Sustainable strategies with a focus on tomorrow
Aegon Asset Management: built around ESG
At the forefront of responsible investing
ESG 3D - Aegon Sustainable Equity Strategy
Aegon AM has a deep heritage in ethical and sustainable investing. In this booklet, you will discover how the asset manager’s global sustainable equity team is finding tomorrow’s sustainability leaders today, while helping to support a better future. We examine new regulations that aim to define what constitutes a responsible investment, and show how Aegon AM’s evolution as a global asset manager under a single brand is reinforcing its significant resources and credibility in responsible investing.
What's the strategy about?
INVESTMENT PROCESS
The three dimensions of sustainability
Time to let the ‘S’ in ESG shine
Investing for the good of the environment has been thrust into the spotlight throughout the pandemic, but investors shouldn't overlook the importance of the 'social' aspect of ESG investing, which ensures investing benefits people.
The hunt for ESG’s ‘sustainable improvers’
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Investing with a sustainable ethos is a way to generate alpha, but it isn't just about backing today’s leaders. Identifying companies that are improving can identify the sustainability leaders of tomorrow.
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FUNDS 3D >>
DIGITAL BOOKLET >>
THE PROCESS IN ACTION
A distinctive approach to stock-picking
A GENUINELY DIFFERENT APPROACH
What do we bring to the table?
FUND FACTS
AEGON SUSTAINABLE EQUITY STRATEGY
Sustainability differently
As one of the world’s leading managers of responsible investment funds, Aegon AM is positioned to bring over three decades of experience to meet investors’ needs for ESG investing, with a focus on the leaders of both today and tomorrow.
Now available as a UK-domiciled fund , Aegon AM’s sustainable equity strategy brings a successful five-year record from its Dublin-domiciled Fund. It offers something different through its focus on mid and small-cap improvers. Read on to find out how the focus on Products, Practices and Improvement gives a three-dimensional view of companies’ sustainable growth prospects, and also serves as a way of adding alpha. Aegon AM’s deep heritage as an industry-leading responsible investor and focus on high-conviction investing with an emphasis on products, practices and Improvement are what sets it apart from other ESG-themed investment propositions.
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HOME TIME TO LET THE 's' in ESG SHINE THE HUNT FOR ESG's 'SUSTAINABLE IMPROVERS' Aegon ESG 3D AEGON SUSTAINABLE EQUITY STRATEGY FUND FACTS INVESTMENT PROCESS The process in action A genuinely different approach Aegon DIGITAL BOOKLET At the forefront of responsible investing Leading the green revolution Finding tomorrow’s leaders today One giant leap for ESG Responsibility beyond borders
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For Professional Clients only and not to be distributed to or relied upon by retail clients. The principal risk of these products is the loss of capital. Please refer to the KIID and/or prospectus or offering documents for details of all relevant risks. For all documents please see www.aegonam.com/documents Past performance is not a guide to future performance. Outcomes, including the payment of income, are not guaranteed. All investments contain risk and may lose value. Responsible investing is qualitative and subjective by nature, and there is no guarantee that the criteria utilised, or judgement exercised, by any company of Aegon Asset Management will reflect the beliefs or values of any one particular investor. Responsible investing norms differ by region. There is no assurance that the responsible investing strategy and techniques employed will be successful. Investors should consult their investment professional prior to making an investment decision. Opinions and/or example trades/securities represent our understanding of markets both current and historical and are used to promote Aegon Asset Management's investment management capabilities: they are not investment recommendations, research or advice. Sources used are deemed reliable by Aegon Asset Management at the time of writing. Please note that this marketing is not prepared in accordance with legal requirements designed to promote the independence of investment research, and is not subject to any prohibition on dealing by Aegon Asset Management or its employees ahead of its publication. Aegon Asset Management UK plc (Aegon AM UK) is authorised and regulated by the Financial Conduct Authority and is the Authorised Corporate Director of Aegon Asset Management ICVC. Aegon Asset Management Investment Company (Ireland) Plc (AAMICI) is an umbrella type open-ended investment company which is authorised and regulated by the Central Bank of Ireland. Aegon AM UK is the investment manager for AAMICI and also the marketer for AAMICI in the UK.
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For many years the ‘S’ of ESG has felt like an after-thought, but the pandemic is now bringing companies’ social responsibilities to the fore
Miranda Beacham, head of ESG for equities and multi-asset at Aegon Asset Management
‘As a result of the pandemic, it’s been very interesting to get a proper insight into the ‘S’ of the ESG’
The Covid-19 pandemic has pushed the often-overlooked ‘S’ of environmental, social, and governance (ESG) into the spotlight, but asset managers will have to work hard to ensure ongoing transparency. The global pandemic has led to a surge of interest in ESG-themed funds as investors renewed their focus on investing in a way that is good for the planet and people, as well as their pockets. In particular, the ‘social’ part of ESG was played out for all to see, said Miranda Beacham, head of ESG for equities and multi-asset at Aegon AM and co-founder of the group’s first ESG team in 2000. ‘As a result of the pandemic, it’s been very interesting to get a proper insight into the ‘S’ of the ESG,’ said Beacham. ‘For a long time, the ‘S’ has been the poor relation of ‘E’ and ‘G’, where there’s been far greater information and the only way to understand these social aspects has been through looking at the policies and looking at the audit procedures. So, being able to understand, in very real terms, how companies have had to look after all their stakeholders throughout the pandemic, has been very interesting to me, personally, and also to the industry.’ However, she warned that the industry would now have to ‘work to keep up the momentum’ to ensure the ‘transparency’ that has come about in the pandemic regarding social issues continues.
