Stewart Investors has identified six global companies that are leading the way to a more sustainable housing sector.

With housing representing an estimated 17 percent of global energy-related carbon dioxide emissions, the quest for building, operating, and maintaining durable structures is a pressing global priority, according to Stewart Investors, a long-only active equity specialist and a global leader in sustainable investing.

Stewart Investors has identified six global companies that are leading the way to a more sustainable housing sector.

“As the need for housing continues to accelerate globally amid volatile climate conditions, finding solutions to building durable structures and reducing the sector’s carbon footprint takes on greater urgency,” said Clare Wood, portfolio specialist for Stewart Investors. “We believe that investing in companies that support environmentally conscious home building and maintenance will deliver strong returns to investors. These are companies that supply the industry in a variety of ways, and we believe they are positioned to participate materially in its evolution across market cycles.”

According to Stewart Investors, the following six companies (in alphabetical order in each of the three housing-related challenges identified) are contributing meaningfully to sustainable housing:

More efficient and sustainable construction

Ashtead Group: Ashtead is a U.K.-based equipment rental company. Ashtead’s business model focuses on rental equipment for the global construction industry, reducing the need for the manufacturing of new equipment and extending the life of existing tools. A Stewart Investors holding since mid- 2024, Ashtead actively reduces its direct carbon footprint, effectively manages waste and water, and drives sustainable practices through its value chain. With significant scale in a large and fragmented market, Ashtead’s cash flow has increased 10 percent annually over the past 10 years.

Nemetschek Group: Based in Germany, Nemetschek offers a broad portfolio of software solutions to the construction industry, focused on resource efficiency. Its use of Building Information Modelling (BIM) allows for more precise and efficient planning and construction, minimizing errors and reducing energy requirements. Nemetschek has been a Stewart Investors holding since late 2021. The company’s recurrent revenue represents more than 80 percent of total sales, which have risen by 11 percent a year over the five years ended Sept. 30, 2024. Earnings per share have increased 8 percent yearly over that same period.

Resilience to extreme weather

Advanced Drainage Systems: U.S.-based Advanced Drainage Systems (ADS) provides sustainable water management solutions that seek to safeguard the environment and build resiliency in communities. As storms increase in frequency and intensity, ADS’ water management solutions help reduce flooding, recharge aquifers, improve food security, and mitigate the risk of water scarcity. Given the inadequacy of existing water infrastructure and massive long-term expenditures needed to address the objectives of the U.S. Clean Water Act, ADS, a Stewart Investors holding since early 2023, is well positioned for continued growth. Its revenue has increased by 14 percent over the five years ended Sept. 30, 2024.

Simpson Manufacturing: The products of U.S.-based Simpson seek to make homes and buildings more resilient. The company designs and manufactures products including moment frames, shearwalls, structural connectors, anchors, fasteners, and fiber-reinforced polymers to keep structures safe and strong. These products are increasingly important in the context of climate change and related climate events. Simpson, held by Stewart Investors since the third quarter of 2024, has increased revenue by 10 percent annually over the past 10 years. Stewart Investors believes the pent-up demand for housing and the aging of U.S. housing stock may provide ongoing catalysts for continued growth.

Energy efficiency

TopBuild Corp.: TopBuild, based in the U.S., installs and distributes insulation and building materials to the U.S. construction industry. Insulation is key to sustainable construction and more efficient energy use. A Stewart Investors holding since mid-2024, TopBuild seeks to unlock the full potential of insulation to improve energy efficiency. With 40 percent market share in the U.S. residential market, TopBuild’s revenue has risen by 15 percent and earnings per share by 30 percent yearly, respectively, over the five years ended Sept. 30, 2024.

Watsco, Inc.: U.S.-based Watsco is the largest American distributor of air conditioning, heating and refrigeration equipment and related parts and supplies (HVAC/R). Its goal is to lead the transition to low carbon, high efficiency HVAC units and heat pumps for millions of homes and businesses within its markets. Stewart Investors has held Watsco since mid- 2022. Watsco has increased revenue and earnings per share by 10 percent and 15 percent, respectively, over the five years ended Sept. 30, 2024.

“At Stewart Investors, we have long held that sustainable outcomes and long-term profitability are two sides of the same coin,” Wood said. “These companies, and others in our portfolios, exemplify that investment thesis.”

