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SYCOMORE ECO SOLUTIONS: IRRIGATING THE FERTILE GROUND OF ENVIRONMENTAL TRANSITION

Nos Experts

Sycomore Eco Solutions is a responsible ‘impact investing’ fund targeting investors who care about where their money goes. The construction process means that the fund invests exclusively in companies that make a substantial contribution to the environmental transition and that successfully navigate social, societal and governance related risks.

Jean-Guillaume Péladan

The objective we set ourselves when Sycomore Eco Solutions was launched in 2015 was to combine sustainable financial performance and positive environmental impact – a fund managed with conviction and with no concessions made, either in terms of impact or returns. As the first fund to receive the government’s Transition Energétique et Ecologique pour le Climat label, Sycomore Eco Solutions rose to the challenge and now offers both impact and performance.

A KEY CHALLENGE FOR THE 21ST CENTURY

The facts are simple: our human societies and companies cannot live “off-ground”, without a stable environment that provides natural - or ecosystem-based services to quote the specialists: healthy air, access to water, a stable climate, fertile soils, renewed natural resources…

According to the WHO, 23% of global mortality is related to environmental degradation. This represents 12.6 million people every year.

And yet, since the end of the 20th century, human civilisation has exceeded the physical limits that the biosphere is able to absorb: every year, we consume more natural capital than the planet can regenerate, as the work carried out by WWF and the Global Footprint Network demonstrates.

THE ENERGY AND ENVIRONMENTAL TRANSITION HAS BEGUN

But there is also some good news to report. The first is that the environmental transition is on the move: consumers did not wait for the Grenelle Environmental Summit to request healthier and more eco-friendly foods; car manufacturers did not sit waiting for the carbon tax to sell hybrid or electric cars; and energy players had started developing renewable energy production capacity throughout the world long before COP 21…to the extent that since 2015, these newly installed capacities are exceeding those produced by fossil and nuclear power plants.

''Additional renewable energy capacity installed globally, in GW and in percentage.

Source: AIE, Perspectives 2016''

The second encouraging piece of news is that the companies implementing and contributing to the growth of these solutions exist in great number throughout the world, and particularly in Europe. Many are listed on the stock market, of differing market capitalisation sizes. Finally, while some industries have a much larger impact – such as transport, energy, agri-food or construction – unlike media or healthcare for example, no sector is immune from the energy and environmental transition.

AND IT IS OPEN TO ALL FOR INVESTMENT

The Sycomore Eco Solutions fund was created to allow all money savers (PEA eligible fund) and investors to gain exposure to the companies behind these solutions. The third positive piece of news is that the power to act for our future needn’t rely simply on consumers buying differently, on companies reviewing their strategy, on governments shifting their regulatory frameworks in favour of natural capital, or on local communities supporting green innovations: finance, used with a sense of purpose, can also constitute an eco-solution.

HOW?

To guarantee that the fund confines its investments to the field of eco-solutions, Sycomore AM has built a specific research methodology which measures the extent to which companies’ activities are aligned with the Energy and Environmental Transition: the intensity of their Contribution to the Energy and Environmental Transition (CEET), expressed as a percentage of turnover.

Companies offering a fully aligned response to the issues of environmental transition and the fight against climate change will see their ‘green intensity’ indicator move closer towards 100%: organic foods, plant-based products, renewable energy management, building insulation, public transport, cycling and recycling. If a business displays a neutral net environmental impact, i.e. similar to the average solutions available on the market, its CEET will be 0%. Finally, if a company destroys natural capital, for instance a coal fuelled electric power plant or a company specialised in pesticides, the more it destroys, the closer it will get to -100%.

This indicator measures the net environmental impact of a company expressed as a percentage of its turnover. It ranges from -100% for a business that has a particularly destructive impact on natural capital, to +100% for a company that generates maximal positive impacts and clearly address environmental and climate-related issues.

Only the companies with satisfactory ratings in terms of extra-financial performance – Environment, Social, Governance (ESG) – and displaying a CEET above 10% are eligible for inclusion in the portfolio of Sycomore Eco Solutions.

Since inception, the fund has posted an average CEET of around 50% (1) and an average ESG rating of 3.4 (1) out of 5. Within this universe, the portfolio managers focus on approximately 50 companies they believe offer the most attractive upside potential. Finally, they map out impacts against five complementary areas relating to the transition: energy, mobility, construction, ecosystems and the circular economy.

The search for businesses aligned with the environmental transition and the rejection of companies that are indifferent or hostile to this trend has two consequences. On the one hand, it steers the portfolio away from companies that are going “against the flow” and facing the headwinds caused by the transition - businesses that are more likely to be involved in controversies, boycotts or environmental scandals and which are ultimately heading towards the cemetery of obsolescence. On the other hand, it focuses on players active in dynamic markets and poised to gain from being aligned with current and future trends - regulatory and fiscal, but also societal and civic. These companies are supported by tailwinds and their positive missions, inspiring and purposeful, sustain the energy of their employees. Ultimately, this means more opportunities and an improved ability to seize them, as demonstrated by the stock market performances of organic food company Wessanen, of Sif Holding NV, which manufactures monopiles for off-shore wind farms, Leinzig, the wood fibre textile manufacturer TencelTM, recycling company Umicore or Plastic Omnium, the automotive components company.

1 in 4 portfolio companies has already been involved in major corporate action - large-scale acquisition, IPO, capital increase or public takeover bid.

AN INNOVATIVE STRATEGY DELIVERING TANGIBLE RESULTS

The fund’s investment universe principally includes European stocks (all market capitalisations) with a potential diversification outside of Europe. No sector is excluded a priori; however, in practice, the strategy is heavily exposed to industries that have a strong focus on eco-solutions, notably industry, consumer goods and utilities.
With over 20 months track record, the fund has delivered on its promise: Sycomore Eco Solutions combines financial performance and positive environmental impact. At the end of April 2017, the fund posted a gain of +23.7% (2) since inception, while its benchmark, the MSCI Europe NR (3) was up +11.4%. On a year-to-date basis, the fund is up +13.5% (2) versus +7.7% for the MSCI Europe NR (3).

(1) Data as of 28/04/2017. Average CEET of the Sycomore Eco Solutions portfolio: 47%.
(2) I share. Data as of 28/04/2017. Inception: 31/08/2015.
(3) NR: Dividends reinvested.

Fund’s risk/return profile

Warning

Past performances are not a guarantee of future performances. he value of investments can fall as well as rise. There is no guarantee that these investment strategies will work under all market conditions or are suitable for all investors, and investors could bear capital losses. The performance of the fund can be explained partially by ESG indicators of the companies appearing in the portfolio, but these last ones are not the only factors determining the evolution of this performance. This communication has not been prepared in accordance with regulations to promote the independence of financial analysis. SYCOMORE Asset Management or management companies involved with the preparation of this document are not subject to the ban on conducting transactions on the instruments mentioned by the publication of this communication. Prior to investing, please read carefully the key investor information document available on our website : www.sycomore-am.com.

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