The focus on ‘social’ does not just apply to the companies that Aegon Asset Management invests in, said Stephen Jones, Chief Investment Officer at the asset manager. He said the ‘balance between running our own business and investing ethically and responsibly is in no way contradictory’ and in fact there was ‘perfect alignment’, with Aegon AM focusing on the same topics as investee companies. ‘Importantly, more recently, we’ve sought to focus on the ‘S’ in ESG, the social side of the series of themes, in our own business,’ he said. ‘That is a focus on inclusion and diversity, on leading programmes that promote balance in our workforce and promote young, new starts into our workforce from diverse backgrounds.’
While there is heightened focus on ESG across the investment industry, Jones said ‘the problems that we face are global in nature, but there is no one global answer at the moment’, with a series of ‘fragmented approaches’ emerging from different parts of the world. However, a global organisation like Aegon AM has ‘a strong basis in each of those areas and we benefit from being part of the evolving debate and conversations about how we tackle the threats and challenges we see from environmental change and from social tension’. For Citywire A-rated Audrey Ryan, manager of the Aegon Ethical Equity fund, it has already been demonstrated that investing ethically ‘does not bring with it a long-term performance penalty’ but she is committed to reviewing what ‘ethical’ means for investors. Every two years Aegon AM engages with investors to ask: ‘are the ethical principles that we look for still relevant and fit for purpose in the market we are currently operating within?’. ‘It also allows us to engage with our clients and understand what other issues may be at the forefront of their minds,’ said Ryan. Ryan has managed the £680m fund* since 1999, which currently employs 12 client-led exclusions, including nuclear power, gambling, alcohol, and tobacco. The latest investor survey published at the end of June revealed ‘continued strong support for the existing approach’.‘In fact, looking across those 12 principles, on average, there was 72% acceptance of retaining the current status that we have,’ said Ryan. Whichever principles are key for investors, Beacham said the investment team at Aegon AM believes that ESG as an overall theme can help drive returns, and they have been taking this into consideration for over 30 years, since the Aegon Ethical Equity Fund was launched. It was followed by ethical corporate bond and balanced managed funds, as well as a global sustainable equity and multi-asset funds. ‘We believe that if we see improvements, we should therefore, see better valuations which is to our benefit, to our clients’ benefits, and because it is ESG, it’s to society’s benefit as well,’ she said.
*Source: Aegon Asset Management as at 31 August 2021
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Hunting for ESG-friendly investments isn’t just about finding today’s leaders, but also discovering the ‘sustainable improvers’ who will be tomorrow’s winners, according to Aegon Asset Management.
Iain Buckle, co-manager, Aegon Ethical Cautious Managed and Aegon Ethical Corporate Bond funds
‘We’ve now got over 15% of our fund invested in ESG-labelled debt. I can see that continuing to grow, perhaps by the end of the year, hopefully, over 20% or 25%’
Hunting for ESG-friendly investments isn’t just about the ‘sustainable leaders’ but the ‘sustainable improvers’, according to Aegon AM’s global sustainable equity manager, Malcolm McPartlin. McPartlin co-manages the Aegon Global Sustainable Equity Fund, which after being domiciled solely in Dublin since launch five years ago, is now available as a UK-domiciled strategy as the Aegon Sustainable Equity Fund. He said the fund’s philosophy is ‘quite simple’: ‘We believe sustainability is a source of alpha.’ The investment team behind the fund considers ‘three dimensions of sustainability: products, practice, and improvement’.‘We very much focus on products,’ said McPartlin. ‘That’s where we think companies can have the most positive impact on society and the environment.’ McPartlin runs a concentrated portfolio of just 40 high-growth stocks, but he said ‘the hurdle for inclusion in the portfolio has risen over the last five years, but the key message is consistency’. He called the fund ‘distinctive’ because he focuses ‘not just on sustainable leaders but [also] sustainable improvers’. These are ‘typically a slightly earlier stage company with a good strong sustainable product story, but slightly less developed, in terms of some of their practices and some of their reporting’. ‘We see that as an opportunity,’ he said.
The growth focus also sees McPartlin naturally lean towards smaller and mid-cap companies, once again setting him apart from peers who tend to have a large-cap bias. Aegon AM has also brought a sustainable approach to multi-asset investing. ‘We’ve integrated some of the sustainability themes in our portfolio selection too,’ said Nick Edwardson, senior product specialist in the Aegon AM multi-asset team. ‘Latterly, we’ve fully transitioned one of our multi-asset solutions, a diversified growth strategy, to an expressly sustainable philosophy because we believe that its growth orientation is well-suited to leveraging the sustainability themes that are
increasingly prevalent in society. Themes which we believe are going to be permanent and can help drive returns for investors.’ The transition saw the Aegon Diversified Growth fund become the Aegon Sustainable Diversified Growth fund in March 2021. The multi-asset team uses a collaborative approach, with Aegon AM’s asset class specialist there to ‘kick the tyres’ of companies, including ESG analysis. The responsible investing team leads on ‘the design, the development of our understanding of responsible investment’ and advises on policy. ‘Importantly, they drive the active engagement with those companies, which is rightly an increasingly important part of what we do,’ said Edwardson. ‘So for us, in multi-asset, those teams are vitally important and not least within our specifically Sustainable Diversified Growth fund, where the responsible investment team are the sole arbiters, ultimately…because of the importance of the sustainability screen and how that’s implemented within the strategy.’ While ESG investing may conjure up ideas of shareholder votes and activist investing, it is also becoming a mainstream part of other asset classes. Iain Buckle co-manages the Aegon Ethical Corporate Bond Fund, which was launched in 2000, and the Aegon Ethical Cautious Managed Fund, which followed in 2007. He said fixed income investors had ‘put in a lot of work, put in a lot of resources in the last two to three years to improve the way they analyse ESG risks’. Buckle said there has been an ‘incredible rise’ in the issuance of ESG-labelled debt, such as green bonds, sustainable bonds, and social bonds, due to increased demand, and they happen to be ‘natural investments for our funds’, particularly the sustainable funds. Green bonds have been issued across a wide range of sectors and Buckle said that has ‘allowed us to get critical mass in that sector’. ‘We’ve now got over 15% of our Ethical Corporate Bond Fund invested in ESG-labelled debt. I can see that continuing to grow, perhaps by the end of the year, hopefully, over 20% or 25%,’ he said. Aegon AM has also launched a short-dated investment grade bond fund, which Buckle said recognises long-term low interest rates. ‘We wanted to offer a product which not only had a much lower carbon footprint than the potential universe of assets, but also, one which tried to identify those companies which, perhaps are doing the best job to position their businesses for a much lower-carbon world,’ he said. ‘Particularly in some of the higher impact sectors like utilities and oil and gas.’
