food production, restaurants, hotels, hospitals, paper mills, power generation, manufacturing plants, along with many others.
Impact:

Ecolab's innovations contribute significantly towards a more sustainable future. In 2022, Ecolab helped conserve 219 billion gallons of water, equivalent to the drinking water needs of 758 million people. Their products and services also helped avoid 3.6 million metric tons of greenhouse gas emissions, preventing almost 6 million pollution related illnesses.

Climate and Environment - Property and Infrastructure

The impact of property and infrastructure on climate change is a critical topic in today's environmental discourse. Nearly 40% of global carbon dioxide emissions are attributed to the real estate sector, with about 70% of these emissions resulting from building operations and the remaining 30% from construction. This significant contribution to greenhouse gases underscores the vital role that sustainable property development and infrastructure play in mitigating climate change.

Adopting sustainable building practices is a starting point for property owners to reduce climate risk exposure. Green buildings not only advance environmental investment strategies but also offer tangible benefits such as improved investment fundamentals. Sustainable properties are more attractive to tenants, command premium rents, and can result in a capital value premium of up to 20% in some markets. This demonstrates how responsible property management and development can positively impact both the environment and the economy.

The United Nations Intergovernmental Panel on Climate Change (IPCC) reports that efficiency policies in buildings and constructions can potentially reduce greenhouse gas emissions by up to 90% in developed countries and up to 80% in developing countries. We believe that the real estate and infrastructure sectors hold significant responsibility and opportunity in the fight against climate change. Sustainable practices in these sectors are not only environmentally necessary but also economically beneficial.

Our Investments

Description:

Brookfield Asset Management is a global alternative asset manager, specialising in real estate, renewable power, infrastructure, and private equity. It focuses on long-term investments and sustainability.
Impact:

Brookfield Asset Management, in 2023, achieved a global renewable power generation capacity of 25,000 MW and raised $15 billion for the Brookfield Global Transition Fund I. They also issued $7 billion in green and sustainability-linked financial instruments. Committed to sustainability, they plan to power their entire U.S. office portfolio with clean energy by 2026. Their renewable energy operations span five continents, significantly contributing to global decarbonisation efforts.
Engagement Topics:

Brookfield still has exposure to traditional energy assets, but we estimate this to be a small percentage of the total assets, and with the increasing focus on decarbonisation and renewable energy, we think it will continue to get smaller. We engaged with the company via email to learn more about their legacy investments and how they are transitioning them to decarbonisation. Their failed bid for Origin Energy was disappointing, but we were interested to learn more about next steps, particularly given the transition opportunities globally.

Digitization and Future Technology - Fintech and Marketplace

Fintech and digital marketplace innovations are reshaping the landscape of financial inclusion, particularly for those previously excluded from the formal financial system. This transformation is crucial for social inclusion, as financial inclusion is closely linked to economic growth and poverty reduction. Historically, economists have recognized the positive relationship between financial development and economic growth. King and Levine, in their 1993 study, argued that financial development is a good indicator of long-term growth, highlighting how access to financial institutions in developing countries has significantly impacted their growth. Joseph Schumpeter, as early as 1911, posited that well-functioning banks spur technological innovation by funding entrepreneurs, mobilizing savings, allocating resources efficiently, and improving risk management, all contributing to innovation and entrepreneurship.

There is also a strong negative correlation between financial services access and poverty. Financial inclusion is seen as a dynamic tool for attaining macroeconomic stability, sustainable growth, poverty reduction, and income equality. This inclusion is especially pivotal for marginalized segments like rural dwellers, women, and low-income families who benefit from basic financial services like savings, borrowing, payment, and insurance. Studies have shown that economies with higher financial inclusion significantly reduce poverty rates and income inequality in developing countries.

However, traditional financial services companies, with their high cost base, have been unable to service many parts of the economy, especially in regions with a significant unbanked population. For instance, as of 2021, an estimated 4.5 percent of U.S. households (approximately 5.9 million) were unbanked. In Brazil, around 34 million people do not have access to banking services, highlighting the challenge in these regions.

Fintech, digital wallets and marketplaces, leveraging technology, offer a solution to this challenge. They provide access to financial services for those previously excluded, thanks to their lower operational costs and the ability to leverage mobile and internet technologies. This has been evident in the increasing use of mobile banking, which rose sharply from 15.1 percent in 2017 to 43.5 percent in 2021 in the U.S.. This trend points to a broader acceptance and reliance on digital financial services, which can bridge the gap for the unbanked and underbanked populations.

In conclusion, the emergence of fintech, digital wallets and digital marketplaces is playing a crucial role in advancing financial inclusion, thereby contributing to social inclusion, economic development, and the reduction of poverty and income inequality. This shift is particularly significant in countries like Brazil and the U.S., where a substantial portion of the population remains unbanked. As these digital financial tools continue to evolve and become more accessible, they hold the promise of further integrating previously excluded groups into the financial system, thereby enhancing overall economic well-being and social equity.

