NN Investment Partners' sustainable equity strategy celebrates 20th anniversary
NN Investment Partners' (NN IP) sustainable equity strategy, which has just reached its 20th anniversary, was one of the first strategies of its kind to integrate environmental, social and governance (ESG) principles into its investment process.
The NN (L) European Sustainable Equity fund has delivered annualised outperformance of 15.01, 6.29 and 5.44 percentage points for the European strategy and 18.64, 6.51 and 3.73 percentage points for the NN (L) Global Sustainable Equity fund, respectively over one, three and five years versus their benchmarks, the MSCI Europe Index (Net) and the MSCI World Index (Net) as of end May 2020 (gross figures). The strategy has outperformed in all market conditions, demonstrating the merits of a responsible investing approach that focuses on companies with future-proof business models.
The strategy’s launch coincided with the establishment of the Millennium Development Goals, one of the first steps in global cooperation to combat poverty, hunger, disease, illiteracy, environmental degradation and discrimination against women. The UN-endorsed Principles for Responsible Investing (PRI), the Paris Agreement and the introduction of the UN’s 17 Sustainable Development Goals (SDGs) are just three of the milestones that followed in the last two decades and that have helped propel RI from niche to mainstream.
Hendrik-Jan Boer, Lead Portfolio Manager of the strategy and Head of Sustainable and Impact Equities, NN Investment Partners, says: “With our focus on ESG factors we have been able to unlock potential value by identifying opportunities and risks. The strategy has proved its worth at every stage of the market cycle. Its quality approach and focus on asset-light, sustainable and forward-looking businesses has enabled it to effectively withstand major market shocks. It proved resilient during the financial crisis in 2008 and held up well in the first quarter of 2020, outperforming its traditional counterparts as the coronavirus crisis impacted markets.”
“Despite the many developments in the RI space, we have not changed our investment approach over the years. We look for high-quality companies with sustainable businesses and a strong competitive position that behave in a sustainable way. We take a long-term view and focus on a company's future potential. It’s all about finding tomorrow’s winners.”
Reflecting on the Covid-19 crisis and its impact on Sustainable Equity, Boer continues: “How companies look after their employees and how flexible and adaptable they are will determine how they emerge from the current Covid-19 crisis. Companies with a focus on sustainable solutions will also be well positioned to face the next 20 years and beyond. Although the challenges ahead are unknowable, our focus on investing for resilience and sustainable growth means that we are well prepared for the future.”
At present, NN IP sees significant opportunities for RI in healthcare and the energy transition from fossil fuels to renewables.
One industry that plays an important role in societal well-being is healthcare. Healthcare accounts for a growing share of GDP in the US and in many other countries. As government budgets come under increasing strain, healthcare companies need to come up with ways to ensure a sustainable system. Access to and affordability of healthcare are among the most important ESG materiality topics for the healthcare industry.
NN IP identifies several opportunities in the sector, including: Managed Care Organisations (MCOs) in the US that are improving efficiency through vertical integration; life sciences tools and services providers; and contract research organisations that run clinical trials and provide outsourced R&D services to biopharma companies. Instead of holding pharma and biotech stocks themselves, NN IP prefers to gain exposure to this segment through companies that indirectly benefit from them by selling the hardware used in R&D and in the manufacturing of drugs and vaccines, or even by providing biopharma and medtech companies with contract manufacturing services.
The transition towards sustainable energy sources will require all industrial sectors to decarbonise in the coming decades. This transition presents challenges but also creates tremendous growth opportunities for renewables, networks and storage. Investing in the winners of the energy transition provides opportunities to generate strong returns while creating a more sustainable world.
NN IP has identified several investment opportunities, such as electrical equipment makers that will benefit from the need to add power transmission capacity and make electric distribution grids smarter. Some renewable equipment makers also demonstrate substantial investment potential, such as providers of solar inverters that play a critical role in converting the direct current from panels to alternating current, and large-scale turbine makers.
NN (L) European Sustainable Equity is a sub-fund funds of NN (L), established in Luxembourg. NN (L) is duly authorised by the Commission de Surveillance du Secteur Financier (CSSF) in Luxembourg. Selected share classes of the sub-fund are currently registered in Austria, Belgium, Chile, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Italy, Luxembourg, the Netherlands, Norway, Portugal, Romania, Slovakia, South Korea, Spain, Sweden, Switzerland and the United Kingdom.
NN (L) Global Sustainable Equity is a sub-funs of NN (L), established in Luxembourg. NN (L) is duly authorised by the Commission de Surveillance du Secteur Financier (CSSF) in Luxembourg. Selected share classes of the sub-fund are currently registered in Austria, Belgium, Chile, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Italy, Luxembourg, the Netherlands, Norway, Portugal, Romania, Singapore, Slovakia, South Korea, Spain, Sweden, Switzerland and the United Kingdom.