The focus on ‘social’ does not just apply to the companies that Aegon Asset Management invests in, said Stephen Jones, Chief Investment Officer at the asset manager. He said the ‘balance between running our own business and investing ethically and responsibly is in no way contradictory’ and in fact there was ‘perfect alignment’, with Aegon AM focusing on the same topics as investee companies. ‘Importantly, more recently, we’ve sought to focus on the ‘S’ in ESG, the social side of the series of themes, in our own business,’ he said. ‘That is a focus on inclusion and diversity, on leading programmes that promote balance in our workforce and promote young, new starts into our workforce from diverse backgrounds.’ While there is heightened focus on ESG across the investment industry, Jones said ‘the problems that we face are global in nature, but there is no one global answer at the moment’, with a series of ‘fragmented approaches’ emerging from different parts of the world. However, a global organisation like Aegon AM has ‘a strong basis in each of those areas and we benefit from being part of the evolving debate and conversations about how we tackle the threats and challenges we see from environmental change and from social tension’. For Citywire A-rated Audrey Ryan, manager of the Aegon Ethical Equity fund, it has already been demonstrated that investing ethically ‘does not bring with it a long-term performance penalty’ but she is committed to reviewing what ‘ethical’ means for investors. Every two years Aegon AM engages with investors to ask: ‘are the ethical principles that we look for still relevant and fit for purpose in the market we are currently operating within?’. ‘It also allows us to engage with our clients and understand what other issues may be at the forefront of their minds,’ said Ryan. Ryan has managed the £680m fund* since 1999, which currently employs 12 client-led exclusions, including nuclear power, gambling, alcohol, and tobacco. The latest investor survey published at the end of June revealed ‘continued strong support for the existing approach’.‘In fact, looking across those 12 principles, on average, there was 72% acceptance of retaining the current status that we have,’ said Ryan. Whichever principles are key for investors, Beacham said the investment team at Aegon AM believes that ESG as an overall theme can help drive returns, and they have been taking this into consideration for over 30 years, since the Aegon Ethical Equity Fund was launched. It was followed by ethical corporate bond and balanced managed funds, as well as a global sustainable equity and multi-asset funds. ‘We believe that if we see improvements, we should therefore, see better valuations which is to our benefit, to our clients’ benefits, and because it is ESG, it’s to society’s benefit as well,’ she said.
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Andrei Kiselev
BIO +
Malcolm McPartlin
Andrei Kiselev is an investment manager in the global equities team with responsibility for co-managing our Global Sustainable Equity strategy. He joined the industry in 2009 and us in 2020 from Border to Coast Investment Partnership, where he worked as a Senior Research Manager in global equities. Prior to Border to Coast Investment Partnership, he worked for Baillie Gifford as an Investment Manager in global and US equities. Andrei has a MA in Economics from Edinburgh University.
Malcolm McPartlin is an investment manager in the Equity team, with responsibility for co-managing our Global Sustainable Equity and UK Equity Absolute Return strategies. His sector research has a particular focus on disruptive companies in tech and media and he also feeds into our UK strategy and global asset allocation decisions with the CIO. Malcolm joined the industry in 2002 and us in 2003 from Scottish Equitable where he was an assistant business analyst. He studied Financial Services at Napier University.
Meet the team
FUND FACTS What’s the strategy about?
INVESTMENT PROCESS The three dimensions of sustainability
The process in action A distinctive approach to stock-picking
A genuinely different approach What do we bring to the table?
The Aegon Sustainable Equity Strategy looks beyond the most widely held companies in the ESG universe to identify the global sustainability leaders of tomorrow. Launched in 2016, this strategy has a five-year record of success and is now available through a UK-domiciled fund structure.
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Aegon Sustainable Equity Strategy
Terms & Conditions
What’s the strategy about?
Fund Facts
The principal risk of these products is the loss of capital. Please refer to the KIID and/or prospectus or offering documents for details of all relevant risks. For all documents please see www.aegonam.com/documents Past performance is not a guide to future performance. Outcomes, including the payment of income, are not guaranteed. All investments contain risk and may lose value. Responsible investing is qualitative and subjective by nature, and there is no guarantee that the criteria utilised, or judgement exercised, by any company of Aegon Asset Management will reflect the beliefs or values of any one particular investor. Responsible investing norms differ by region. There is no assurance that the responsible investing strategy and techniques employed will be successful. Investors should consult their investment professional prior to making an investment decision. Opinions and/or example trades/securities represent our understanding of markets both current and historical and are used to promote Aegon Asset Management's investment management capabilities: they are not investment recommendations, research or advice. Sources used are deemed reliable by Aegon Asset Management at the time of writing. Please note that this marketing is not prepared in accordance with legal requirements designed to promote the independence of investment research, and is not subject to any prohibition on dealing by Aegon Asset Management or its employees ahead of its publication. Aegon Asset Management UK plc (Aegon AM UK) is authorised and regulated by the Financial Conduct Authority and is the Authorised Corporate Director of Aegon Asset Management ICVC. Aegon Asset Management Investment Company (Ireland) Plc (AAMICI) is an umbrella type open-ended investment company which is authorised and regulated by the Central Bank of Ireland. Aegon AM UK is the investment manager for AAMICI and also the marketer for AAMICI in the UK.