Our Investments

Description:
Mercado Libre is a leading e-commerce platform in Latin America, offering a vast array of services including marketplace, payments, advertising, and e-building solutions. It connects millions of buyers and sellers across the region, fostering an accessible and secure online shopping and selling experience.
Impact:
In 2022, the company facilitated access to credit for over 11 million people and businesses, many of whom were previously underserved by traditional financial institutions. On the environmental front, Mercado Libre has committed to powering 100% of its operations with renewable energy by 2030. By 2022, they had already achieved 67% renewable energy use across their operations. The company's logistics network has also made significant progress in sustainability, with 37% of its last-mile deliveries now made by electric vehicles. Mercado Libre's impact extends to social initiatives, including a $10 million investment in their Regenera America program, which supports environmental conservation projects across Latin America. Through its platform, Mercado Libre has empowered over 500,000 SMEs to grow their businesses online, contributing to economic development across the region.
Description:
Nu Holdings, the parent company of Nubank, is a fintech firm in Brazil, providing a digital-first banking solution and democratizing financial services for millions of users in the region.
Impact:
Traditional banks in Brazil enjoy profitability by creating barriers to financial services. Their high fees and poor customer service makes financial services unattainable for millions in the region. Nubank has broken those barriers, offering 75 million customers free bank accounts on an efficient digital platform and nearly 6 million customers with their first credit card or bank account.
Engagement Topics:
We engaged with the company to discuss risk management methods and the processes used to prevent predatory lending. The company is becoming more restrictive in higher risk personal lending.
Description:
Block, formerly known as Square, is a technology company specializing in financial services and mobile payment solutions. It provides software and hardware solutions to merchants to conduct business. The company, through Cash App also provides financial services digitally to individuals.
Impact:
In 2023, Block served over 64 million monthly transacting active Cash App customers, demonstrating its wide-reaching impact on individual financial management. Through its Square ecosystem, Block enabled millions of sellers to process payments, manage their businesses, and access capital, with gross payment volume reaching $201 billion in 2023. The company's commitment to financial inclusion is evident in its efforts to make financial services more accessible. Cash App's banking services, including direct deposit and the Cash Card, have provided banking alternatives to underserved populations.
Engagement Topics:
Fraud and illicit activity is an issue with Cash App, which was highlighted by a short-seller report during the year. We engaged with the company on this topic, and were satisfied that the report had exaggerated many of the issues. As with all financial services firms, we expect a certain level of illicit activity and fraud. We encouraged the company to stay diligent to minimize the risk of harm to society. We continue to believe that the benefits of the technology outweigh the negatives, which are present in all companies.
Description:
Shopify is a comprehensive e-commerce platform that enables businesses of all sizes to set up online stores and retail point-of-sale systems. Unlike Amazon, Shopify focuses on the entrepreneur and small businesses owner, fostering innovation and entrepreneurism .
Impact:
Shopify has made significant contributions to the global e-commerce landscape, supporting over 1.7 million businesses in 2023. The platform enabled merchants to generate more than $61 billion in gross merchandise volume, reflecting a commitment to helping small and medium-sized enterprises thrive in the digital economy. Shopify's focus on sustainability is evident in its efforts to reduce the environmental impact of e-commerce. The company has committed to achieving net-zero carbon emissions by 2030, with initiatives such as the Shopify Sustainability Fund, which invests in projects aimed at carbon reduction and renewable energy.
Engagement:
The company embarked on a strategy pivot, focusing on their higher returning software solution as opposed to lower returning adjacent businesses. As the company “overhired” during the pandemic, the company right sized the business in 2023. We engaged with the company on both of these topics via email. We believe the company has the right policies in place for employees, and the more focused strategy is likely to lead to better outcomes for shareholders in the long-term.

Digitization and Future Technology - Future Technology

As every sector of the economy modernises and embraces artificial intelligence and other future technologies to unlock productivity and innovation, enabling technologies, such as semiconductors, are playing an increasingly vital role in our economies. More importantly, there are certain sectors like electric vehicles (EV), renewable energy and healthcare that are leveraging these future technologies to help solve many of the greatest challenges we face today.

Semiconductors are fundamental to the efficiency and safety of EVs and enhance their performance, particularly in battery technology. Innovations in semiconductors enable EV batteries to operate at higher voltages, boosting their efficiency and lifespan. This advancement is exemplified by Tesla's Model 3, which leverages semiconductor technology to offer an efficient EV at an accessible price point.

Semiconductors are also indispensable in enabling clean, renewable energy sources and enhancing energy efficiency. They are the basis for solar electric energy systems and are used to condition power from solar arrays and wind turbines. Additionally, semiconductors contribute to making the electric grid more intelligent, facilitating the integration of renewable and distributed sources of power into the grid. This intelligence is key for utilities to manage power demand effectively and integrate renewable energy sources seamlessly.

The healthcare sector also benefits significantly from semiconductor technology. The market for semiconductors in healthcare is estimated at USD 7.47 billion and is projected to reach USD 12.82 billion by 2028. Semiconductor components are critical in various healthcare applications, including medical imaging, clinical diagnostics, therapy, and portable home healthcare devices.

The use of artificial intelligence (AI) in healthcare, powered by semiconductors, is another important area. Companies like ProMedicus are using AI to improve patient diagnostics. This application of AI in healthcare relies heavily on advanced semiconductor technology for data processing and analysis, leading to more accurate and efficient healthcare delivery.

In summary, the significance of semiconductors in sustainability and environmental protection cannot be overstated. They are essential in the evolution and effectiveness of electric vehicles, the development of renewable energy, and the advancement of healthcare through AI and other technologies. Semiconductors and future technology enablers serve as a bridge between the current state of the world and a more sustainable and efficient future, addressing global challenges such as climate change and healthcare advancement.

