Investing in Change: Driving Environmental Solutions with TT International

As the popularity of Environmental, Social, and Governance (ESG) investing continues to rise, investors face the challenge of determining whether or not their investments are genuinely making a positive impact on the world. In a recent interview on the Praemium Investment Leaders Podcast, Andy Raikes, Co-portfolio Manager for TT International's Environmental Strategy and Head of European Research, delved into how the asset management firm addresses this challenge by focusing on companies that provide solutions to environmental problems.

Rather than investing in companies with low carbon footprints or those transitioning towards sustainability, TT International's solution strategy targets businesses whose products or services primarily address environmental issues. The asset management firm has identified seven key environmental themes that tackle a wide range of pressing environmental issues, from climate change to biodiversity loss.

Their focus on companies that solve environmental problems, combined with a commitment to donating a portion of its fees to environmental causes, sets it apart in the ESG investing space. By prioritizing transparency and impact, the firm offers investors a promising avenue for genuinely contributing to a greener future.

If you're curious to know more about TT International's unique approach to ESG investing, here's an insightful excerpt from Andy Raikes' conversation on the Praemium Investment Leaders Podcast, where he further elaborates on their environmental solution strategy and its importance in driving positive change. Please note that the following transcript has been edited for clarity and brevity:

Damian Cilmi: Let's get into it, starting with some context. There's many terms and many acronyms out there, and I think you've added another one to the lexicon, because you call this a “solution strategy”. So, what do you mean by this?

Andy Raikes: Sure, our solution strategy means we only invest in companies that have a product or service solving an environmental problem. We're not a low carbon or transition strategy, so we don't invest in big tech or big oil, even if they have a low carbon footprint or invest heavily in renewables. We focus on companies making a significant contribution to solving environmental problems. Our pure play strategy invests at least 80% of our capital in companies where the product or service solving the environmental problem is the majority of their business, at least 50% of revenue or profit. The remaining 20% is reserved for companies where their product or service is making a significant contribution but is not yet the majority of their business. We hope and expect that in time, this smaller part of their business will grow to become a bigger part because it's likely to be a fast-growing part of their business as they solve environmental problems.

Damian Cilmi: Can you discuss the seven environmental problems you've identified for your strategy? And do you seek equal allocation across those issues?

Andy Raikes: Sure. We've identified seven themes: clean energy, water, forestry and agriculture, responsible consumption, clean transport, recycling in the circular economy, and electrification energy and industrial efficiency. We chose these themes because they address a wide range of some of the most pressing environmental issues out there. They cover both areas like climate change and broader nature areas and biodiversity, which we think are mutually reinforcing. It's not an exhaustive list of every environmental problem out there, but for us, those are the seven key themes addressing seven significant problems.

Damian Cilmi: And responsible consumption as well would feed into that too.

Andy Raikes: Yeah, so the more obvious investment themes that address climate change would be things like clean energy and clean transport. However, themes like responsible consumption, recycling, and circular economy, as well as forestry and agriculture, play a different role. Biodiversity is an area where it's harder to identify investment themes, but our ecologist strongly believes that the biggest negative impact on biodiversity comes from mass agriculture. Therefore, finding ways to do agriculture more efficiently, such as using less land, water, herbicides, pesticides, and fertilizers, would have a good broad environmental outcome, particularly for biodiversity. So, these themes address broader nature areas rather than just climate change.

Damian Cilmi: Yeah, I think you're right. It's quite refreshing to see that this has got other legs to it as well. So, I'm curious about the seven themes that you've identified. Do any of those objectives conflict with each other?

Andy Raikes: I don't think these themes conflict in many ways, they're more complementary. The themes of biodiversity and climate change are very interlinked, as they're mutually dependent and reinforcing. For instance, climate change leads to damage to ecosystems, causing them to lose their ability to sequester carbon, leading to more climate change. We believe these themes are very interconnected, and in many cases, we find stocks that span across several different themes. So, there are no competing objectives, and we have debates as to which sector they should go in, which themes they should go in.

Damian Cilmi: So, can you talk a bit about what the advisory board is discussing beyond the seven environmental problems that you've identified? What are some emerging ideas or areas of interest that they're bringing up?

Andy Raikes: When we launched the strategy, we were aware that the technological, regulatory and policy landscape in this space is constantly evolving. So, having an independent advisory board helps us stay on top of those trends. The board's role is to bring insights into their areas of expertise and, equally importantly, to challenge the investment team on the positions we have in the portfolio.

This excerpt offers just a glimpse into the wealth of information shared by Andy Raikes during the interview. 

To fully explore TT International's unique approach to ESG investing, environmental solution strategies, and their potential for driving positive change, be sure to listen to the complete Praemium Investment Leaders Podcast episode.