Focusing on listed companies that have stronger performance on sustainability brings positive impacts on the planet and strong financial performance, according to impact investor Melior Investment Management.
Melior has published an inaugural Australian Impact Report detailing the company's work to identify companies with outsized ESG performance as well as its engagement activities since inception.
In its first year, the Melior Australian Impact Fund outperformed the benchmark ASX300 by9.4% with an absolute return of 1.8$ and was ranked by Rainmaker in the top 10 Australian large cap equities managers.
In the 2020 calendar year to August, Melior's fund has outperformed the index by 11.2% with an absolute return of 6.4%.
"The most important thing is that we've demonstrated that doing good, you don't have to sacrifice return," said William Wu, portfolio manager at Melior. "It's the opposite. It's generated alpha, it's lowered risk of investment portfolio and it's doing well as well as doing good."
Companies are also increasingly recognising that social and environmental considerations have to be part of companies' decision making, said Lucy Steed, Melior chief executive. Melior measures impact based on additionality, intentionality and measurements and targets.
"What we wanted to do is articulate how public equities can have an impact," Steed said. "We're an early mover in that space and additionality from a public equities perspective is not always well understood. Our additionality comes from our engagement with corporates."
The company's report on engagements finds strengths as well as "glaring inadequacies." On the positive side, the report highlights the work of Wesfarmers on gender inequality, noting the company has targets in place for female executives and board members and a gender pay gap target of +/-5%.
However, overall, ASX300 comnpanies have a significant lack of disclosure around gender pay gap data and pay equality targets.
"We're looking to broaden that out further in terms of other target we should be looking at," Steed said. "We want to work to raise the bar on disclosure of issues like the gender pay gap, which is clearly missing right now across the ASX300."
In the impact report, Melior cite property group Dexus for its positive impact regarding sustainable infrastructure and green buildings and New Zealand energy groups Meridian and Mercury for their work on reducing inequalities.
In its first year, Melior conducted 67 advocacy meetings with a range of companies including Brambles, BlueScope, Sims, Telstra, A2 Milk, Wesfarmers and Meridian.
The impact report details three key themes aligned to the SDGs pursued by Melior through its engagement with corporates during the year ? gender equality, reduced inequalities and climate action.
The issues that Melior focus on are long-term issues that require sustained action by companies that will last beyond the tenures of current CEOs and executive teams, which lead Melior to evaluate how companies set targets around emissions reduction and climate action and where they are linked to action and embedded in places such as remuneration repots, noted Tim King, Melior CIO.
"A lot of these factors in ESG take time to implement," King said. "If any companies think these are quick fixes, whether they be emissions reduction, modern slavery, they're not. We expect them to be agenda items. It's pretty easy for us to determine quickly whether companies are serious about this or not, based on the way they plan to implement these going forward."
Melior estimates that the Scope 1 greenhouse gas emissions of the ASX300 are equivalent to approximately one third of Australia's national emissions, highlighting the critical role that ASX companies have in driving forward emissions reduction and therefore climate action.