Investors can find Stewart Investors’ holdings in its Portfolio Explorer tool, which details the investment team’s approach, identifies the companies held in the firm’s strategies, and explains how these stocks are contributing to sustainable development.

Launched in 2021, Portfolio Explorer was developed to help investors explore strategies, companies, countries and sustainability issues of interest in four views: map, human development pillars, climate solutions and sustainable development goals. Each of the four views contains relevant sub-categories.

The companies highlighted above were gathered from the larger universe of approximately 200 companies held across Stewart Investors’ emerging markets, regional and worldwide equity strategies.

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Sources:
World Economic Forum for the housing sector contribution to global energy-related carbon emissions: https://www.weforum.org/stories/2024/01/tackling-embodied-carbon-in-housing-is-the-climate-solution-we-need-right-now/
S&P Capital IQ for select financial data.

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Stewart Investors, which holds numerous food systems-related companies across its worldwide, emerging markets and regional strategies, has identified five companies that it believes are innovators in food systems sustainability and have provided competitive long-term returns to investors.

“Food systems represent nearly a quarter of greenhouse gas emissions and reducing the pressure on ecosystems while meeting the growing global demand for food is critical,” said Clare Wood, portfolio specialist at Stewart Investors. 

“We have identified several holdings across the globe that intersect with the food system in a variety of ways, grow sustainably, and generate attractive long-term returns to investors.”

All Stewart Investors holdings are profiled in the firm’s Portfolio Explorer tool, which details the investment team’s approach, identifies the companies held in the firm’s strategies, and explains how these stocks are contributing to sustainable development. 

The following five companies (in alphabetical order) are contributing in important ways to food systems sustainability ranging from agriculture to retail:

•  Costco: This U.S.–based retail company has implemented several climate change solutions, including switching to climate friendly refrigerants and improving the efficiency of refrigeration and heating, ventilation, and air conditioning (HVAC) systems that contribute to reduction in food waste. Costco’s climate action plan commitment includes targets to reduce refrigerant emissions by 30% by 2030 (2020 baseline) and commitments to purchase 80% clean electricity by 2030 and 100% by 2035.
• Mahindra & Mahindra: Based in India, Mahindra & Manindra is a conglomerate comprising 150 companies spanning 22 industries. In its core agricultural products business, it strives to improve energy efficiency and agricultural productivity. Its farm sectors strategy is designed to improve the state of farming by democratising technology, especially for marginal and small landholding farmers.
• Novenesis: Denmark-based Novenesis, a global biotechnology company, contributes to climate solutions across the food system through its products (including enzymes and yeasts) that help farmers increase yields and/or reduce or avoid pesticide and fertilizer use. Its products containing good bacteria allow farmers to eliminate their use of antibiotics, helping to improve animal welfare and gut health. The food and beverage division also produces enzymes that can reduce food waste by improving fruit firming, juice retention, yield and shelf life.
• TOTVS: The largest technology company in Brazil, TOTVS provides software that helps to add value and improve practices in a number of industries, including agriculture, logistics and retail. The company’s logistics services enable better transport management and thus lower consumption of natural resources and greenhouse gases. Its retail solutions, ranging from inventory control to use of artificial intelligence, reduce costs and food waste.
• Unicharm: Based in Japan, Unicharm makes a “Fresh Master” tray mat for the storage and delivery of food such as meat trays at supermarkets. The tray mats increase shelf life and reduce discoloration, odors and food waste. Unicharm continues to expand the market for its Fresh Master trays, including expansion into restaurants. 

“These companies, and others across our portfolios, reflect and support our core belief and investment thesis that sustainable outcomes and long-term profitability are two sides of the same coin,” Wood said.

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Chris McGoldrick

Stewart Investors, an active, long-only equity specialist focused on sustainable investing since 2005, has become the founding member of the Responsible Minerals Initiative Investor Network.

The RMI Investor Network will bring together a range of investment industry stakeholders to advance responsible sourcing and the renewable energy transition.

Many institutional investors would like to work with downstream companies to drive environmental, social and corporate governance changes upstream in the mining and smelting sectors, across geographies, but lack the necessary tools, expertise and connections.

The Responsible Minerals Initiative (RMI) of the Responsible Business Alliance (RBA) has launched the RMI Investor Network to promote responsible mining and mineral sourcing worldwide by giving investors access to world-class due diligence tools and collaborative opportunities. This engagement is crucial to achieving a just renewable energy transition, advancing the RMI’s mission to enable companies to source all minerals responsibly including from conflict-affected and high-risk areas.

