Investing for the right impact

(From left) Nomura Asset Management Malaysia Sdn Bhd assistant portfolio manager Mohd Aiman Anuar, Yap, Hisham and portfolio manager Amos Tan at the Breakfast Conference 2019.

THE global impetus for environmental, social and corporate governance (ESG) has produced a positive change as companies and organisations increasingly embrace responsible investing.

In simple terms, responsible investing is the deliberate practice of investing money in companies and funds that have positive environmental and social impact, as opposed to solely prioritising financial returns.

As a long-term investor, Nomura Asset Management aligns itself with this goal by focusing on investing sustainably and responsibly.

At the Breakfast Conference 2019: Investing for the Future Series 1.0 — Food, in Kuala Lumpur, Nomura Asset Management UK Limited’s chartered financial analyst Alex Rowe presented insights on “A Global Perspective on ESG Investing”.

He explained that Nomura’s approach to responsible investment had been solidifying over close to a decade since it became a signatory to the United Nations-supported Principles for Responsible Investment.

“Responsible investment gives consideration to the total impact of investee corporations on all stakeholders; this includes customers, suppliers, competitors, broader society, the environment and ourselves, ” said Rowe.

“It is our responsibility as a stakeholder to engage directly with the (investee) company. We can have an impact as an investor to push those companies towards better practices.”

He said they had achieved considerable success as a stakeholder through the ESG-aligned approach as those companies were now more aware of their weaknesses and strengths, and had adopted better practices.

Subsequently, he said that as stakeholders, they must consider the “holistic impact” when dealing with responsible investment.

“It is no longer acceptable to not take responsibility of their (companies’) practices and total impact.

“In the past, we thought primarily about the shareholders, and now being responsible stakeholders, we have to think about the impact on everybody, which includes employees, society, the environment, suppliers and customers.”

Rowe emphasised: “It is not about giving up returns. It is all about making returns responsibly and caring about the impact to other stakeholders.”

Global champions of tomorrow

Nomura Asset Management Malaysia Sdn Bhd portfolio manager Hisham Hamzah delivered his thoughts on “Investing for the Future” and a case study on salmon farming.He said the long-term investment returns were set to be more challenging and that technology disruptions were increasing at an exponential rate while the overall demographic was evolving as a result of increased life expectancy.

“Given all these changes, the approach to long-term investing needs to be changed as well.”

Using Nomura’s proprietary Global Investment Methodology, the team ensures that long-term investments are focused on “secular growth” themes. These are industries and companies that are able to leverage their competitive edge and are able to grow sustainably into the future.

He cited investment themes such as the new generation of consumers, technology (software, hardware and the Internet) and healthcare (med-tech and pharma) as good examples. “For instance, rather than relying purely on the timing of global macro to generate returns, these companies actively look for investments that will be able to grow earnings in spite of a slowing global economy.”

Hisham stressed on the importance of selecting the right active investment managers to identify the potential “global champions of tomorrow.”

In keeping with the sustainability theme for the day, he showcased how Nomura’s Global Investment Methodology could be applied to investments.

The case study on salmon farming (new consumer) showed attractive supply side dynamics, combined with long-term expected growth in demand (secular growth).

According to Hisham, various environmental restrictions such as water temperature and water current strengths have resulted in limited supply growth of salmon in the world, with only Norway, Chile, New Zealand, Australia, Canada and Scotland having environments conducive for salmon farming.

He said Europeans ate 2kg of salmon per person per year, Americans consumed 1.3kg while mainland Chinese only took 40g.

“Hence we should expect the current 7% growth in the annual demand of salmon to continue, driven by emerging market consumers. The increase in demand should outgrow the production of salmon which would be beneficial to price and the investment thesis.

Nomura business development head Choo Yuan Ling supported the case for the sustainability of Norwegian salmon farming as positive for the environment as it has the lowest carbon footprint compared to other proteins.

This was because water consumption needs for salmon farming were relatively low while still providing a high edible yield when compared to other sources, Choo explained.Global equity team

Nomura Asset Management Malaysia Sdn Bhd investment head Leslie Yap said the company had a four-man global equity team in Kuala Lumpur working with Nomura’s offices in London and Tokyo. “We research and generate investment ideas, manage clients’ money in global equities for Malaysia and outside of Malaysia.”

Yap revealed that the majority of Malaysian investors felt secure investing in their home country while feeling hesitant of investing globally and in overseas ventures.

“We have the ability and expertise to invest on their behalf to potentially help generate better returns, to manage and invest for people who are interested in both domestic and global equities as well as fixed income, ” he said.

Nomura Asset Management reiterated that they were committed to responsible investment and creating a better tomorrow for the benefit of all stakeholders.

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