The managers of top performance Baillie Gifford Positive change Funds not only try to avoid companies that have a negative impact on society, but actively look for companies that do good, explains Catherine Flockhart, director of the fund group.
Flockhart accompanied us (virtually) in the Citywire studio to our event in collaboration with Baillie Gifford, Finding growth stocks that can change the world. You can see the full broadcast Here.
She explained how the managers of the £ 1.3 billion fund, which has grown 200% since its inception in 2017 and is doing best in the Investment Association’s global sector, looked for companies they believed they would generate high investment returns but also have a positive impact on society.
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Daniel Grote: I think the key question is how do you then assess the positive impact of a company. So when you look at Baillie Gifford Positive Change, unlike some ethical funds that are really just trying to avoid companies doing bad things, you are actively looking for companies doing good things. Catherine, why this approach and how do you measure it because it is probably more difficult. If you’re a fund that simply eschews cigarette makers or arms makers, it’s relatively easy to do, but it’s harder to define, measure, and monitor a company’s positive impacts.
Catherine Flockhart: There’s a lot in that. Why are we taking this really positive and proactive approach by only choosing companies that are doing something good for the world. It’s simply because we believe in it. We believe this will help us. It is simply more information for us to choose the best companies, but we also believe this is the right one. We want to invest in a future that will be better for future generations. In our opinion, finding the amazing companies that drive the shift to investing really makes you progress.
Orsted, the world leader in renewable wind energy, or some amazing healthcare companies developing treatments for conditions that have not been treated before. We want to invest in transformation companies that really bring about change.
We don’t just want to filter out the worst criminals, alcohol, tobacco and defense companies. For us this is not really progress. That is why we are following the approach we are taking. How do we measure this? Well, I also think I’ll just come back to this point about what effects are. For us, we’re looking for companies that Damien has already alluded to, but we’re looking for companies that create change through their core products and services.
So there are a lot of fantastic companies that are good companies. They are well run businesses, but they don’t necessarily face a particular challenge with their core products and services. They are great companies, but we only want to invest in companies that address key areas such as social inclusion and education, the environment, health care, and helping the world’s poorest people.
As we measure this over time, we will select a key metric for each company in the portfolio and disclose it each year through our annual Impact Port, which you can find on our website. For example, we’ve shown that Teladoc, a US-based telemedicine company in its portfolio, delivered over 4 million virtual appointments last year with an average cost savings of over $ 470 each, or in the case of Orsted, I just mentioned renewable wind power, we would talk about carbon savings. We also show the contribution of participations to the United Nations Sustainable Development Goals, which I suspect 60% of viewers invested in Impact Funds are increasingly familiar with a common language. Then we summarize this information.
So on our website you will again find an impact indicator that tells you, if you had invested in our strategy in the last year, how many patients you would have supported with the treatment, how much financial inclusion you would support the promotion, how many tons of carbon would you help save? The entire portfolio delivered 170 million tons of CO2 savings last year, which corresponds to a purchase of more than 25 million passenger cars. So we can give an indication and record the actual progress.
It is important to say that measuring impact and including discipline is early stage and not perfect. There is also no such thing as a perfect company. Therefore, we will also disclose the negatives associated with the companies in the portfolio. So it’s all about transparency. An impact can’t always be quantified and we shouldn’t shy away from investing just because we can’t mistakenly put an exact number on something, but what we really want to do and I really see that the industry is in an industry moving One positive direction here is to provide the fund’s investors with this concrete evidence that we are making progress in the relevant areas.
Baillie Gifford: How do we view the positive impact of companies?