Pauline Grange (Columbia Threadneedle): “while data is both important and useful, nothing beats engaging with companies directly”

How does the sustainable outcomes global equity strategy includes ESG principles in its investment?

The objective of the strategy is to build a portfolio of companies that are contributing to a more sustainable future. We assess all companies through our impact, intentionality, and integrity framework. Our focus is on those companies that are delivering a product or service that has a positive impact on the environment and / or society. We must also see clear evidence of intent; in other words, investment directed towards growing that impact. And while our focus is on the positive outcomes, we also set a minimum threshold in what we’re looking for. We don’t invest in companies that score poorly on ESG matters, nor do we invest in those misaligned with our sustainable values. They must operate with integrity. Of course, they must also be able to perform financially. Far from compromising return or increasing risk, we think you benefit from the twin rewards of outcome and return.

What are the challenges investors face when analyzing and evaluating ESG data ? How does the strategy overcome those challenges ?

Historically, one of the key challenges was access to data, although it is vastly improved now compared to a number of years ago. Even so, companies could be doing great things, but not necessarily be disclosing it. This can be particularly true further down the market cap spectrum, part of the market where we find many innovative businesses addressing a range of sustainability challenges. Even when you have access to data, interpreting what’s most relevant can be a challenge. To help with this we’ve developed our own ESG materiality model that focuses on the data points most relevant for a particular industry. We’ve also developed a sustainability mapping tool that helps us identify how companies’ revenues align to the UN SDGs.

However, while data is both important and useful, nothing beats engaging with companies directly. It helps us to better understand what we see in the data. It allows us to clarify a company’s contribution to sustainable outcomes and also their intent. We can also help them on that journey. This is where a deep research network, with collaboration between both portfolio management and responsible investment teams, is so important.

Can you give us an example of a successful involvement of a holding in the sustainable outcomes global equity strategy, mentioning the impact on the company concerned ?  

We’ve held NextEra, a US utilities company, in the portfolio for a number of years now. As one of if not the largest generators of renewable energy, Nextera is investing heavily in its solar capacity. The company is clearly playing a huge part in the energy transition and fulfils our sustainability criteria. However, we’d noted a somewhat average score relative to peers in the Transition Pathway Initiative (TPI). Consequently, we organised a call to discuss the TPI score with them. As it turned out, the driver was down to disclosure rather than practice, and this was being addressed. Here’s a good example of a company that can score well on headline ESG measures (AAA rated by MSCI), contribute positively to sustainable outcomes, and yet still flag on certain other measures. It’s why active engagement is so important.

Thanks to Pauline Grange - Fund Manager of the Columbia Threadneedle (Lux) Sustainable Outcomes Global Equity for her expertise.

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