High conviction sustainable alpha
Sustainability
Stocks 35-45
Maximise stock-specific risk Investable stocks 100 35-45
Ideas
Deep dive
Alpha potential
Team debate
Research & debate
Stock ideas 900 100
Optimise
Analyse
Screen
Sustainable product exclusions
Aegon screen
Stock-picking
Portfolio construction
Investable universe 4,000 3,350
Investable universe 3,350 900
High conviction sustainable portfolio
Our global sustainable investment process
**Source Aegon Asset Management as at 30 June 2021
Aegon AM is one of the world’s leading managers of ESG-themed portfolios, with over three decades’ experience of managing specialist ethical and sustainable funds. **Over 50% of the firm’s total assets are in ESG or responsible investing-specific mandates. The Aegon Sustainable Equity Strategy offers a high-conviction growth-focused portfolio of 35-45 companies with the theme of sustainability running through each position. While many peers focus on large cap stocks, the fund skews towards small and mid-cap disruptive growth companies. Co-managers Malcolm McPartlin and Andrei Kiselev blend sustainability ‘leaders’ with ‘improvers’, providing a portfolio of innovative and disruptive companies which are helping to meet some of the world’s most pressing sustainability challenges. “A lot of the market gravitates towards sustainable leaders, but we favour backing earlier stage companies that have products we view as revolutionary, rather than waiting until they’ve matured. We can provide capital, patience and expertise to companies that have the potential to change the world and are at an early stage in their development. This is also a way to generate alpha,” said McPartlin.
Sustainability analysis is key to the process, and this is based on materiality, giving a holistic picture of true ESG impact. Ratings are tailored for each company, with varying weights for E, S and G factors. KPIs are identified to track progress over time. The strategy’s global reach opens up a wide opportunity set, that differs from many peers. For example, the portfolio currently holds none of the so-called ‘FAANG’ stocks (Facebook, Amazon, Apple, Netflix and Google). After a successful five-year track record**, the strategy is now available as a UK-domiciled fund, giving the UK market access to a unique and differentiated ESG product as well as the full weight of Aegon AM’s research and institutional oversight.
Strong long-term performance
31.68%
22.71%
104.41%
40.06%
175.88%
214.74%
110.61%
83.65%
1 year
3 years
5 years
Since Launch
Aegon Global Sustainable Equity Fund B Acc GBP** MSCI AC World TR GBP
**Source: Lipper, NAV to NAV, noon prices, income reinvested, net of ongoing charges, excluding entry or exit charges as at 30 September 2021. Launch date: 21 April 2016. Performance is shown for the Aegon Global Sustainable Equity fund as an example of the strategy and is in the Investment Association Global sector.
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Important Information: For Professional Clients only and not to be distributed to or relied upon by retail clients.
The investment process focuses on products, practices and improvement, leading to the categorisation of each company we research as a sustainability leader, improver or laggard.
The most important aspect is products: “We think the most impact a company can have on sustainable trends is through the products and services they sell. So we’re looking for companies that have really strong sustainable products, first and foremost,” McPartlin said. “What impacts do those products have on the world? What sustainable problems are they trying to solve? Are they a key enabler of sustainable change?” Materiality is key – focusing on what matters most to each company rather than a one-size-fits-all approach. The ‘practices’ element assesses how the company goes about achieving these goals: how effectively does the company operate, in sustainability terms? How does it treat stakeholders, which means not only employees and suppliers but also the community and environment? The ‘improvement’ element is vital: these are typically companies with strong sustainable products, but room for improvement on sustainable practices. “This could be a company with a great climate change technology or innovative medical device, but they don’t yet have perfect ESG disclosures or a sustainability report. We understand that for many small and mid-cap companies, perfect sustainability practices will come after they’ve established their businesses and technologies,” McPartlin said. To provide further oversight, Aegon AM’s independent responsible investment team is integral to the investment process, with the power to challenge and ultimately veto any holding on sustainability grounds.
1
Sustainable products
4,000 Global universe
18
650 550-1,000 2,600-2,800 Investable universe
Best
Worst
Sustainable practices
Laggards
Improvers
Leaders
Sustainable improvement
Exclusions
The process in action
The investment process is underpinned by a team-based approach and proprietary research – a core team of nine investment professionals, with on average 16 years’ industry experience* and strong track records of sustainable and ESG investing. This informs the team’s approach of ‘looking beyond the obvious’. ‘Large companies can score well on a range of sustainability measures, but can offer products and services which are inherently unsustainable. At Aegon AM we look beyond a company’s practices to consider the sustainability impacts of the products and services they offer,’ McPartlin said. An example of this in action is Kornit Digital, whose products and services directly help to reduce the environmental impact of the fashion industry.
79
118
1,715
2,791
92
148
+52%
+50%
+63%
Water consumption (bn m3)
Energy emissions (m tons)
Waste creation (m tons)
2015 2030
Source: BCG & CFA. As at 31 January 2020
*As at 1 July 2021
Environmental impact of fashion industry is growing rapidly
The managers set rigorous performance indicators, which form the basis of engagements and ongoing reviews of holdings. Engagement is a fundamental part of the process, McPartlin said. “We engage on three levels. Where there are issues that prevent us from investing, we engage to encourage improvement to acceptable levels. If we invest, it is a natural part of our ongoing monitoring: we continually track via the KPIs we have established. The third level is thematic: we engage widely with the market on broad issues, such as diversity.”
strong sustainability story here that we think is not recognised to its full potential in the market,” McPartlin said. “Kornit contributes directly to furthering a number of UN Sustainable Development Goals, the targets set by the UN to improve the future of the planet, and the main metric for assessing impact investing.”