“We believe that investors have a role to play in ensuring that global mineral supply chains are free of human rights abuses,” said Chris McGoldrick, senior investment analyst at Stewart Investors.

“In the past, NGOs, regulators, and companies have often found themselves on different sides of the table when it comes to conflict minerals. But ultimately, addressing this problem will require a coordinated effort from all stakeholders to improve transparency and support responsible mining practices. Investors are central to this co-ordination.

“We firmly believe the RMI Investor Network marks an important step forwards towards both influencing and improving mineral supply chains. We look forward to working with the RMI Investor Network as an inaugural member and encourage others to join us in this important initiative.”

“The RMI is very pleased to welcome Stewart Investors as the first company to join the newly formed RMI Investor Network,” said Jennifer Peyser, executive director of the Responsible Minerals Initiative (RMI).

“We value their insights and leadership as we scale the Network to support the investor community and its role in driving responsible minerals supply chains and a just green energy transition.”

This collaboration with the RMI Investor Network follows Stewart Investors’ long-term commitment to promoting sustainable development, and engagement on conflict minerals in the semiconductor supply chain. At the end of 2021, the firm launched a collaborative engagement: Tackling conflict mineral content in the semiconductor supply chain. This initiative was supported by 160 signatories amounting to US$6.59 trillion of assets as of November 2021. Since then, it continues to attract interest from a number of large financial institutions and has enabled engagement with some of the largest technology companies in the world.

Paul Chandler, director of stewardship at the Principles for Responsible Investment, comments: “Good responsible investment practice means investors engaging their portfolio companies and working more closely with industry players on systemic ESG issues that matter. The PRI welcomes the improved access, and the opportunity to develop best practice, that this development from the newly created RMI Investor Network entails.”

The RMI is the largest industry association in the minerals space working to address responsible mineral sourcing issues in industry supply chains. The RMI provides companies with a full ecosystem that includes due diligence tools and assurance, and helps companies make responsible sourcing decisions to improve regulatory compliance and source all minerals responsibly.

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Pablo Berrutti

Companies and investors have a crucial role to play in addressing climate change. As one of today’s most urgent challenges, the requirement for companies and investors to adopt ‘net-zero’ targets has exponentially increased.

If humanity is to achieve the goals of the Paris Agreement set in 2015, companies must align with global emission reduction goals by significantly reducing greenhouse gas (GHG) emissions by 2030 and achieving net zero emissions across their value chains by 2050. However, accounting for corporate emissions is complex and reporting standards remain inconsistent.

What are the three emission types?

Accounting for corporate emissions is not straightforward, and includes three emission types: Scope 1, 2 and 3. The idea is to provide a global framework for measuring and managing greenhouse gas emissions for all types of companies across various industries.

Scope 1 emissions include all greenhouse gas emissions created by a company directly, through burning fossil fuels, chemical reactions like in cement production, and refrigerant leaks. Scope 2 emissions relate to electricity and heat purchased by the company from third parties. To tell Scopes 1 and 2 apart, imagine buying gas for heating that is burnt on site being Scope 1, but if the company’s utility provider burns the gas and provides steam for heating instead, that would be Scope 2. All other emissions fall into Scope 3. These include the deforestation in a company’s supply chain, emissions generated in the use and disposal of the company’s products, and also covers employee commuting and business travel.

For Scope 1 and Scope 2, it can be challenging to identify companies best positioned to contribute to and benefit from the transition to net-zero. However, in many cases the solutions are similar for different companies across sectors; for example, switching to renewable energy to reduce Scope 2 emissions.

The same cannot be said for Scope 3 emissions which are more nuanced and company-specific. For Scope 3 emissions, social and other environmental impacts need to be considered. For example, understanding how the electrification of transport is driving demand for conflict minerals in the supply chain.

While Scope 3 emissions are the most challenging to dissect, they offer investors a richer understanding of a company’s value chain and carry the potential for deeper investment insights. In the United States, the Securities Exchange Commission has proposed including Scope 3 in new disclosure requirements. Yet, the feedback from asset managers has been anything but positive. 

Does Scope 3 improve emission reporting?

Companies’ carbon and climate change reporting remains inconsistent even with these defined emission types and well-established reporting standards like the Greenhouse Gas Protocol. The results of voluntary reporting standards has often been greenwashing or well-intended but ultimately ineffectual emission reduction efforts.

