It is important to look for those rare companies which can maintain returns on equity while growing when it comes to investing sustainably, Peter Michaelis has claimed.
During an interview with Ellie Duncan, deputy features editor for Investment Adviser, the head of equities for Alliance Trust Investments said it was important to focus on growth.
“Using sustainability of environmental, social and governance (ESG) factors helps in two ways. It helps us to identify long-term growth trends and find areas of strong growth, for example companies exposed to reducing pollution from cars, manufacturing innovative medical treatments or the growth in demand for IT security solutions.”
Secondly, he said there is the analysis of ESG factors to identify high-quality management. Within different sectors there are different elements - for example in the energy sector it is about health and safety.
“We do this analysis because it helps us identify high quality management in a way we would not have been able to identify this otherwise”, Mr Michaelis said.
Companies favoured by the equity team therefore include those who have “strong operational management”.
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When asked if there was increasing pressure on asset managers to incorporate ESG factors into their stock selection process, Mr Michaelis stated “definitely”.
“This is coming from two areas”, he added. “Firstly, it helps performance. Certainly when we look at our own funds over the past five years, every single one of our equity funds is outperforming its peers.”
He also quoted a Morgan Stanley study done in 2015, which showed over the majority of timeframes, sustainable funds “outperformed conventional funds or had a lower volatility - or a combination of the two”.
The second point he made was owners of assets realise they “have to be stewards of those assets and responsible for the companies in which they have ownership stakes.
“The way they invest today affects the economy and society which we will inherit in the future.”
Mr Michaelis was also asked about the changes to parent Alliance Trust Plc in response to shareholder pressure.
He said: “All I can say in respect of Alliance Trust Investments, 2015 was one of our best years ever in terms of investment performance. We are very happy to be judged on investment performance.”
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