The fashion industry has a huge environmental impact: water used in garment production accounts for roughly 20% of waste water globally: enough to fill the Mediterranean every two years! Kornit’s transformational technology uses waterless inkjet printing to print directly onto fabrics, saving water and also reducing supply chains to cut the environmental footprint of shipping clothes around the world. Despite this, the stock doesn’t score particularly well on traditional ESG metrics. “There is a really
A genuinely different approach
Aegon Asset Management has a rich heritage in ESG investing and a distinctive approach, blending sustainability leaders with the superior performance potential of sustainability improvers. As a firm, Aegon AM is committed to generating alpha sustainably.
As of 30 June 2021. *Assets under management/advisement excludes joint ventures. Total responsible investment solutions includes £166.5 billion of strategies with exclusions, £6.5 billion of best-in-class strategies, £2.2 billion of sustainability-themed strategies as well as £2.7 billion of impact investments.
£336 billion
Total assets under management/advisement
15
Locations across Europe, the Americas and Asia
30+
Years of responsible investing
£178 billion
Total assets in responsible investment solutions*
1,200
Employees serving clients worldwide
Product specific
All investments
Sustainability-themed
Best-in-class
Impact investing
Solutions
+Ex-post reporting
ESG Integaration
Active ownership
Responsible investment
ESG integration
As of December 31 2020 Assets under managment/advertisment excludes joint ventures Responsible
Our responsible investment approach
The Aegon Global Sustainable Equity strategy is a long-term, growth-focused strategy with a high active share, significant weightings in small and mid-cap stocks, and a strong sustainability story behind every holding. A genuinely differentiated portfolio whose disruptive growth, small and mid-cap skew makes it complementary to more traditional sustainable and large-cap-focused funds
Discover how Aegon AM’s global sustainable equity team is finding tomorrow’s sustainability leaders today
For professional investors only
Leading the green revolution
Responsible investing pioneer Aegon AM continues to lead the way:the firm’s decades of experience and in-depth knowledge means it takes a truly differentiated approach
The Covid-19 pandemic may have shifted collective priorities towards a greener future, but the outbreak has just proved something that Aegon Asset Management has known for three decades: responsible investing (RI), while good for the planet and for people, also has the potential to fuel returns for investors. Aegon AM has more than three decades’ experience in offering specialist RI funds. It launched its first ethical fund in 1989 and now offers a range of ethical and sustainable strategies across equities, fixed income and multi-asset. These include the Global Sustainable Equity, Sustainable Equity, Sustainable Diversified Growth, Ethical Corporate Bond, Ethical Equity, and Ethical Cautious Managed funds. However, being a pioneer in this space does not mean Aegon AM has rested on its laurels. In 2020 it developed a global responsible investment framework and an environmental, social and governance (ESG) framework for securitised credit research. Aegon AM’s global head of responsible investment, Brunno Maradei, said the corona virus outbreak meant that last year ‘could have been a pause in the growth of the RI industry’. ‘Instead, we saw an explosion in interest, partly fuelled by the resilience of sustainable portfolios during the economic shock we lived through,’ he said. It was not just the global pandemic that made investors sit up and take notice of the impact of climate change, as the world dealt with crashing oil prices, wildfires in Australia and the US, and devastating storms around the world.
*As at 30 June 2021. Assets under management/advisement excludes joint ventures. Total responsible investment solutions includes £166.5bn of strategies with exclusions, £6.5bn of best-in-class strategies, £2.2bn of sustainability-themed strategies as well as £2.7bn of impact investments.
‘These events point us to an inescapable conclusion,’ said Maradei. ‘ESG issues are expected to have a material impact on markets and valuations. That is why, amid the turmoil, we continued our work to capture ESG value and risk, while hopefully contributing to a more sustainable world. ’While the increasing natural disasters speak for themselves, there is also a growing body of research that shows that sound ESG practices can benefit corporate financial performance in the long term, while reducing operational and reputational risks. For Aegon AM, the integration of ESG factors within fundamental research on companies can make the difference between uncovering or overlooking opportunities; the firm has a cultural belief that future profitability and creditworthiness cannot be accurately predicted if ESG factors are ignored. The importance of RI within Aegon AM is backed up by statistics: of the £336bn of assets it manages worldwide, £178bn is in RI solutions*. The managers of the money take their job as keepers of ESG seriously and completed 575 company engagements in 2020 and voted in 2,511 company meetings. The tireless work of the 17-strong RI team has been acknowledged by a number of third-party institutions, including provider of ESG research and ratings Sustainalytics, which gave Aegon AM’s RI policy a score of 100 out of 100. ShareAction, which promotes RI, awarded the group sixth place in an analysis of 75 global managers for performance across stewardship, transparency and governance. RI is ingrained in Aegon AM’s investment processes, and as stewards of investors’ money, it is critical all risks are considered when investing, including ESG factors, which provide a holistic understanding of a company that is necessary to realise long-term gains. Identifying financially material ESG factors within the decision-making process is only the first pillar in a three-stage process. The second is around active ownership, and the RI team engages with companies to exercise shareholder rights. The third is providing solutions to investors through four different types of strategies: • Exclusions: using negative screening to avoid certain sectors, companies, or practices. • Sustainability themes: investing in companies whose activities or practices are aligned with sustainability themes. • Best-in-class ESG: using positive screening to invest in companies with better or improving ESG profiles relative to their peers. • Impact investing: pursuing financial returns alongside measurable positive social and/or environmental impacts. Brunno Maradei said 2021 has been about growing RI assets, launching innovative strategies, and enhancing ESG integration processes in the push towards a more sustainable future. ‘Looking ahead, we remain committed to responsible investing and aspire to drive the industry forward by promoting best practices for the benefit of our clients, the industry, and society at large,’ he said.
