Impact Investing – Global Emerging Markets

“It’s one thing to feel that you are on the right path but it’s another to think that yours is the only path.” Paulo Coelho

Monopoly is one of the top 3 best-selling board games in the world and originated in the early 20th century when it was designed by Elizabeth Maggie, an outspoken activist for the feminist movement. The game was called the ‘The Landlord’s Game’, showcasing the negative aspects of concentrating land in private monopolies. The interesting aspect of this was that she created a game with two sets of rules:

• a monopolist set, which those of us who have bitterly played the game against family members recognise, that is based on accumulating as much property as possible and crashing opponents by bankrupting them.
• an anti-monopolist set also known as the ‘Prosperity’ set of rules, which rewarded all the players when wealth was created.

When the game was acquired by Parker Brothers (today owned by Hasbro) in the early 30’s, the concept that was put on sale was only the monopolist set, i.e. the one that can only have a single winner. Most who played the game had only one main goal, to swiftly bring opponents to the brink of bankruptcy. Who knew all along that we could finish the game without the feeling of animosity around the table, especially among family members who were captive players during what were supposed to be festive holidays. The monopolist set was good at illustrating the opposite intention of the game’s founder by awakening our animal spirits. It made us forget that everyone could have walked away from the table feeling decent, generous, and collaborative. As the basketball legend Michael Jordan once said, talent wins games, but teamwork and intelligence win championships. Investing in progress does not have to be a binary outcome but can instead be a multifaced circular process for key stakeholders that enables better outcomes.

In line with the above, over the past century we have seen the notion of shareholder primacy take the lead across the globe and become the base argument for governance of the corporate world. During the same period, academia ran ahead with Adam Smith’s rational-economic man, whose motivation was to base his acts on solely rational self-interest, all of which centres around selfishness and the concept that there could only be a single winner.

Fortunately for our generation, this century is poised to be shaped with a different mindset, shareholder primacy, whereby a shareholder-centric form of governance focusses on maximizing the value of stakeholders along with shareholders of course. We like to apply the concept of doing well by doing good. It starts with doing no harm, and for us this means avoiding companies that have unsustainable business practices. Then it centres around the concept of focusing on companies that are adding value to their stakeholders as a means to generate shareholder returns, what we like to call positive contribution to society and environment. Both qualitatively and quantitively, working side by side with our in-house Responsible Investment team, we ensure our companies fulfil this requirement. We then can share with you how we conclude that our investee companies deserve our client’s capital and ultimately how they impact their key stakeholders in a positive fashion and contribute constructively to their societies and environments.

To understand this further, we spend an immense amount of time engaging with our businesses to understand, nudge, and influence them to achieve certain milestones. Our goal is not to push down our values or views’; rather, we focus solely on materiality in our engagements. Materiality can come in many forms or shapes relative to our business. Here we benefit substantially from the expertise of the RI team members who specialise in different verticals, from cyber security to carbon emissions. They provide further understanding around the risks present in different sectors, countries, or specific sub-industries given their worldwide coverage. With the strong research intensity provided by both the investment team and the RI team, we can identify key material risks present for our companies, and we then engage with them with to mitigate these material risks and, where possible, turn adversity into an advantage.

An extension of the stakeholder supremacy remains is what a circular economy is built upon, i.e. providing a way to not only protect the environment but also use natural resources more wisely, develop new sectors, create jobs, and develop new capabilities. Taking a long-term view is embedded in our investment philosophy to ensure we remain committed to creating circular benefits.

We do this largely because sustainable returns require sustainable development. To achieve this, our analysis considers what a company is doing to stay below the ecological ceiling. A few of the areas of focus include:

• enabling a circular economy
• using rain harvesting as a sole means to source water for manufacturing
• focusing on bringing down energy and water usage every year while producing the same or a better product
• ensuring the supply chain is financially supported and remains resilient
• empowering women in rural communities through financial inclusion and education
• providing affordable education to young minds across the different layers of society
• enabling access to medicine at affordable prices for the masses

All the above requires companies to take a long-term view and have a long-term vested interest in the success of a strong social foundation while remaining within the boundaries of an ecological ceiling.

We do our homework to see where our companies can have the biggest impact considering their business model through our rigorous research process and targeted engagement. Most importantly, we incorporate a nuanced view that GDP per capita is not the only metric to consider when analysing what makes an emerging nation successful or not. The same can be said for when we analyse a company—it is not down to financial success only, but a good investment case relies on how our investments contribute positively to its key stakeholders and whether that is sustainable long-term. The role of alternative metrics to assess the societal and environmental impact of companies, alongside the financials ones, is what we excel in to ensure that we are right stewards of our clients’ capital, acting in the best interest of the long-term wellbeing of the citizens of the emerging world to generate sustainable returns for our clients.