The managers of the top-performing Baillie Gifford Positive Change fund aren’t simply looking to avoid companies with a negative impact on society, but are actively seeking out those doing good, explains Catherine Flockhart, a director at the fund group.
Flockhart joined us (virtually) in the Citywire studio for our event in partnership with Baillie Gifford, The Search for Growth Stocks that can Change the World. You can watch the full broadcast here.
She outlined how the managers of the £1.3bn fund, up 200% since launch in 2017 and the top performer in the Investment Association’s Global sector, searched for companies they believed would deliver strong investment returns but also make a positive impact on society.
Can’t watch now? Read the transcript
Daniel Grote: So, I guess, the crucial question is how you then judge a company’s positive impact. So, looking at Baillie Gifford Positive Change, unlike some ethical funds that are really just trying to avoid companies that are doing bad things, you’re actively looking for companies that are doing good things. Catherine, why that approach and how do you measure it because presumably, that’s more challenging. If you’re a fund that’s simply avoiding cigarette makers or arms manufacturers, that’s a relatively straightforward thing to do, but defining, measuring and monitoring a company’s positive impact is harder.
Catherine Flockhart: There’s a lot in that. So why do we take this really positive and proactive approach in only picking companies who are doing something good for the world. Well, it’s very simply because we believe in it. We believe that helps us, it’s just simply more information for us to pick the best companies, but we also believe that it’s the right thing to do. We want to invest in a future that is going to be better for future generations and to our mind, you really deliver progress by finding the exceptional companies that are driving change to investment.
Orsted, the world’s leading supplier of renewable wind energy or some amazing healthcare companies that are developing treatments for conditions that have previously had no treatment. We want to invest in those types of transformational companies that are really delivering change.
We don’t just want to screen out the worst offenders, the alcohol, the tobacco, the armaments companies. To us, that’s not really driving forward change. So that’s why we take the approach that we take. How do we measure that? Well, I think also, just coming back to this point about what is impact? For us, we’re looking for companies and Damien’s already alluded to this, but we’re looking for companies who are delivering change through their core products and services.
So, there are lots of fantastic businesses out there that are good businesses, they’re well run businesses, but they’re not necessarily tackling a specific challenge through their core products and services. They’re great businesses, but we are only looking to invest in businesses that are addressing key areas like social inclusion and education, environment, healthcare and helping the world’s poorest populations.
So how we measure that over time is, we will pick a key metric for each company in the portfolio and we disclose that every year, through our annual impact port, which you can find on our website. So, for example, we demonstrated that last year, Teladoc, which is a telemedicine company in the portfolio, based in the US, provided over 4 million virtual appointments with an average cost saving of over $470 each or in the case of Orsted, that I just mentioned, renewable wind supply, we’d be talking about carbon saved. We also map the contribution of the holdings to the UN Sustainable Development Goals, which I’m guessing, 60% of the audience invested in impact funds might be familiar with, increasingly, a common language. Then we aggregate up this information.
So again, you can see an impact indicator on our website that tells you, if you’d have invested in our strategy last year, how many patients would you have helped to treat, how much financial inclusion would you help to drive, how many tonnes of carbon would you help to save? So, the portfolio as a whole, last year, delivered 170 million tonnes of carbon saving, which is equivalent to taking more than 25 million passenger cars off the road. So, we are able to give an indication and to chart real progress.
It is important to say that measuring impact and involving discipline, it’s still early on and it’s not perfect. Also, there’s no such thing as a perfect company. So, we will disclose the negatives associated with the companies in the portfolio, as well. So, it’s all about transparency. An impact can’t always be quantified and that shouldn’t shy us away from investing, just because we can’t put a spuriously precise number on something, but what we are really committed to doing and I really see the industry moving in a positive direction here is, providing this tangible evidence to investors in the fund that we are delivering progress in the relevant areas.