Our Investments

Description:
Nvidia, a leading technology company, specializes in developing graphics processing units (GPUs). Their GPUs are more energy-efficient than traditional central processing units (CPUs), offering superior performance for complex computations. This efficiency is crucial for advancing future technologies, where high processing power with lower energy consumption is essential.
Impact:
The company's impact on society is profound, with its AI technologies being used to address critical challenges in healthcare, climate science, and more. For instance, NVIDIA's AI platforms have been instrumental in accelerating drug discovery and improving diagnostic accuracy in medical imaging. Nvidia has also accelerated AI in healthcare settings, working with Medtronics to develop an AI enhanced colonoscopy tool that detects 50% more lesion to deliver better patient outcomes. NVIDIA's DRIVE platform is also pushing the boundaries of autonomous driving, contributing to safer and more efficient transportation systems. NVIDIA's data centers are also increasingly powered by renewable energy, with a target to achieve 100% renewable energy usage by 2025. Nvidia’s chips are 20x more energy efficient than comparable chips. Accelerated computing, which Nvidia invented over 20 years ago, is now considered to be sustainable and key pillar to achieve net zero.
Engagement Topics:
The company has significant market share when it comes to GPUs, and given GPUs are needed to train AI models, the company is a core innovator when it comes to AI. We engaged with the company via email to discuss AI safety. Through their blog and other platforms, the company is promoting transparency and industry working together to keep the technology safe.
Description:
ASML, a Dutch technology company, is pivotal to the modern economy as a leading supplier of photolithography systems for semiconductor manufacturing. Their advanced machines, essential for producing integrated circuits, are integral to the fabrication of microchips found in a myriad of modern electronic devices. By enabling the production of smaller, more powerful, and energy-efficient semiconductors, ASML plays a crucial role in the advancement of technology across various industries, including computing, telecommunications, healthcare, and renewable energy.
Impact:
ASML has made significant contributions to the semiconductor industry and global technological advancements. In 2023, the company shipped 54 EUV systems, a critical technology for producing the most advanced chips used in high-performance computing and AI applications. These systems have enabled semiconductor manufacturers to achieve higher productivity and lower energy consumption, supporting the development of more efficient and powerful electronic devices.The company has a goal to be net zero emissions in their operations by 2025 and be net zero in their supply chain by 2030 and net zero in their product use by 2040.

Digitization and Future Technology - Software and Services

Software companies are integral to the global economy, offering a vast array of benefits that span various sectors. Their importance is especially highlighted in the productivity gains they unlock for small businesses, students, and workers, which in turn drives economic growth. Additionally, the sustainability credentials of these companies are becoming increasingly vital.

The advancement of software technology has led to significant productivity improvements across various sectors. For businesses, particularly small and medium enterprises (SMEs), software has revolutionized operations by streamlining processes, enhancing efficiency, and improving output quality. Tools like automated inventory management systems and productivity software save time, reduce errors and improve overall efficiency. Accounting software can support small business owners and entrepreneurs, and provide them with the tools needed to stay engaged with the finances of their business efficiently, allowing them to focus on their core business. This increased efficiency has a direct impact on profitability and competitiveness in the market. Moreover, software enables real-time collaboration and data-driven decision-making, which are crucial for the efficient functioning of modern businesses. Software solutions can also help entrepreneurs and creatives access more customers in new markets. This is particularly important for niche businesses and artists.

Innovations in technology, such as cloud computing, data integration, and edge computing, are playing a significant role in both digital transformation and sustainability efforts. Cloud computing, for example, is more energy-efficient than on-premises alternatives and reduces carbon emissions significantly. These advancements suggest that technological innovations can align with sustainability goals, offering a win-win scenario for businesses and the environment.

Software solutions are vital to the global economy due to their significant contributions to productivity and economic growth. Their role in enhancing the efficiency of small businesses, aiding in education, and improving the work environment for employees is invaluable.