Many companies and investors are taking bold actions to achieve genuine greenhouse gas emission reduction across their value chains, but they cannot rely on Scope 3 as a single quantitative measure for understanding the implications of these actions. A focus on quantitative measures hides more than it reveals and almost guarantees unintended consequences.

What is the alternative?

For us, Scope 3 is a crucial consideration in the investment process, but we rarely use the term as it is not just one activity or impact but hundreds of activities deeply interconnected with other sustainable development considerations. Understanding the true positioning of a company in this context cannot be achieved top-down with broad sector analysis or Scope 3 numbers which are mostly estimated. The only way to more accurately reflect this is by analysing companies from the bottom up.

The complex and systemic nature of decarbonisation means the solutions are outside a company’s direct control. However, by focusing on practical outcomes that can improve supply chain resilience or help customers achieve their emission goals, companies can take Scope 3 emissions out of the theoretical and into the real world. Companies must also consider human and environmental challenges, especially in low and middle-income countries, which require deep engagement by investors and the right values to resolve often thorny issues.

A good example is plastic waste in emerging markets. For many consumer goods companies, plastic is essential in getting the final products to the consumer in a reliable manner. However, plastic results in upstream and downstream Scope 3 emission. As it is made from fossil fuels, upstream plastic production is emissions intensive and also impacts biodiversity and human health, while downstream the management of plastic waste disposal leads to pollution or if incinerated additional greenhouse gas emissions.

We have long engaged with companies on plastic waste and, in 2016, brought together 11 of the largest consumer goods companies in India to discuss the issue. In turn, we part-funded the establishment of and then encouraged these companies to join the Indian Plastics Pact, convened by the NGO WRAP so they can set ambitious targets and work together on systems that can resolve the many challenges plastic pollution entails. Three of the Indian consumer companies we invest in now collect more post-consumer plastic waste than they produce and are increasing the recycled content in their packaging.

While alternatives and avoidance measures are still needed, these actions are helping to close the loop on this source of Scope 3 emissions without calling it that. A single number will never be able to capture the quality of activities such as this, so a more holistic picture must be formed.

Where do we go from here?

Rather than Scope 3, it is Scope Everything. These emissions are being produced across the whole value chain of companies in ways that interact with many other issues, from biodiversity to human rights. They are key to the resilience of many businesses but poorly understood. Measures like Scope 1, 2 and 3 can be useful, but analysing business quality and stewardship bottom-up remains an investor’s best tool for understanding the sources and best solutions for these challenges and opportunities. Disclosure requirements should reflect that reality.

By Pablo Berrutti, investment specialist

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Stewart Investors announced the appointment of Ms Elizabeth Trinh to the role of head of institutional distribution, Asia Pacific (APAC), effective from 11 September 2023.

Building on Stewart Investors long-established presence in Sydney and Singapore, and in recognition of the growing institutional demand for quality and sustainability focused investment solutions in the region, Ms Trinh is responsible for driving the APAC institutional client strategy for the business.

Ms Trinh joins from American Century Investment Management (ACIM), where she spent nearly 14 years in a number of leadership roles across APAC, building out the firm’s presence in the region. Most recently, Ms Trinh was head of American Century investment management (Asia Pacific) Limited where she oversaw the business management of the Hong Kong office and growth in the region, across institutional and wholesale channels. In this capacity, she also headed up APAC asset consultant relationships which resulted in multiple successful buy ratings across a number of investment capabilities.

In addition, Ms Trinh led a multitude of environmental, social and governance initiatives and she was a founding member of the diversity, equity and inclusion committee in ACIM. Prior to AICM, she worked for Macquarie Bank and the Commonwealth Bank of Australia.

Ms Trinh reports to Mr Hugh O’Neill, business head of Stewart Investors in Singapore. She is currently based in Hong Kong and will relocate to Singapore in 2024.

Mr O’Neill said of the appointment: “We are thrilled to welcome Ms Trinh to our fast-growing team in Asia Pacific. Ms Trinh’s proven leadership capabilities, coupled with her two decades of regional and institutional client experience and expertise is an incredible asset to our business.

“The increasing demand we are seeing from institutional investors in the region for quality, sustainability focussed investment strategies coupled with Ms Trinh’s in-depth knowledge and solid track record means this is an incredibly exciting time for us,” concluded Mr O’Neill.

