Environmental issues are capturing an ever larger share of mind among citizens, policy makers and investors. Debates over renewable energy, plastic waste, ocean degradation, soil loss, unhealthy air, deforestation and related issues are intensifying as the world wrestles with a warming climate and the need to provide food security and clean water to a rising global population. At the 2015 Paris Conference on Climate Change, 197 countries committed to policies aimed at limiting the rise in global atmospheric temperatures, kicking off an era of accelerating policy innovation, civil society engagement, consumer expectations, technology disruption, and capital deployment.
Accordingly, on January 1, 2017, Douglass Winthrop launched the Environment Strategy for clients who seek exposure to companies that we believe will prosper as the global economy transitions to a low-carbon future and addresses a range of environmental concerns. Our thesis is that environmental opportunities and risks are not yet fully priced by the markets, creating an opportunity for our deep focus on these factors to enhance long-term shareholder value creation. As of our 5-year milestone (December 31, 2021), we are pleased to report that the DWA Environment Strategy has returned 24.11% annualized since inception, net of fees (versus 18.47% for the S&P 500 and 14.38% for the MSCI All Country World Index). Please note that past performance is no guarantee of future results.
DWA’s Environment Strategy adheres to the firm’s five longstanding criteria for identifying high-quality companies with: (1) defensible competitive advantages, (2) opportunities to compound through reinvestment; (3) strong balance sheets; (4) shareholder-oriented management, and (5) attractive valuations relative to our assessment of intrinsic value, while adding a sixth criteria based on strategic performance in relation to environmental opportunities and risks. DWA has built authentic domain expertise and a repeatable process to identify companies that: (a) demonstrate advantages on environmental performance that materially reinforce one or more of our other five fundamental criteria (“E-Advantaged”) or (b) derive a substantial and growing proportion of revenues from products and services that address intensifying environmental challenges related to energy, food, water, ecological integrity or the physical, regulatory and transition risks imposed by climate change (“E-Solution Providers”).
We believe companies that are ahead of the curve on environmental issues – with respect to their internal practices, supply chain management and the products and services they sell -- will be better able to build a wider defensive moat around their businesses, identify compelling reinvestment opportunities, secure a lower cost capital, attract the best talent, secure an enhanced “license to operate” in their communities, and be better prepared for the future than average companies. Douglass Winthrop’s Environment Strategy should not be considered a traditional socially responsible investment vehicle that executes values-based exclusions. Rather our primary goal is to protect and grow client capital by investing in companies that we believe are likely to outperform the market over the long term by enhancing our stringent investment criteria with this additional environmental filter.
Our “active ownership” practices involve engaging our portfolio companies to improve their environmental performance in material ways that we believe will benefit both long-term shareholder performance as well as societal and ecological well-being. As part of our stewardship activities, Douglass Winthrop’s Environment Strategy supports the Say on Climate Initiative. We encourage portfolio companies in the Douglass Winthrop Environment Strategy to: (1) disclose their greenhouse gas emissions annually; (2) disclose a strong and credible Climate Transition Action Plan to manage those emissions referencing the Climate Action 100+ Net Zero Benchmark, and to do so at least one month ahead of their next Annual General Meeting (AGM) filing deadline; and (3) report to shareholders on their annual performance versus the plan.
Douglass Winthrop engages in constructive dialogue with its Environment Strategy portfolio companies to promote these actions. In certain cases, we may choose to vote for AGM shareholder resolutions requiring such emissions disclosure or to vote for a disapproval resolution rejecting a company’s plan and/or performance if we consider it deficient. Douglass Winthrop subscribes to and considers ISS’ Climate Policy voting recommendations and the advice of Say on Climate in conducting our proxy voting on behalf of Environment Strategy clients.