Our Investments

Description:
Microsoft is a global technology leader offering a wide range of software products, services, and solutions. Renowned for its Windows operating systems and Office productivity suite, including popular applications like Word, Excel, and PowerPoint, Microsoft enhances productivity for individuals and businesses. Its cloud platform, Azure, facilitates scalable cloud computing and services. Microsoft's innovative tools like Teams and Dynamics 365 streamline collaboration and business processes, driving efficiency and effectiveness. The integration of artificial intelligence and machine learning across its products further automates tasks and provides insightful analytics, unlocking new levels of productivity and innovation
Impact:
In 2023, the company achieved its goal of becoming carbon negative by 2030, having reduced its carbon emissions by 58% from its 2017 baseline. Microsoft has also committed to removing all the carbon it has emitted since its founding by 2050. The company's data centers are powered by 100% renewable energy, and it has invested in various carbon removal technologies and projects. Microsoft also started work with Bayer and Sonata Software to develop an agri software solution that helps farmers track their carbon emissions. The company has provided digital skills training to over 30 million people globally through its initiatives, such as Microsoft Learn and LinkedIn Learning. Additionally, Microsoft's AI for Good program supports projects that address critical societal challenges, including healthcare, accessibility, and environmental sustainability.
Engagement Topics:
Through their investment in OpenAI and integration of AI into their software, Microsoft is a leader in this space. However the ethics are still under questions. We engaged with the company via email. The company continues to believe that there are sufficient processes in place to ensure the safety of the technology. We will continue to monitor this space.
Description:
Workday is a leading cloud-based software company founded in 2005. Headquartered in Pleasanton, California, it specializes in providing innovative human resources, finance, and planning solutions for businesses.
Impact:
In 2023, the company achieved carbon neutrality across its global operations and committed to reaching net-zero carbon emissions by 2030. Workday's data centers are powered by 100% renewable energy, and the company has invested in various sustainability initiatives, including energy efficiency improvements and waste reduction programs. Their Scopes 1, 2 and 3 emissions are also consistent with with the Paris Agreement. One of Workday software’s feature is that it enables companies to track their emissions and other sustainability metrics, making significant progress towars promoting sustainability. Through its Workday Foundation, the company has invested in programs that provide training and job opportunities for underserved communities. In 2023, the foundation supported over 50,000 individuals through various initiatives aimed at closing the opportunity gap.
Engagement Topics:
As a software company, Workday has invested in Artificial Intelligence, and we expect them to enjoy strong revenue growth over the coming years. However, we engaged with the company via email to learn more about how they are ensuring safety. We learnt about their ethical AI principles focused on transparency and fairness. We will continue to monitor this space.
Description:
ServiceNow, founded in 2004 and headquartered in Santa Clara, California, is a global leader in cloud-based workflow automation and IT service management. The company's platform enables organizations to digitize and streamline various business processes, from IT service delivery to employee onboarding.
Impact:
ServiceNow’s software enables businesses to transform and adapt to evolving conditions. They also help companies manage and execute their ESG programs. In 2023, the company achieved carbon neutrality across its global operations and committed to reaching net-zero emissions by 2030. ServiceNow has also set a goal to use 100% renewable electricity across its global operations by 2025. ServiceNow is committed to supporting education and workforce development. Through its NextGen Program, the company has trained over 35,000 individuals in digital skills, with a focus on underserved communities. The company aims to skill one million people on its platform by 2024, contributing to closing the digital skills gap.
Engagement Topics:
As a software company, ServiceNow has invested in AI and is a leader in this space. We engaged with the company via email on safety and learnt more about their Responsible AI Working Group and how they are building trust with their customers. We will continue to monitor this space.
Description:
Intuit is a financial software company that specialize in personal finance, small business accounting, and tax preparation. Their aim is to empower consumers and small businesses by automating financial tasks and enhancing financial literacy.
Impact:
In 2023, the company continued to support millions of small businesses and entrepreneurs globally. Given their scale, they regularly conduct research into the small business ecosystem to learn about how they are adapting to new challenges.
The company also focused on sustainability, committing to net-zero emissions by 2040 and reducing greenhouse gases by 42% by 2030. They continued their decade-long efforts in reducing carbon footprint through energy-efficient practices and renewable energy. The Climate Positive program, aiming to cut two million metric tons of CO2e by 2030, has already achieved a reduction of nearly 500,000 metric tons. Employee engagement in sustainability is encouraged through reimbursements for eco-friendly purchases. Additionally, Intuit is enhancing its workplaces with sustainable initiatives, including a new LEED Platinum building and promoting sustainable commuting options.
Description:
CrowdStrike is a cybersecurity technology company specializing in cloud-native endpoint security. Their flagship product, Falcon, provides comprehensive protection against cyber threats across endpoints, cloud workloads, and identity systems. Falcon uses advanced artificial intelligence and behavioral analytics to detect, prevent, and respond to cyberattacks in real time. CrowdStrike's solutions cater to a wide range of security needs, from threat intelligence and incident response to managed detection and response services. Their approach combines technology and human expertise, offering enterprises of all sizes robust security against modern cyber threats while enabling seamless IT operations.
Impact:
CrowdStrike reported a relentless increase in eCrime activities, with the average breakout time now at 84 minutes, and 71% of attacks being malware-free. There was a 112% increase in access broker activities, highlighting the importance of identity threat protection. China-nexus adversaries were observed targeting nearly all 39 global industry sectors and 20 geographic regions. Cloud exploitation grew by 95%, with a nearly 3x increase in "cloud-conscious" threat actors, indicating more sophisticated techniques in cyberattacks.
Crowdstrike is helping to prevent such attacks and keep individuals and companies safe.
Engagement Topics:
We engaged with the company via email on the topic of increased cybersecurity threats and how the company is positioned to protect its clients. We discussed trends in AI, and how Microsoft is a business threat. We were satisfied however that companies do prefer to have 3rd party cybersecurity providers.

Digitization and Future Technology - Data and Research

The significance of data, particularly in healthcare and climate change, is monumental as it underpins decision-making processes, leading to more effective solutions and strategies to tackle global challenges. The application of data in these two sectors exemplifies how technology and accurate information can drive progress and innovation in addressing some of the most pressing issues of our time.

In healthcare, data-driven decision-making (DDDM) is crucial. It uses information that is gathered, modelled, and analyzed to gain an understanding of specific business challenges and support effective solutions. This approach ensures that decisions are reliable, accurate, valuable, and pertinent, thereby removing the guesswork from decision-making. Leaders who base their decisions on data analytics report improved efficiency and financial performance in their companies. Data from various sources, including personal health information, disease registries, population health statistics, wellness apps, and wearable devices, is transforming healthcare. This plethora of data improves medical care, makes administrative processes more efficient, saves money, and reduces burnout among clinical staff. Hospitals increasingly draw from data analysis and predictive modelling to support unbiased and evidence-based strategies and decisions. The integration of big data with AI modelling in healthcare supports clinical treatment decisions by speeding up drug development and increasing the accuracy of tumour identification in cancer scans. It also reduces disease risk by enabling healthcare providers to identify communities at risk of chronic diseases and improve preventive care. Additionally, DDDM can help hospitals identify inefficiencies and offer more cost-effective care.

