Investing in companies that drive towards the green transition and protect against ecosystem can also address the impacts of impacts of climate change globally, according to TT International.
TT International's Environmental Solutions Fund is a US$195 million global environmental strategy where more than 80% of the fund's capital is invested in companies where environmental solutions account for more than 50% of revenues or profits.
The fund has seen a -19.93% loss for the year to date, while annual performance since inception in May 2020 has been 35.17%
TT International currently has an investible environmental universe of approximately 420 companies that they have identified as providing environmental solutions through their products or services. From there, the team selects the companies that they think will outperform, said co-portfolio manager Harry Thomas.
"We started looking at what we could do in the environmental space," Thomas said. "There weren't many strategies offering exposure to environmental solutions companies but were rather more focused on low carbon; these strategies would typically hold lots of big tech - Facebook, Apple, Amazon etc. These companies don't have a large carbon footprint because they don't own many industrial assets and outsource the industrial parts of the business."
For TT International, the focus is on companies that provide products or services which are having a significant positive impact on the issues of both climate change and biodiversity loss.
The strategy currently holds around 40-45 securities, Thomas said.
"Every company we invest in goes through our environmental screening process to ensure that it makes a significant positive contribution to the environment, and after that, we seek to maximise returns for our clients," he said. "That's partly about companies that we think will have the best returns, but also about constructing a portfolio that mitigates factor biases in our universe, whilst at all times ensuring that we only have exposure to environmental solutions companies."
TT International says the positive impact of its fund is two-fold. Firstly it comes from getting financial exposure to companies that are 'going in the right direction' on positive environmental change; and secondly it comes from the deferral of one-third of all management fees received by the firm to a number of carefully selected environmental charities across the globe.
"We are looking for solutions," Thomas said. "We think that this is the part of the market that is likely to generate outsized returns going forward. It's the part of the market that is leading in emerging technologies and disruptive business models. We would rather have pure-play exposure to the thematic rather than investing in 'X' bank because they're the bank that's leading from an environment perspective. Investing in 'best-in-class' companies because they are the 'least bad' in their field is not what we are seeking to achieve.
"For our clients, it's a clear distinction around what can and can't go into the strategy. We have a robust and balanced process."
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