‘We saw an explosion in ESG interest in 2020, partly fuelled by the resilience of sustainable portfolios during the economic shock we lived through’
Brunno Maradei Global Head of Responsible Investment, Aegon Asset Management
Best-in class ESG
Finding tomorrow’s leaders today
Malcolm McPartlin, co-manager of Aegon AM’s global sustainable equity funds, explains how these successful strategies are helping to build a better future
The volatility rollercoaster that markets have experienced this year has not worried Aegon AM’s sustainable equity manager, Malcolm McPartlin, who is confident that a responsible investing approach will be a winner in the long term. McPartlin and co-manager Andrei Kiselev took over responsibility for the Aegon Sustainable Equity Fund in June 2021, when it changed its name from the Aegon Global Equity Fund. They now manage the fund with the same philosophy and process as the Aegon Global Sustainable Equity Fund, an Irish-domiciled strategy with a successful five-year record. Both funds are managed with the same high-conviction, growth focused approach of between 35 and 45 stocks. The aim is to ‘invest in growth companies which meet our sustainable criteria and that are making a positive impact on the world’, McPartlin said. A company’s overall sustainability is assessed via three dimensions: products, practices and improvement. ‘This boils down to a number of basic questions. For products, what impact do a company’s products have on the world? What sustainable problems are they trying to solve? Are they a key enabler of sustainable change? ’McPartlin said. The practices dimension assesses how a company operates, and how it treats its multiple stakeholders, while improvement seeks to understand a company’s ambition and strategy for improvement, with a strong focus on material key performance indicators.
*Source: Lipper, NAV to NAV, noon prices, income reinvested, net of ongoing charges, excluding entry or exit charges as at 30 September 2021. Aegon Global Sustainable Equity Fund B Acc GBP share class. This fund sits in the Investment Association Global sector. **Source Aegon Asset Management as at 30 September 2021
Association Global sector. Over five years, the fund has increased 175.9%, more than double the sector median return of 78.9%*. The fund has 45 holdings, with a large weighting towards technology and healthcare, which make up 30.5% and 26.6% of the fund, respectively.** McPartlin said that disruptive technologies and transformational healthcare sectors include businesses that ‘can make a big difference to society’. The ‘dimensions of sustainability’ framework, investment in sustainable leaders and improvers, a small and mid-cap tilt, as well as a high-conviction approach all give the global sustainability equity funds a distinctive edge. That edge has been beneficial as markets see-sawed during the pandemic. McPartlin said he is not focused on macro positioning, preferring a stock-focused, bottom-up, long-term approach to picking companies. ‘We are reluctant to change the portfolio in response to short-term market volatility,’ he said. ‘This approach has been vindicated this year; with high levels of volatility, it would have been easy to make short-term adjustments and be caught on the wrong side of these gyrations. ’While the increased volatility created a headwind for the mid and small-cap-focused fund, McPartlin said the managers held their course and stayed focused on stocks, including picking up three new positions. The fund recently invested in consumer-review platform Trustpilot at its initial public offering. McPartlin said the company ‘has key sustainability benefits, notably strong product characteristics, acting as a source of truth, trust and consumer protection by allowing greater transparency and attractive fundamentals’. The managers also added Dynatrace, a technology firm that provides artificial intelligence software to help apps monitor their performance. The business is benefiting from the acceleration in the shift to digitisation and the increasing volumes of data within business-critical applications. Another investment was made in bio-testing group Eurofins, which has 900 labs across 50 countries and performs more than 450 million tests a year across food, environmental, pharmaceuticals, and clinical diagnostics. ‘Eurofins has also played a part in the recent Covid-19 vaccine development and testing procedures,’ McPartlin said. ‘We believe it is an attractive, long-term secular growth business with a positive product impact that can continue to benefit from regulatory drivers, sustainability, and new innovations.’ For McPartlin, the key message is consistency within the portfolio. He is a staunch believer that sustainability is a source of alpha. While he has been making ‘refinements at the margins’ to capture themes and adapt to market movements, as well as increasing the hurdle for inclusion in the portfolio, McPartlin is clear: ‘Companies that are enabling and benefiting from sustainable trends, we believe, will generate superior returns.’