In the realm of climate change, data is equally vital. Decisions about climate change are complex, costly, and have long-term implications, making it essential that they are based on the best available evidence. This involves observing and analyzing weather, climate, water resources, agriculture, and their links to human and ecosystem development. Model projections of the future for these elements are necessary for specialists in different sectors to make informed decisions. The integration of climate change information with environmental and socioeconomic data is crucial, as demonstrated in the UK, where the Met Office collaborated with the Environment Agency to assess the implications of rising sea levels for flood defences. The efficient and effective use of climate change information requires continued cooperation between national and international institutions and governments. Platforms like the World Bank's Climate Change Knowledge Portal provide and share data and information, fostering cooperation and informed decision-making.

Incorporating data related to Environmental, Social, and Governance (ESG) criteria into the property and financial markets is proving to be a significant step towards improving social and environmental outcomes. The impact of ESG data in these sectors demonstrates how informed decision-making, guided by comprehensive and reliable data, can lead to more sustainable and socially responsible investments, benefiting both the environment and society.

In the property market, ESG factors are increasingly influencing the value and desirability of real estate investments. Landlords who prioritize ESG at their properties can expect higher rent, tax credits and incentives, and an overall higher market value of their real estate investments. Investment in property technology and green building upgrades positions landlords better in a dynamic regulatory and capital environment. The retrofitting of existing spaces to meet sustainability certifications enhances occupant satisfaction, improves rental rates, lowers operating expenses, and thus increases property value. Green buildings reduce risk and create superior exit opportunities for investors by lowering legislative and obsolescence risk and compressing capitalization rates, thereby creating market premiums. An EY case study showed that green building investment has a compounding effect on property value, with a green building yielding between a 10% and 21% increase in market value compared to a non-green building. Furthermore, proposed legislation and regulation, such as the SEC’s climate disclosure mandates, will likely accelerate sustainability reporting and influence tenant choices, further emphasizing the importance of ESG considerations in property investments.

In the financial markets, ESG considerations are rapidly becoming a mainstream aspect of investment decision-making. ESG criteria offer insights into a company or asset beyond traditional financial reporting, including factors like water use, labour practices, and corporate governance. ESG incorporation by money managers has seen a significant increase, with the top issues considered being climate change/carbon, anti-corruption, board issues, sustainable natural resources/agriculture, and executive pay. The importance of ESG in risk assessment and performance is increasingly recognised, with a survey finding that over half of respondents incorporated ESG factors as part of their fiduciary duty, and 38% viewed it as helping to generate excess return.

These developments in both property and financial markets highlight the growing recognition of the importance of ESG data in driving sustainable and socially responsible investment decisions. By leveraging this data, investors and property owners can make more informed choices that yield financial returns and contribute positively to societal and environmental outcomes. The importance of data in both healthcare and climate change also cannot be overstated. In healthcare, it enhances efficiency, improves patient outcomes, and facilitates cost-effective care. In addressing climate change, it enables informed, evidence-based decisions crucial for long-term environmental and socio-economic sustainability. Integrating technology and accurate data analysis in these fields is essential for solving global challenges and advancing towards a healthier, more sustainable world.

Our Investments

Description:
IQVIA, a global leader in healthcare analytics and technology, provides advanced analytics, technology solutions, and clinical research services to the life sciences industry. The company excels in creating intelligent connections across all healthcare aspects, utilizing analytics, transformative technology, big data resources, and extensive domain expertise. This approach enables IQVIA to facilitate improved patient outcomes and accelerate results for their customers. By integrating data-driven insights into healthcare practices, IQVIA significantly contributes to the advancement of medical research and patient care, emphasizing the critical role of data and technology in modern healthcare
Impact:
In 2023, IQVIA advanced its sustainability and impact goals significantly. Key accomplishments include a 22% per-employee and 13% absolute reduction in Scope 1 and 2 market-based emissions, a commitment to the Science Based Target initiative for net-zero emissions, and a 80% employee belief in achieving career goals. Women comprise 60% of IQVIA’s global workforce and 51% of its global managers. In 2021, 85% of employees reported favourable engagement, and recognised as FORTUNE’s list of Most Admired Companies for five consecutive years.
IQVIA’s AI analytics and technology have transformed clinical development, enabling faster decision-making and reduced risk in delivering therapies.
They were awarded the “Best AI-based Solution for Healthcare” in 2023 for its AI and natural language processing technology. This technology has been instrumental in identifying and screening at-risk patients based on social determinants of health, resulting in improved patient outcomes.
They also collaborated with Apple to empower patients in personalizing their healthcare, improving patient engagement.
Engagement Topics:
We engaged with the company on executive remuneration which although excessive, the long term incentives are significantly aligned to long term shareholder value creation. We also welcomed plans to improve shareholder rights.
Description:
CoStar Group is a leading provider of commercial real estate information, analytics, and online marketplaces. CoStar enables professionals to access, interpret, and use market data.
Impact:
Real estate and the built environment account for approximately 40% of global carbon emissions, according to the World Economic Forum. CoStar has helped to digitize the $300 trillion global real estate asset class allowing users to search for green rating certifications on buildings and identify properties that are Energy Star, BREEAM, and LEED certified.
CoStar’s data is enabled with FEMA (Federal Emergency Management Agency) so that users can better understand Flood Risk with their property.
Description:
FactSet is a global provider of integrated financial information, analytical applications, and industry-leading services for the investment and corporate communities. Serving over 100 countries, it offers tools for market analysis, portfolio management, and risk assessment.
Impact:
FactSet integrates ESG into portfolio lifecycles with data, research, analytics, and reporting tools. It offers third-party ESG content and unique analytics through Truvalue, which evaluates ESG performance based on external stakeholder sources, addressing blind spots in self-disclosed company data. FactSet's research capabilities enable financial institutions to combine diverse ESG scores and news for a comprehensive view of corporate ESG performance. It allows creation of custom ESG scores using various metrics and supports stewardship initiatives with robust research solutions. FactSet also helps clients construct ESG-compliant portfolios and simplifies compliance with evolving ESG regulations, planning to expand its collection of company-reported ESG metrics. Their future initiatives focus on expanding ESG products and solutions for easier regulatory compliance.
Description:
Gartner is a global research and advisory firm that provides insights, advice, and tools for various sectors, including IT, finance, HR, legal, and marketing. Gartner helps business leaders across all major functions in every industry and enterprise size make informed decisions through research, conferences, and consulting services.
Impact:
In addition to Gartner’s consulting activities, Gartner shares sustainability knowledge through its Sustainable Business Strategy resource centre, offering free articles, research, webinars, and podcasts.
Their ThinkCast podcast, downloaded thousands of times, discusses why sustainability is crucial for executives and provides actionable steps.
Gartner Business Quarterly addresses social issues and employee retention strategies. They offer crisis-related guidance, like during Russia's invasion of Ukraine, and host events like the Supply Chain Earth Day webinar, with over 800 participants discussing sustainability challenges and strategies