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The fee reduction comes as the fund has provided positive returns year on year since Stewart Investors took over the fund’s management on 4 December 2013.

Lead portfolio manager, Sashi Reddy, says that the fee reduction is to align the fund with clients by sharing in the proceeds of its growth.

“We want our clients to grow their wealth over the long term and reducing fees is a key way to achieve this.

“Our goal is to offer a low-cost, active investment strategy run with a world-leading approach to sustainable development that has evolved over decades. We launched our first sustainability fund in 2005.

“We are excited by the quality of companies in our worldwide leaders’ universe,” says Mr Reddy.

The Stewart Investors Worldwide Leaders Sustainability Fund aims to generate long-term, risk-adjusted returns for its clients by investing in high-quality companies that are well positioned to benefit from, and contribute to, sustainable development.

The fund holds between 40 and 60 investments at any one time and has an active share of 94 per cent. It normally invests in mid to large cap companies and its comparator benchmark is the MSCI All Country World Index.

The Stewart Investors Worldwide Leaders fund is certified by the Responsible Investment Association Australasia (RIAA). Stewart Investors was recently named a ‘Responsible Investment Leader’ by the RIAA in its annual benchmark report, the RIAA’s highest designation.

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The Fund invests in high-quality, mid- to large-cap companies that are considered to be well positioned to benefit from, and contribute to, sustainable development, with a focus on delivering long-term capital growth over market cycles.  Managed by Jack Nelson and David Gait, Sydney-based portfolio managers for the firm’s Sustainable Funds Group, the Fund offers Australian investors access to the team’s proven emerging markets sustainability capabilities. 

The team has a strong track record of investing in emerging markets. Since its inception in February 2009, the Stewart Investors Global Emerging Markets Sustainability Fund, which is an All-Cap strategy, has delivered an annualised return of 13.4%, net of fees, (as at 31 August 2021), compared with a 9.1% return for its benchmark, the MSCI Emerging Markets Index, net of withholding tax. 

The GEM Leaders Sustainability Fund now launched in Australia focuses on companies with a market capitalisation of over US$1 billion. The Fund can hold between 25 – 60 investments at any one time. The minimum suggested timeframe for investors is seven years. The GEM Leaders Sustainability strategy was first launched outside Australia in April 2020 and currently has assets under management globally of A$376m (as at 31 August 2021).

Stewart Investors’ Sustainable Funds Group is a pioneer in sustainable investing, having launched its first sustainability fund in 2005. The Group is supported by the heritage of Stewart Investors, dating back to 1988. In its recent annual benchmark report, the Responsible Investment Association Australasia (RIAA), named Stewart Investors a ‘Responsible Investment Leader’, its highest designation. This acknowledges its commitment to responsible investing; explicit consideration of environmental, social and governance factors in investment decision making, strong and collaborative stewardship; transparency in reporting activity, including the societal and environmental outcomes being achieved.

The team aims to achieve positive social and environmental outcomes by avoiding companies that participate in harmful and controversial practices, as well as investing in, and engaging with, companies that support positive contributions – socially and environmentally – such as health and wellbeing, financial inclusion, waste, water and energy efficiency and renewable energy.

Jack Nelson, portfolio manager, Stewart Investors’ Sustainable Funds Group, said: “Emerging markets offer particular opportunities as well as challenges for investors.  Investing in these countries offers the opportunity to find high quality companies that are addressing sustainable development challenges earlier in their lifecycle than in developed economies. The political and economic environment of each country can vary significantly, and this has a direct impact on companies, so the context in which each operates needs to be given full consideration.  Having a strong focus on sustainability is therefore crucial in identifying the best opportunities, which we believe is the most effective way to protect and grow our clients’ capital over the long term.”

David Gait, portfolio manager, Stewart Investors’ Sustainable Funds Group, added: “We have seen significant appetite for our global emerging markets capability in Australia and, in particular, for an emerging markets fund that has a strong sustainability focus, which is a key point of differentiation from others in the market.”

The Sustainable Funds Group has its own microsite dedicated to their Sustainability Strategies. This includes an interactive map which allows easy access to details on the companies held in their strategies and how they are contributing to sustainable development. Users can filter the map by Sustainable Development Goals or individual company names. For each company the team holds, the investment rationale, sustainability positioning, risks and areas for engagement are provided.

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