‘We believe companies that are enabling and benefiting from sustainable trends will generate superior returns’
Malcolm McPartlin, Co-Manager of the Global Sustainable Equity Fund, Aegon Asset Management
Andrei Kiselev Co-Manager of the Global Sustainable Equity Fund, Aegon Asset Management
This allows McPartlin and Kiselev to establish whether companies are sustainability ‘leaders’, ‘improvers’, or ‘laggards’. ‘We place the greatest emphasis on improvers, typically small and mid-cap companies providing strong products that match our sustainability criteria, but where we see room for improvement in sustainable practices,’ McPartlin said. ‘Identifying tomorrow’s leaders today is a great potential source of alpha for the strategy. It gives our portfolio a strong tilt towards disruptive growth, whereas our peers tend to be more in established large-cap names,’ he said. The £393m offshore fund is proof that McPartlin’s strategy is working. It has delivered a return of 104.4% over three years, versus a 39.0% increase from the median fund in the Investment
One giant leap for ESG
In a milestone moment for responsible investing, new EU regulations set out to define what constitutes an investment that does good, and one that does ‘significant harm’
A crucial piece of the sustainability puzzle has been put in place with the introduction of European legislation that defines a sustainable investment. While investors understand the social ethos behind responsible investing, putting it into a specific policy is much harder. However, a new piece of EU legislation is aiming to do just this with the EU Taxonomy for Sustainable Investments, which is described as a ‘classification system, establishing a list of environmentally sustainable economic activities’. It was developed as part of the EU’s climate and energy targets for 2030 and to help it hit objectives set out under the ‘green deal’. Brunno Maradei, global head of responsible investment at Aegon AM, said the legislation was the ‘boldest plan’ on sustainable investing and a critical piece of the puzzle in defining what the industry means by sustainable investment. He said setting out the definition of positive activities that meet certain environmental objectives is a big challenge that hasn’t been fully resolved, but the taxonomy is a leap in the right direction. Maradei pointed to two objectives that have been most clearly set out – those encompassing climate mitigation and adaptation – but other objectives, such as biodiversity and preservation, were harder to figure out. ‘It is extremely difficult to get a definition of what a positive investment activity is… and next they have the challenge of trying… to balance the negative impacts,’ he said. In order to determine what is a sustainable investment, the regulation also has to set out what constitutes detrimental investing, and in this case, the EU has developed the concept of ‘do no significant harm’.
*Source: Aegon Asset Management, 30 September 2021
However, Maradei said this was not a tested concept and that it throws up new questions, such as whether a wind farm, which would be considered a sustainable investment, does harm to birds and the surrounding wildlife, or whether the mining of cobalt for batteries adheres to human rights laws with regards to the people working in the mines. Maradei said the EU was taking the first step of 100, but the ‘bold ambition’ should be applauded for its aim to make responsible investing more achievable and transparent. The development of responsible investing is something Audrey Ryan is well-versed in, having run the £653m Aegon Ethical Equity fund since 1999*. Ryan and her team engage with their clients on a two-year cycle to ensure the ethical screens remain relevant and fit for purpose. ‘It also allows us the opportunity to understand key issues that may be at the forefront of investors’ minds with regards to ethical issues,’ she said. The consultation also allows clients to voice their views on the ethical principles the fund is based on, which she said she finds exceptionally valuable. Miranda Beacham, head of ESG for equities and multi-asset at the asset manager, said that transparency was key at all stages of responsible investing. She said: ‘A true belief in ESG means that we really push to understand the companies that we’re investing in. That’s both from a fundamental analysis perspective... but also from a responsible investment perspective. ‘We really try to get under the skin of these organisations, to really get at what makes them tick and what motivates them to do what they’re doing, [and] how that’s impacting society and the environment. ’This level of transparency is something that Aegon AM ensures is part of the dialogue it has with its clients. The asset manager fully explains how the funds are constructed, and also sets out in clear terms its engagement with companies as a shareholder and responsible investor.
‘It is extremely difficult to get a definition of what a positive investment activity is... You also have the challenge of trying to balance the negative impacts’
Bold ambitions
This allows McPartlin and Kiselev to establish whether companies are sustainability ‘leaders’, ‘improvers’, or ‘laggards’. ‘We place the greatest emphasis on improvers, typically small and mid-cap companies providing strong products that match our sustainability criteria, but where we see room for improvement in sustainable practices,’ McPartlin said. ‘Identifying tomorrow’s leaders today is a great potential source of alpha for the strategy. It gives our portfolio a strong tilt towards disruptive growth, whereas our peers tend to be more in established large-cap names,’ he said. The £393m offshore fund is proof that McPartlin’s strategy is working. It has delivered a return of 104.4% over three years, versus a 39.0% increase from the median fund in the Investment Association Global sector. Over five years, the fund has increased 175.9%, more than double the sector median return of 78.9%*. The fund has 45 holdings, with a large weighting towards technology and healthcare, which make up 30.5% and 26.6% of the fund, respectively.** McPartlin said that disruptive technologies and transformational healthcare sectors include businesses that ‘can make a big difference to society’. The ‘dimensions of sustainability’ framework, investment in sustainable leaders and improvers, a small and mid-cap tilt, as well as a high-conviction approach all give the global sustainability equity funds a distinctive edge. That edge has been beneficial as markets see-sawed during the pandemic. McPartlin said he is not focused on macro positioning, preferring a stock-focused, bottom-up, long-term approach to picking companies. ‘We are reluctant to change the portfolio in response to short-term market volatility,’ he said. ‘This approach has been vindicated this year; with high levels of volatility, it would have been easy to make short-term adjustments and be caught on the wrong side of these gyrations. ’While the increased volatility created a headwind for the mid and small-cap-focused fund, McPartlin said the managers held their course and stayed focused on stocks, including picking up three new positions. The fund recently invested in consumer-review platform Trustpilot at its initial public offering. McPartlin said the company ‘has key sustainability benefits, notably strong product characteristics, acting as a source of truth, trust and consumer protection by allowing greater transparency and attractive fundamentals’. The managers also added Dynatrace, a technology firm that provides artificial intelligence software to help apps monitor their performance. The business is benefiting from the acceleration in the shift to digitisation and the increasing volumes of data within business-critical applications. Another investment was made in bio-testing group Eurofins, which has 900 labs across 50 countries and performs more than 450 million tests a year across food, environmental, pharmaceuticals, and clinical diagnostics. ‘Eurofins has also played a part in the recent Covid-19 vaccine development and testing procedures,’ McPartlin said. ‘We believe it is an attractive, long-term secular growth business with a positive product impact that can continue to benefit from regulatory drivers, sustainability, and new innovations.’ For McPartlin, the key message is consistency within the portfolio. He is a staunch believer that sustainability is a source of alpha. While he has been making ‘refinements at the margins’ to capture themes and adapt to market movements, as well as increasing the hurdle for inclusion in the portfolio, McPartlin is clear: ‘Companies that are enabling and benefiting from sustainable trends, we believe, will generate superior returns.’