Healthcare - Biotechnology and Future Health

The biotechnology industry has had a transformative impact on society.

The development of insulin is a prime example of biotechnology’s impact on healthcare. Since the discovery of insulin in 1921, biotechnology has been instrumental in refining and improving insulin therapy. Genetic engineering, based on structural insights of insulin, has enabled the creation of insulin analogs with optimized pharmacokinetic profiles. These innovations have profoundly improved the quality of life and life expectancy for people with diabetes. The introduction of fatty acid acylation technology, for instance, has led to the development of long-acting insulin analogs, significantly enhancing diabetes management.

Vaccines are perhaps one of the most significant contributions of biotechnology to public health. The widespread use of vaccines has drastically reduced deaths from infectious diseases. For instance, measles vaccines have prevented 25.5 million deaths since 2000, and the eradication efforts for polio have decreased cases by over 99% since 1988. Vaccines not only benefit children but also adults, protecting against infection-related cancers and various other diseases, thus contributing to longer, healthier lives. Furthermore, the economic impact of immunization is substantial; every dollar invested in immunization programs in low- and middle-income countries is expected to return more than $52 by reducing treatment costs and boosting productivity.

The development of mRNA COVID-19 vaccines marked a significant milestone in medical science, demonstrating a profound benefit to society. Within less than a year of the COVID-19 pandemic's emergence, a new type of vaccine utilizing mRNA technology was authorized for emergency use. This rapid development and global distribution of the Moderna and Pfizer/BioNTech mRNA vaccines have been monumental in saving millions of lives worldwide. The success of mRNA COVID-19 vaccines has broader implications beyond this pandemic. The technology is now accelerating the clinical development of vaccines against other diseases, including other respiratory pathogens like influenza and respiratory syncytial virus (RSV). The flexibility of mRNA technology allows for a mix-and-match approach in vaccinology, where RNA sequences can be replaced or combined to target multiple pathogens, potentially improving vaccine effectiveness against a variety of diseases. Given the public health benefits as well as the economic impact of immunization, the research and development in this area is particularly exciting.

In conclusion, the biotechnology industry has been a catalyst for significant improvements in healthcare and public health. The advancements in diabetes care and insulin therapy have revolutionized the management of a condition that affects millions globally. The development and widespread implementation of vaccines have not only saved countless lives but also contributed to the economic stability and well-being of communities around the world. The positive impact of biotechnology is evident in the enhanced quality of life, increased life expectancy, and improved overall health outcomes across various populations.

