Pictet - Global Environmental Opportunities Fund

overall rating:

2.1

planets

Alex Powell
3/15/2022
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This Pictet Global Environmental Opportunities fund aims to ensure long term growth, whilst ensuring that firms with strong ESG scores and interesting solutions to environmental sustainability are supported and invested in. The firm as a whole, while both very transparent and sustainable, does have a few issues regarding the construction of the board, but other than that, appears to have strong and responsible corporate practices. Unlike other financial service providers, we can see plenty of information about the fund, including crucially who manages it. Furthermore, it is clear that they are doing a good job - the fund's top ten holdings combine with the sector breakdown to paint an incredibly attractive picture to the potential investor concerned with our planet. This is a product and firm I have great respect for environmentally, and I hope that similar companies follow their lead in this regard. As a whole, the fund scores 2.1 planets. 

What it's made of:

2.5

The ten largest holdings are below - Name, Percentage of fund, ESG :

1) Synopsys, 4.07%, 14.4, 2) Republic Services, 3.96%, 21.1, 3) Thermo Fisher Scientific, 3.70%, 14.2, 4) Schneider Electric, 3.64%, 17.1, 5) Agilent Technologies, 3.40%, 15.3, 6) American Water Works Co, 3.33%, 27.5, 7) Danaher, 2.23%, 17.7, 8) Applied Materials, 3.08%, 11.6, 9) Cadence Design Systems, 3.06%, 13.1, 10) Johnson Controls, 2.88%, 13.6

Two holdings immediately jump out as less than ideal - that of Republic Services and American Water Works, however, in the case of the former, the picture is far better than it may initially appear. Despite a relatively high ESG score, Republic Services is a world leader in sustainable waste disposal, and invests 45% of its earnings into renewable technologies and programs. It is also the only waste management company whose emissions reduction targets were approved by the Science Based Targets Initiative - they also comply with the Paris Agreement. American Water Works is also not as bad as its ESG score suggests, indeed the company has reduced its annual water usage by 3.5 billion gallons, reflective of a strong commitment to sustainability. Nevertheless, it remains an odd choice for one of the top ten holdings in my opinion, as it still resides near the top of the medium risk category for sustainability.

The sector breakdown is as follows. 

Energy Efficiency, 38.69%

Pollution Control, 15.98%

Dematerialised Economy, 13.85%

Water Management and Recycling, 13.46%

Water Supply and Technologies, 6.84%

Sustainable Agriculture and Forestry, 5.05%

Cash, 3.57%

Renewable Energy, 2.55%

This is a fantastic sector breakdown for a sustainable fund, demonstrating a fund that seeks to help address environmental sustainability, rather than those which simply use the allure of sustainable investment to lure in customers. I would argue that Pictet could allocate greater resources to both agriculture and renewable energy, as the overwhelming focus on energy efficiency may make the focus of this fund somewhat narrow. However, I will admit this may be splitting hairs - energy efficiency is fantastically important for the future of our planet, and also a sufficiently broad sector that is very much worthy of significant investment. This fund is therefore built on good foundations, and contains all the hallmarks of correctly practised sustainable investment - strong enough to deserve 2.5 planets. 

How it's made:

2

Naturally, Pictet does not divulge their entire selection process for the fund, but we can extract key details. The fund is based on a principle of ‘market and fundamental company analysis’ which is then biased towards those firms with superior ESG scores. It is especially striking how similar this message is to other ‘sustainable’ funds which then upon further investigation show a remarkable lack of this ‘bias to firms with superior ESG’ - clearly Pictet’s system is either far more rigorous or effective. Pictet also has a firm wide exclusion policy on investment in firms which are involved in the production of ‘controversial weapons’, although given the nature of this fund's environmental focus, it is unlikely to come into effect. Perhaps most impressive is Pictet’s extensive report on voting rights, detailing just how much they ensure they are always engaging in proxy voting, with environmental, social and ESG considerations taking centre focus. This is especially important in environmental matters, as it holds management of corporations to account, instead of them acting as if their one job is to deliver profit to shareholders. Overall, the process for choosing the stocks is unremarkable. Nothing appears to be particularly unique, but clearly the extent to which Pictet biases towards sustainable firms is particularly impressive. As such, a score of 2 planets is adequate. 

Who makes it:

2

Three managers are listed on the funds records, Gabriel Micheli, Luciano Diana, and Yi Du. This is a refreshing level of transparency, and allows us to see who is upholding Pictet’s principles. Diana has the most obviously commendable environmental past, having been a portfolio manager for Pictet’s Clean Energy strategy, clearly bringing in expertise in this area. The other two managers have very traditional financial career paths - it is a shame to see that not one of the three managers has any clear evidence of environmental work or education outside of Pictet. Pictet is a smaller firm, who engage only in wealth management, asset management and related services - they do not enter into commercial loans or investment banking. The detail provided on their environmental mission is absolutely fantastic, with detailed breakdowns of where their employees consume carbon dioxide, and outline the success of their plan from 2007 for a 40% reduction of employee emissions by 2020 - something they achieved. Furthermore, by 2025 they aim to reduce direct greenhouse gas emissions by 60% compared to 2019 - likewise they have offset all emissions, direct or indirect since 2014, but are now committing to a more active approach. Normally, with such an abundance of greenwashing in the financial sector, I would be sceptical of such claims, but with Pictet’s impressive history, I am inclined to believe they will be far more successful than the average consumer bank. It is needless to list all the details here, but important further measures include reducing their use of disposable plastic by 90% in 12 months, as well as installing free recharging ports for electric cars and bikes - there are further travel policies as well. On the investment side, by 2025, Pictet aims to only offer investment processes that integrate ESG factors and active ownership - clearly their commitment to environmental sustainability is not simply to cover for other nefarious activity, but a genuine building block of the entire corporation's ethos. However, the management team has a staggering lack of diversity - out of the eight partners, seven are men, and the entire partnership are white. The only saving grace is that the one female partner, Elif Aktug (the first female partner in the firm's 216 year history!) was appointed last year, so whilst a stretch, it is possible to say something is being done about this imbalance. This however, is the main blot on an otherwise impressive record. It would have been nice to see greater environmental expertise from the fund managers - I do often wonder that internal training in sustainability from financial service providers can focus too strongly on economic growth. Nevertheless, the levels of detail offered combined with the impressive commitments (and crucially, past successes) mean that rewarding this firm with a strong 2 planets is reasonable. 

Sources:

https://www.group.pictet

https://www.sustainalytics.com

https://www.ft.com

https://www.morningstar.co.uk/uk/