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Sycomore Shared Growth: societal impact, key to sustainable growth

Our Experts

Sycomore Shared Growth fundamentals: a SRI fund focusing on companies offering solutions to the world’s major social challenges and embedding this positive impact objective into their strategy, in order to deliver profitable and sustainable growth. Sara Carvalho de Oliveira, SRI analyst, unlocks the investment philosophy that guides the fund.

Sara Carvalho De Oliveira

When growth is unequally shared

The investment philosophy of Sycomore Shared Growth stems from a simple observation: over the past few decades, global economic growth, which fruits have been unequally shared, has contributed to rising inequalities in most countries across the world. The first Report on Global Inequalities, based on the research conducted by the one hundred economists that form the World Wealth and Income Database (WID), provides a startling illustration of this phenomenon: since 1980, the top 1% richest people in the world have captured twice as much income growth than the poorest 50%[1]. Creating fertile ground for political and socio-economic instability, the rise in inequality has now been clearly identified as a major systemic risk.

The role of companies

We believe that listed companies, leveraging their expertise, their resources and their broad footprints, have an important role to play in stamping out this phenomenon by choosing how they will generate growth. A business positioned with a view to meeting the major global societal challenges and benefiting from these long-term structural trends, guided by an acute awareness of corporate responsibility in relation to stakeholders and society as a whole, seems to us to offer the strongest guarantee of a durable and bettershared growth.

The two dimensions of societal impact

The stock selection process applied to Sycomore Shared Growth is a direct result of this conviction and therefore takes into account the two dimensions of societal impact: the societal contribution of goods and services, which reflects how a company’s business is aligned with major societal issues, and corporate citizenship, which reflects how a company conducts its business and the more or less positive externalities that these choices entail for society.

Social contribution

The societal contribution of goods and services

When assigning a rating for the societal contribution of goods and services, we review the company’s sales revenue in order to assess the contribution of each business line to the four pillars that we have defined.

Societal impact of goods & services: the 4 pillars (Source: Sycomore AM)

Social Impact

These pillars cover the societal priorities as defined in the United Nations 17 Sustainable Development Goals (SDGs), the 2030 roadmap shared by public and private players, as well as challenges focusing on human development, such as fulfilment at work, physical and mental health, or the preservation of cultural heritage.

The societal contribution of goods and services seeks to assess the alignment of a given business model with trends in sustainable development

To help us in this task, we use the data collected by our partner Oekomin their Sustainability Solutions Assessment analysis, also shown as a percentage of sales income contributing to societal issues. We also base our research on information provided by the companies themselves.

Since data published on these issues vary greatly from one company to another and often lack precision, the societal contribution of goods and services is not meant as a precise measurement, but provides orders of magnitude and comparison data to help us assess, as objectively as possible, the extent to which a business model is aligned with the sustainable development trends which are of interest for our investments. This metric is expected to evolve over time and become more precise, with the improvement in corporate reporting practices and the emergence of independent sector benchmarks.

Global goals

Source: Global Goals http://www.globalgoals.org/

Societal contribution naturally varies according to the sector (typically, the strongest contributors to the Health & Safety pillars are to be found in these industries); it is also greatly impacted by the variety of business models within a given sector: the agri-food industry will see its societal contribution progress as it refocuses its business portfolio in favour of healthy products; a luxury industry player supporting local craftsmanship will be valued for its contribution to the preservation of cultural heritage.

Similarly, the development of new offers dedicated to people with limited access to the product or service in question (“Bottom Of the Pyramid” strategies) will increase the contribution to the Access & Inclusion pillar, whatever the industry.

A societal perspective on employment

The Employment pillar corresponds to a societal vision of labour – the company’s ability to offer and preserve decent jobs, as defined by the ILO (International Labour Organisation), namely: “opportunities for work that is productive and delivers a fair income, security in the workplace and social protection for families”.

The quality of employment seen from the perspective of the employee is captured in our “People” analysis. The point, here, is to deepen the analysis with the inclusion of a more quantitative and macroeconomic dimension: employment seen from the perspective of society, and therefore the contribution to SDG#8 (decent work and economic growth), necessary to achieve most other objectives.

The objective of this pillar is to value the businesses that create most jobs, as well as business models supporting the creation or preservation of jobs in areas of scarce employment. With this objective in mind, we are currently working in partnership with The Good Economy - a British consultancy firm specialized in measuring societal impact and more specifically, the corporate employment footprint. Together, we are imagining a methodology that will enable us to embed employment- related public macroeconomic data into our own analysis.

Corporate citizenship

The societal impact of a company is particularly visible through its products and services, but we believe it depends just as much on the way it conducts its business. So, in the light of this qualitative dimension of societal impact, we value the companies that have drawn up a clear mission statement, embedded within their strategy. This gives substance to their ambition to secure their growth in the quest for a positive societal impact.

Finally, from a company’s perspective, working towards a better distribution of growth is primarily about fulfilling its most basic obligations towards society; these include contributing to the funding of social expenses through responsible tax policies, which redistribute a fair amount of the value to the communities where it has been created, but also fighting against corruption and other fraudulent practices, such further headwinds to generating economic growth that benefits to the greatest number.

Committed to identifying both risks and opportunities, our analysis also takes positive externalities into account by valuing companies that stand out through their durable and quantifiable philanthropic commitment for instance, or that are particularly proactive in the field of sustainable development, by partnering up with other players or using their influence to advance these causes.

The opinions and estimates constitute our judgment and are subject to change without notice. We believe that the information provided in these pages is reliable, but it should not be considered exhaustive. These data, graphics or extracts were calculated or made on the basis of public information we believe to be reliable but which nevertheless have not been subject to independent verification on our part.

[1] 2018 Report on Global Inequality, World Inequality Lab, p.9. http://wir2018.wid.world/files/download/wir2018-summary-french.pdf

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