Our Investments

Description:
Moderna, Inc. is a pioneering biotechnology company, notably recognized for its innovative use of messenger RNA (mRNA) technology. Founded in 2010 and based in Cambridge, Massachusetts, Moderna focuses on drug discovery and vaccine development, particularly revolutionizing vaccines against infectious diseases. Their groundbreaking work was most prominently showcased during the COVID-19 pandemic, where they developed one of the first highly effective mRNA vaccines, representing a significant advancement in rapid vaccine development and personalized medicine.
Impact:
n 2023, the company delivered approximately 100 million doses of its COVID-19 vaccine globally, bringing the cumulative total to over 1 billion doses since its introduction. This effort has played a crucial role in mitigating the impact of the pandemic worldwide.The company's commitment to innovation extends beyond COVID-19. Moderna has a diverse pipeline of 48 mRNA programs in development, including vaccines for influenza, respiratory syncytial virus (RSV), and potential treatments for rare diseases and cancer. In 2023, Moderna advanced several key programs, including its personalised cancer vaccine and its mRNA-1345 vaccine for RSV, which showed promising results in clinical trials.Moderna has also made strides in sustainability and social responsibility. The company has set a goal to achieve net-zero carbon emissions in its global operations by 2030.
Engagement Topics:
There has been much debate about the inequity in vaccine access. We engaged with the company via email and in the lead up to the AGM to learn more about the reason for the inequity. We are satisfied that the primary reason for the inequity is not due to Moderna’s business practices.
Description:
Novo Nordisk, a global healthcare company founded in Denmark in 1923, is a leader in diabetes, obesity and adjacent diseases.
Impact:
In 2023, the company provided life-changing treatments to approximately 40.9 million people living with diabetes worldwide, an increase from 34.6 million in 2022. The company's innovative GLP-1 treatments for diabetes and obesity have shown remarkable efficacy, with Wegovy (semaglutide) demonstrating significant weight loss results and potential cardiovascular benefits. Novo Nordisk achieved its target of using 100% renewable electricity across its global production sites in 2020 and has maintained this in 2023. The company has set ambitious goals to reach net-zero emissions across its entire value chain by 2045, with interim targets of reducing scope 1 and 2 emissions by 90% and scope 3 emissions by 75% by 2030, compared to 2019 levels. The company's Defeat Diabetes strategy aims to provide access to affordable care for vulnerable patients in every country. In 2023, the company reached 8.5 million patients with its low-priced human insulin, approaching its goal of reaching 9 million patients by 2025.
Engagement Topics:
Drug access is a key concern particularly of GLP-1 for patients with diabetes and obesity during a period of shortages. We engaged with the company to learn more about the reason for the shortage, which appeared to be related to be manufacturing related which is now resolved. We expect the company to be able to meet supply in the coming years.
Description:
Ginkgo Bioworks, operating in the biotechnology sector, specializes in using synthetic biology to design custom microbes for a variety of applications. They leverage advanced genetic engineering and computational biology to program cells much like one would program computers. Their work spans across industries, including pharmaceuticals, agriculture, and environmental management, focusing on creating more effective, sustainable solutions. Ginkgo Bioworks' innovative approach aims at harnessing the power of biology to solve complex challenges in health, food systems, and materials science.
Impact:
In 2023, Ginkgo Bioworks focused on tackling climate change and biological threats through synthetic biology, assisting companies in sustainable development in pharmaceuticals, food, and agriculture. One notable partnership was with Agrivalle, a Brazilian agricultural biologicals leader, to develop advanced fertilizers and biocontrol agents, enhancing agricultural sustainability. This collaboration leverages Ginkgo's synthetic biology expertise, addressing global challenges in climate change and biological threats.
Concentric, Ginkgo’s biosecurity business unit, expanded work with the CDC's Traveler-based Genomic Surveillance program, developing new methodologies for monitoring aircraft wastewater, and creating ENDAR for biosecurity.
Over the last five years, their achievements include a 20% reduction in greenhouse gas emissions, a commitment to 100% renewable energy by 2025, and innovating food production methods to significantly reduce water usage.

Medical device companies play a pivotal role in advancing healthcare, significantly impacting society by enhancing life expectancy and quality of life. The advancements they bring forth not only transform patient care but also innovate solutions for complex health issues, contributing significantly to the global healthcare landscape.

Innovations in medical devices have made a profound impact on extending human life expectancy. From the 19th century to recent years, the average global life expectancy has surged from 45 to nearly 80 years, largely due to medical progress, including advances in medical devices. These devices span a broad spectrum, encompassing diagnostics, procedures, and prescription drugs. They contribute to healthier lifestyles, preventive care, more accurate medical diagnosis, and improved quality of treatment post-diagnosis. Surgical advancements, for example, have moved towards more precise and minimally invasive procedures, significantly improving treatment outcomes

Beyond life expectancy, these companies also immensely improve the quality of life for patients. The development of minimally invasive surgery techniques, for example, involves smaller incisions and shorter recovery times, enhancing patient experiences significantly. Additionally, the management of chronic diseases has been revolutionized through devices like continuous glucose monitors and insulin pumps, particularly in diabetes care. These innovations not only ease disease management but also minimize the risk of complications, ultimately improving patient outcomes.

Moreover, the role of medical device companies was particularly highlighted during the COVID-19 pandemic. They were thrust into the spotlight with an unprecedented demand for diagnostic tests, personal protective equipment (PPE), ventilators, and other critical medical supplies. In response, these companies rapidly increased manufacturing capacities and capabilities, and also sought creative solutions like partnerships and open-source equipment design to meet public health needs.

In conclusion, medical device companies are integral to the advancement of healthcare. Their contributions in extending life expectancy, improving quality of life, managing chronic diseases, bolstering the economy, and responding to public health emergencies underscore their vital role in society. The continued support and investment in these companies are essential for the ongoing advancement of healthcare and the betterment of global society.

