Sustainable Portfolio Management – Annual Report 2022
22 April 2022
Unless otherwise stated, companies referenced in this report were companies held by the Sustainable Total Return Strategy as of 31 December 2021 and may no longer form part of our portfolios. Reference to specific companies in this report is not an opinion as to their present or future value and should not be considered investment advice or a personal recommendation.
The past two years have outlined the importance of connectivity and the digital infrastructure that supports it. In the modern world, being connected is no longer a choice, but a necessity, with inequality increasing between those who are connected and those who are not. Improved connectivity increases opportunity, drives innovation, and productivity, and provides access to critical services. That is why the United Nations (UN) Secretary-General’s Roadmap for Digital Cooperation calls for universal connectivity by 20301.
Connectivity has the great potential to accelerate human progress, bridge the digital divide, and develop knowledge societies. However, there is much work to be done since:
In Bill and Melinda Gates’ 2019 Annual Letter, Melinda states that “connectivity is a solution for marginalisation”4. Across the world, phones can now act as banks, providing a crucial lifeline for escaping poverty for the millions who remain unbanked. With a click, small farmers can access information to support them in determining how much they can charge for their crops. Those living in rural or hard-to-reach geographies can access healthcare, such as a heart examination using a medical tablet in rural Cameroon, or having blood delivered by drones in Rwanda.
Connectivity is especially critical for women in the developing world, a group that remains one of the most marginalised in the world, historically left behind by global development priorities. Access to a connected mobile phone can provide a woman in the developing world with financial independence through mobile banking, online educational resources to improve employability, or access to contraceptives through telemedicine. This connectivity promotes societal inclusion, helping to lift her out of poverty, with benefits rippling throughout the community via the so-called girl effect.
The fundamental key to delivering universal connectivity – and thereby addressing a number of the UN’s Sustainable Development Goals (SDGs) – is reliable digital infrastructure.
American Tower (a North American equity holding, as of April 2022) is on a mission to supply wireless connectivity to the world. The company has one of the largest portfolios of cellular broadcast towers globally, with more than 220,000 connection sites spread across the globe, from India to Brazil, to Ghana to Columbia, and across the US12. Every day, millions of people access the infinite resources of the internet through equipment hosted on American Tower communication sites.
Cellular towers, and the connectivity they facilitate, have made it possible for developing countries to bypass the traditional path to prosperity paved by developed nations, and to catapult their development agendas. For example, the mobile revolution, spearheaded by the likes of Apple, put phones in the hands of millions, thereby allowing developing nations to leapfrog the landline infrastructure stage of their development.
ESG data risk: Some positions within the strategy may not have an ESG rating due to the nature of their asset class (e.g. government bonds, gold, hedging derivatives). Should a position not be covered by MSCI (or an equivalent provider) due to lack of coverage, the Portfolio Manager will determine the position’s equivalent rating.
Market risk: The possibility for an investor to experience losses due to factors that affect the overall performance of the financial markets. Market risk, also called “systematic risk”, cannot be eliminated through diversification, though it can be hedged against. Sources of market risk include major natural disasters, recessions, political turmoil and geopolitical tension.
Liquidity risk: The risk stemming from the lack of marketability of an investment that cannot be bought or sold quickly enough to prevent or minimise a loss.
Derivatives exposure: The use of these instruments can, under certain circumstances, increase the volatility and risk profile of the strategy beyond that expected of a strategy that only invests in equities. The strategy may also be exposed to the risk that the company issuing the derivative may not honour their obligations which could lead to losses arising.
Currency risk: An investor will be exposed to currency fluctuations between their domestic currency, a fund’s holding currency, and the local currency of an investment.
Interest rate risk: An investor will be exposed to interest rate risk. Changes in interest rates will impact the performance and/or value of instruments. Interest rates tend to change suddenly and unpredictably.
Inflation: Inflation will reduce the real value of your investments in the future.
Taxation and tax relief: Levels of taxation and tax relief are subject to change.
Returns are not guaranteed: Past performance is not an indication of future performance. The value of investments, and any income, can fall as well as rise, so you could get back less than you invested. Neither capital nor income is guaranteed.
In this year’s report, we focus on some of the exciting new technologies that could meaningfully improve sustainability outcomes, from precision manufacturing and measurement, to genomic sequencing, to digital infrastructure. And we’re delighted to feature an article from Sir David King on the strategies urgently needed to ensure climate repair.
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