Social Impact Investing

Public Equities
Generation Investment Management
financial First Investor
Investor
Multiple Investors
Profile: UK Envir. Agency
9-12% projected returns above
benchmark over 3 years
Equity
Impact Investment
Fund
Generation IM
15+% expected returns
Deal
Novo Nordisk
Area of Impact
Sustainability
Geography
Global
“[The] appointment
[of Generation IM]
evidences our opinion
that those fund
managers who seek
to take into account
financially material
environmental risks and
opportunities such as
climate change in their
investment decisions
will produce better
financial returns for
the beneficiaries of our
pension fund, and this is
entirely consistent with
our fiduciary duty’”
Howard Pearce
Head of Environmental Finance
and Pension Fund Management
for the Environment Agency
Multiple Investors
••
Generation IM’s investor group includes government agencies, foundations, high net worth individuals and
institutional funds
UK Environment Agency (http://www.environment-agency.gov.uk/pensions)
••
In 2008, the UK Environment Agency selected Generation IM to manage £50MM of its £1.5B Active Pension
Fund
••
Generation was awarded the investment mandate as part of the Agency’s drive to adopt the UN Principles for
Responsible Investment, which urge investors to consider environmental, social and governance (ESG) issues in
their investment decisions
Generation Investment Management (http://www.generationim.com)
••
Generation manages approximately $3.5B through their Global Equity Strategy and Climate Solutions Fund
••
The firm takes a long-term investment view and integrating sustainability research (economic, environmental,
social and governance criteria) within a rigorous fundamental equity analysis framework
••
As part of its long-term focus, the firm measures its performance over a 3-year time horizon
••
Generation’s concentrated approach allows maximum leverage of an intense research effort, and investments are
made only with high levels of conviction. The research effort is characterised by fundamental, bottom-up analysis
on companies based on primary and secondary financial and non-financial research
••
The Global Equity portfolio is comprised of 30-50 global public equities, which are selected on the basis of valuation
and potential upside from a Focus List of roughly 100 public companies
••
The Global Equity product has a typical investment horizon of 3 years, with no restrictions on size, sector or location,
with no more than 30% of their portfolio in small cap companies (defined as US $3B market cap or less)
••
In 2008, Generation launched the Climate Solutions Fund to complement the Global Equity product, deploying
capital to solve the climate crisis. The Climate Solutions Fund invests in private equities and restricted public
equities, in addition to public equity
Novo Nordisk (http://www.novonordisk.com)
••
Generation’s view on Novo Nordisk is based on its assessment of “business quality”(BQ) and “management
quality”(MQ), with sustainability issues a key component in the analysis of both these metrics
••
For Novo Nordisk, the company’s high BQ results from three principal factors: a market with good, long-term
volume growth; strong barriers to entry in diabetes due to manufacturing capabilities, patient loyalty and patent
protection; and a sustainable insulin strategy in developing markets that is built around prevention and patient
needs
••
Novo Nordisk’s management quality is similarly high: sustainability is deeply embedded within the company’s
management structure, and sustainable business practices have strong senior support (triple bottom line). The
high management quality is also a result of a strong culture of innovation and low staff turnover and an impressive
track record in stakeholder engagement
Impact
social/environmental impact
••
Intensive primary research is used to gather the qualitative and quantitative information needed
to make judgements on the sustainability of a business
••
The firm’s Industry Roadmaps examine the long-term outlook of specific industries and identify
the highest quality businesses and management teams and key sustainability challenges confronting
companies within the given sector
••
Generation does not disaggregate social returns from financial returns—the firm views sustainability
as material to the financial prospects of a company and sees it as critical to determining
an investment’s ability to deliver long-term outperformance
financial impact
••
Target is to outperform the market by
9-12% above the benchmark MSCI
World Index over 3 years (gross
of fees)
20
Investing for Impact: Case Studies Across Asset Classes