Healthcare - Medical Devices

Our Investments

Description:
Dexcom, headquartered in California, specializes in the development and marketing of continuous glucose monitoring (CGM) systems for people with diabetes. Their innovative technology provides real-time glucose readings, trends, and alerts, enhancing diabetes management by offering users and healthcare providers accurate, actionable insights into glucose levels.
Impact:
Dexcom has made significant contributions to improving the lives of people with diabetes worldwide. In 2023, the company reported that its CGM systems were used by approximately 1.9 million people globally, a 25% increase from the previous year. This growth demonstrates the increasing adoption and impact of Dexcom's technology in diabetes management.
The company's latest CGM system, the Dexcom G7, received FDA clearance for use in people with all types of diabetes aged two years and older. This expanded access has the potential to significantly improve diabetes management for a broader range of patients, including children and adolescents. The company has continued to expand its patient base, making their next generation systems available in more markets including Canada. In April 2023, Medicare in the US expanded coverage of CGM, with commercial payers following.
The company continues to innovate in the space, with technology that incentivises users to stay healthy and avoiding costly medication and treatment.
Engagement Topics:
The impact of Ozempic and other GLP-1 drugs on diabetes is not yet fully understood. We engaged with the company on this topic, via email and conference call. The company’s own data suggests that patients on GLP-1 drugs are more likely to use CGM. We also read the company’s release and presentation on this topic.
Description:
ResMed is a global leader in medical equipment for treating, diagnosing, and managing sleep apnoea and other chronic respiratory disorders. They specialize in designing innovative products like CPAP (Continuous Positive Airway Pressure) devices, ventilators, and digital health solutions.
Impact:
In 2023, the company provided treatment to over 137 million people with sleep apnea and other chronic respiratory diseases, an increase from 125 million in 2022. As the largest CPAP supplier, ResMed has a responsibility to ensure patients have access to the treatment. When their largest competitor experienced a product recall, ResMed was able to increase supply albeit not to the full extent due to supply chain constraints.
The company continues to grow and supply patients with CPAP machines which are the most effective treatment for sleep apnoea even in the face of GLP-1 competition. In 2023, ResMed expanded its outreach programs, providing over 1 million devices to patients in low- and middle-income countries. The company also collaborates with healthcare providers and organisations to address disparities in respiratory care.
Engagement Topics:
ResMed was constrained in supplying the market due to supply chain issues. We engaged with the company to learn more about the progress. We expect products to gradually return to normal shipping, which will impact margins. We also engaged with the company on the impact of GLP-1 drugs. There is no evidence of its impact at the moment, and the company is still experiencing strong growth.
Description:
Intuitive Surgical is renowned for its pioneering role in robotic-assisted, minimally invasive surgery. Their flagship product, the da Vinci Surgical System, revolutionized surgery with its precision, flexibility, and control, enabling surgeons to perform complex procedures with enhanced vision, precision, and dexterity. The company focuses on continually advancing the technology of robotic-assisted surgery, aiming to improve patient outcomes, reduce recovery times, and increase the efficiency of surgical procedures across various medical specialties.
Impact:
In 2023, the company reported that over 8.5 million procedures were performed using da Vinci systems globally, a 22% increase from the previous year. This growth demonstrates the increasing adoption and impact of Intuitive's technology in various surgical specialties, including urology, gynecology, and general surgery.The company's latest da Vinci system, the da Vinci Xi, has expanded the range of procedures that can be performed robotically, potentially benefiting more patients.

Healthcare - Healthcare Equipment

The healthcare equipment industry plays a pivotal role in healthcare innovation by supporting biotechnology, medical device and other healthcare companies conduct their research and development. It provides tools and technologies essential for advanced diagnostics, efficient laboratory operations, and the development of new medical therapies.

During the COVID-19 pandemic, the industry was responsible for developing diagnostic kits for the diagnosis of COVID-19 and also helped Moderna and other vaccine manufacturers develop the COVID-19 vaccine.

Our Investments

Description:
Danaher Corporation operates globally across life sciences, diagnostics, and environmental and applied solutions. Headquartered in Washington, D.C., the company is known for its innovative technologies and solutions in fields like biotechnology, clinical diagnostics, and water quality analysis. Danaher's business model focuses on continuous improvement and strategic acquisitions, enhancing its product offerings and market presence.
Impact:
Danaher has made significant contributions to scientific research, healthcare, and environmental protection. In 2023, the company's technologies and solutions were instrumental in advancing critical areas such as genomics, biopharmaceutical production, and water quality management. Danaher's life sciences segment played a crucial role in supporting COVID-19 vaccine development and production, while its diagnostic solutions continued to improve patient outcomes through more accurate and efficient testing.
Danaher Biotechnology businesses supported more than 90% of the global production volume of approved monoclonal antibodies and over 1 million diagnostic tests per hour are performed on Beckman Coulter Diagnostics instruments. Cytiva, a Danaher company also announced the launch of a recyclable and sustainable packaging solution. The company also invested $1.7 billion in R&D in 2022.
Engagement Topics:
We had concerns about corporate governance including executive pay and independence. We voiced our concerns, and advised accordingly during AGM.

Sustainability from the Investor’s Perspective

Investment management fees affect shareholder returns, which is particularly important given expensive active fund managers have generally under-performed. We charge a base management fee that is competitive, skewing our remuneration to performance-based fees.

Apart from a robust investment management process, we also focus on the legitimate value creation that comes from long-term investing rather than short-term trading. We invest only in companies we believe will generate superior returns over the long term. This approach benefits our clients through lower taxes, lower transaction costs and compounding returns.

Conclusion

Our core philosophy at ELM Responsible Investments is that innovative companies driving positive change can also yield strong financial returns. Elsewhere on our website you can find information about the ongoing financial performance of the Global Fund (although we are pleased to note 2023 was a very strong year, with Morningstar Australia ranking the fund in the top 3% of similar funds* for the year), while this report has detailed how we select companies, and what impact those companies are making, to give investors confidence that we are living up to our promise of investing for positive change.

Earlier, we detailed our multi-step process for selecting companies to invest in, bringing together the UN Sustainable Development Goals with the Impact Management Project’s 5 Dimensions of Impact and classification system, to create a process that utilises both a negative and a positive screen. This enables us to select a portfolio of companies that are aligned with the themes of Health and Education, Environment and Climate, and Digitization and Future Technology.

We believe that the demonstrated impact of each of these companies individually underscores the effectiveness of our process. Whether it is Nu Holdings removing financial barriers in Brazil, ASML’s ground-breaking work in photolithography enabling a myriad of technological advancement, Dexcom’s continuous glucose monitoring (CGM) systems improving quality of life and health outcomes for diabetics, or any of our other holdings, we are confident that each company is contributing to the betterment of people and the planet.

The ELM Responsible Investments Global Fund: where financial goals and sustainable ethics align.

*Morningstar Australia Category: Equity World Large Blend 2023