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Finding the value in waste
A new take on environmental, social and governance (ESG) investing has emerged with the launch of a fund tackling sustainable opportunities in the water and waste management sectors. Fidelity International recently launched the Fidelity Sustainable Water and Waste Fund in Australia. In what is an under-researched sector, the fund seeks to deliver strong risk-adjusted returns across the cycle by investing globally in companies involved in the design, manufacture, or sale of products and services in the water and waste management sectors. Portfolio manager Bertrand Lecourt says: “Investment opportunities in these sectors are driven by ever-increasing demand for clean water and sanitation needs, as well as a better ability to manage the waste created by populations growing larger, wealthier and increasingly urbanised. The team uses a rigorous bottom-up stock selection process to select 35 to 50 companies that exhibit quality and growth, with an emphasis on sustainable investments. In addition, the team integrates ESG into the fund’s investment and risk processes which leads to superior sustainable portfolio characteristics. “There is no economy without water and there is no sustainable economy without waste management,” Lecourt says. It offers clients strong diversification away from global equities and provides investors with growth potential from global mega-trends trends such as urbanisation, increasing regulation, health needs, a growing middle class and consumption. There is now an increased need for clean water and better ability to manage the waste created. In addition, higher health standards regulation creates value for new services and technologies “The story of water and waste is as old as the story of civilisation, yet companies in this sector remain relatively unexplored by investors,” Lecourt says. Alva Devoy, managing director at Fidelity Australia says that clients expect the company to evaluate companies and management not only on their financial merit but on their approach to ESG. Fidelity has responded to client demands by increasing its focus on sustainable investment analysis including a proprietary ESG sustainability company ratings. The ratings provide a forward-looking evaluation of a company’s trajectory on ESG. “Australian investors are increasingly focused on environmental concerns in particular, as they become more aware that their investments can have a direct impact on the important topics of climate change and water scarcity,” Devoy says. The fund tracks the MSCI All Country World Index (N) and opened to Australian investors on 1 June and has already had inflow of over $3 million. The management costs are 1.05 per cent per annum.
Even a passive portfolio consisting entirely of Aussie equities can provide some of the defensive