Investing in line with the day after tomorrow means investing in companies that are meeting climate change, human rights, and broad demographic challenges and opportunities, according to Janus Henderson.
The Janus Henderson Global Sustainable Equity Strategy invests in companies whose products and services are "considered by the investment manager as contributing to positive environmental or social change and thereby have an impact on the development of a sustainable global economy," said Ama Seery, ESG analyst at Janus Henderson.
"We focus on spaces such as the circular economy transition," Seery said. "We look specifically at the products and services that are meeting the climate challenge and analysing the revenues of that company to see if their revenues are aligned to that goal."
Seery notes that the investment universe of companies that produce products and services to sustainably aligned goals are increasing, which counters longer held arguments that investing in line with ESG information brings concentration risk.
"When I first started looking at this two years ago, our universe was much smaller," Seery said. "Within the last two years, our universe has grown to the same size as our benchmark, so from an allocation and a diversity of opportunity perspective, it's there. However, the fact remains that we have consistently outperformed for the last 10 year, regardless of what the universe looked like."
Seery noted that as a baseline, Janus Henderson doesn't invest in companies that are not compliant with the UN Guiding Principles on Business and Human Rights or non-compliant with the OECD Guidelines for Multinational Enterprises, and they avoid investing in companies that are associated with corruption or doing business with oppressive regimes.
"More and more companies are shifting in the sustainability direction," Seery said. "If you're concerned that you're not going to have diversity of investment, that's a concern now that can fade away. Every company realises that you have to go on a sustainability journey."
While environmental issues are firmly on the agenda, social issues are also gaining new attention, Seery said.
"We've been looking more at the S in ESG this year," she said ."In particular, we started really focusing on women with regards to sustainability in part because the buying power of women is a lot stronger. If a company is not focusing on this, we see it as a financial risk. We've started to focus on products in terms of whether there is an intention to be inclusive in the design and the marketing. We engaged with quite a few companies where there was opportunity to be more inclusive in the design."
COVID-19 highlighted some of the blind spots in consumer design, with Seery pointing out the growth in athleisure purchases as men and women worked from home, and which companies were better poised to take advantage of that trend.
"We started to realise that a lot of us, when we sit at home working, we're in athleisure wear," she said. "The question becomes, if you've got a situation where many women are buying a yoga mat because the gym is closed and they're buying new leggings, why is it that revenue from womenswear at certain athletic apparel companies is not skyrocketing?"
Janus Henderson has engaged with apparel companies such as Nike and Adidas on athleisure, with Seery pointing out that this represents an opportunity for alpha generation. Both companies have since increased their offerings to women with new products, and new product lines backed by female celebrities.
COVID-19 has served to highlight other issues relating to ESG throughout the investment universe, including health and safety and ability to monitor breaches of human rights standards.
"We've been working on cobalt mining in the [Democratic Republic of Congo] DRC for a few years" she said. "Auditing that sector has been majorly disrupted by COVID-19. The charity worker that we're in contact with from the DRC, has told us that the government put restrictions on what they were able to do to prevent the spread of COVID-19. Even the charity workers were restricted in their access, let alone the audits and other forms of supply chain management!"
On the flip side, companies that have previously been aware of labour rights infractions and are managing those exposures have been better prepared to manage the health and wellbeing as well as financial and supply chain issues that COVID-19 has presented, Seery said.