Responsibility beyond borders
Aegon AM’s evolution as a global investment manager under a single brand reinforces its significant resources and credibility in the ESG space
As investment markets evolve towards a more sustainable future, Aegon AM is helping to lead this change, aligning its investment capabilities to meet the growing demand from investors around the world for sustainable investment solutions. Aegon AM’s 370 investment professionals manage and advise on assets of £336bn* for a global client-base of wealth managers, banks, family offices, charities, pension funds and insurance companies. The asset manager organises its investment capabilities around four global investment platforms: fixed income, equities, real assets and multi-asset & solutions. Across these platforms, Aegon AM shares a common belief in fundamental, research-driven active management, underpinned by effective risk management and a commitment to responsible investment. Aegon AM’s ‘Beyond Borders’ strategy reflects the firm’s global perspective as an active asset manager which thinks and acts beyond traditional borders. At the heart of its strategy is leveraging its global responsible investment capabilities to support the growing demand for ethical and sustainable investment solutions. Bas NieuweWeme, Aegon AM’s global chief executive, said: ‘Having a single global identity is helping us to operate more efficiently across international markets, leveraging our experience, knowledge, and resources worldwide. ’Coming together as a global organisation meant that the UK asset management brand Kames Capital became Aegon AM from September 2020, reinforcing the breadth of capabilities from across the group which UK clients can benefit from.
* Source: Aegon Asset Management. As at 30 June 2021
Aegon AM has a long history in the UK, spanning almost 190 years and dating back to the founding of the Scottish Equitable Life Assurance Company in 1831. The Kames name on the funds may have changed to Aegon AM, but many of the same investment teams and processes have remained in place, while enabling it to invest resources in areas such as responsible investment. A cornerstone of Aegon AM’s Beyond Borders strategy is to invest for a sustainable world, something the firm is well-placed to do as an established leader in responsible investing. Miranda Beacham, head of ESG for equities and multi-asset at Aegon AM, said: ‘Responsible investing should be in an asset manager’s DNA. At Aegon AM having over three decades of experience means that it is part of our culture. ‘We integrate ESG factors in our fundamental analysis and build on this when it comes to specific sustainable investment strategies.’ Beacham said having a true belief in ESG means that the company really tries to ‘get under the skin of the organisations we invest in, to really uncover what makes them tick, and what motivates them to do what they’re doing’. The roots of the responsible investing team go back to 2000, when Beacham helped co-found the UK firm’s central ESG team, which was initially part of the equity team, before broadening its remit to serve other asset classes. ‘Today ESG conversations take place both within and across investment teams, with the responsible investing team helping to co-ordinate information sharing and best-practice across the firm.’ To find out more about Aegon AM’s commitment to responsible investing, there is a host of information on the firm’s revamped website at , including the annual responsible investment and active ownership reports. The website includes ‘Sustainability Soapbox’, Aegon AM’s highly popular blog, which takes a deep dive into sustainable investing. Recent articles have covered topics as diverse as biodiversity, climate change, the use of coal, fast fashion and corporate remuneration. To visit see Aegon AM is also a business that leads by example. The company has been carbon-neutral since 2016 and has an award-winning inclusion and diversity programme.
‘We integrate ESG factors in our fundamental analysis and build on this when it comes to specific sustainable investment strategies.’
Miranda Beacham Head of ESG for Equities and Multi-Asset, Aegon Asset Management
www.aegonam.com/responsible
www.aegonam.com/soapbox
For Professional Clients only and not to be distributed to or relied upon by retail clients. The principal risk of these products is the loss of capital. Please refer to the KIID and/or prospectus or offering documents for details of all relevant risks. For all documents please see www.aegonam.com/documents Past performance is not a guide to future performance. Outcomes, including the payment of income, are not guaranteed.All investments contain risk and may lose value. Responsible investing is qualitative and subjective by nature, and there is no guarantee that the criteria utilised, or judgement exercised, by any company of Aegon Asset Management will reflect the beliefs or values of any one particular investor. Responsible investing norms differ by region. There is no assurance that the responsible investing strategy and techniques employed will be successful. Investors should consult their investment professional prior to making an investment decision. Opinions and/or example trades/securities represent our understanding of markets both current and historical and are used to promote Aegon Asset Management’s investment management capabilities: they are not investment recommendations, research or advice. Sources used are deemed reliable by Aegon Asset Management at the time of writing. Please note that this marketing is not prepared in accordance with legal requirements designed to promote the independence of investment research, and is not subject to any prohibition on dealing by Aegon Asset Management or its employees ahead of its publication. All data is sourced to Aegon Asset Management UK plc unless otherwise stated. The document is accurate at the time of writing but is subject to change without notice. Data attributed to a third party (“3rd Party Data”) is proprietary to that third party and/or other suppliers (the “Data Owner”) and is used by Aegon Asset Management under licence. 3rd Party Data: (i) may not be copied or distributed; and (ii) is not warranted to be accurate, complete or timely. None of the Data Owner, Aegon Asset Management or any other person connected to, or from whom Aegon Asset Management sources, 3rd Party Data is liable for any losses or liabilities arising from use of 3rd Party Data. Aegon Asset Management UK plc (Aegon AM UK) is authorised and regulated by the Financial Conduct Authority and is the Authorised Corporate Director of Aegon Asset Management ICVC. Aegon Asset Management Investment Company (Ireland) Plc (AAMICI) is an umbrella type open-ended investment company which is authorised and regulated by the Central Bank of Ireland. Aegon AM UK is the investment manager for AAMICI and also the marketer for AAMICI in the UK.
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