After recently rolling out nine ESG-focused funds, investment managers at a European firm and KBI Global Investors discuss strategies that include a raft of US-based companies.

Around the world, wealth management houses have been rolling out ESG/sustainability-themed funds to tap into perceived client demand for these portfolios – and this news service recently spoke to firms from Europe on how they're putting ideas into action. 

Senan O'Sullivan, equity portfolio manager, and Ronan Callan, ESG investment analyst, at Mediolanum International Funds (MIFL), have highlighted what they say are the benefits of their MBB Future Sustainable Nutrition Fund. Separately, this news service also spoke to Ireland-based KBI Global Investors, which co-manages the MBB Energy Transition Fund and the MBB Circular Economy Strategy.

The MBB Future Sustainable Nutrition Fund, which comes under Article 9 of the EU’s Sustainable Finance Disclosure Regulation (SFDR), is co-managed by Black Rock and Pictet, who bring different views on how to approach the sustainable nutrition theme. It aims to provide investors with exposure to the sustainable nutrition theme and the evolution of a new food system which addresses the unsustainable health, climate and waste problems of the current worldwide food production system.

MIFL noted that food systems account for over one third of global greenhouse gas emissions, with 45 per cent of food produced either lost or wasted. Yet in 2020, between 720 and 811 million people faced hunger, rising from 2014. With the world population set to hit 10 billion by 2050 and the food system accounting for 30 per cent of emissions, MIFL said precision agriculture which optimizes crop productivity is a key tool for achieving this. It will enable farmers, for instance, to target their fertilizer application more precisely. Adopting this technology is expected to accelerate in the future.

A top holding is US-based agriculture machinery producer John Deere has revealed two new technologies recently, ExacShot and an electric excavator. ExactShot uses a sensor to register when each individual seed is in the process of going into the soil and allows farmers to reduce the amount of starter fertilizer needed during planning by more than 60 per cent. The electric excavator, powered by a Kreisel battery, reduces jobsite noise, enhances machine reliability, and produces zero emissions.

Holdings also include Dutch multinational DSM, which specialises in nutritional and speciality food ingredients, producing supplements to reduce methane emissions from livestock to combat climate change. They also include California-based Beyond Meat, a firm that produces plant-based burgers, O'Sullivan and Callan told this news service. Other holdings are Berlin-based Hello Fresh, a meal kit provider in the US, Australia, Canada, New Zealand and Europe. UK food delivery firm Just Eat is also included in the portfolio. The Kerry Group, an Irish-based food company, is another top holding. Forty-five per cent of the fund is focused on firms in the US, 36 per cent in Europe and 10 per cent in the UK, they added.

Although O'Sullivan and Callan are positive about the long-term prospects of the fund and the stocks that it invests in, the fund has struggled recently mainly due to the effects of a difficult economic environment, they said.

This news service has carried a number of articles about how wealth managers are paying more attention to food production and its demands. Population pressures, wars, supply chain disruptions and the impact of new technologies have shaken up the space. See more here and here.

MBB Circular Economy Strategy
Ireland-based KBI Global Investors co-manages the MBB Energy Transition Fund and the MBB Circular Economy Strategy, which focuses on reducing, reusing and recycling products for as long as possible. Martin Conroy, senior portfolio manager at KBI Global Investors, talked about how "circular economy strategy," which was launched in early 2022, also comes under Article 9 of the EU’s Sustainable Finance Disclosure Regulation (SFDR). It is a global portfolio of 30 to 60 stocks, open to European and US investors.

“The market is still defining the circular economy and what’s eligible for a fund. We focus on bringing solution providers to the table to help advance the circular economy,” Conroy said in an exclusive interview. “The fund invests in firms that specialise in sustainable packing, getting away from single use plastics and which are recyclable. We have paper-based and aluminium based packaging, such as aluminium cans.”

Food waste is one of the biggest contributors to global greenhouse gas emissions, and so eliminating and reducing food waste is key for the circular economy, he said.

“We do have exposure to food waste, with 8 to 9 per cent of our portfolio agriculture and food exposed...we look at firms that provide ingredients that extend longevity of food and also that do food storage, as crops are often lost due to a lack of storage, especially in emerging markets. We invest in firms that have advanced storage techniques," he said. 

Holdings include Irish-based food company the Kerry Group, which provides preservative type food ingredients. Canadian firm Ag Growth International is another holding that provides advanced food storage products and services to emerging markets, and Trimble which has technological products to advance precision agriculture. The top holding is Veolia Environment, a provider of water, waste and energy management solutions.    

Conroy also invests in renewables, notably semiconductors, which play a key role in reducing the consumption of energy. Holdings include NXP Semiconductors, as well as solar firm Sunrun, a US solar installer, and Andritz, a supplier of equipment for hydropower.

The fund’s biggest exposure is in the industrial sector, with almost half from waste management companies and recycling companies. This is followed by renewables, sustainable packaging and agriculture/food efficiency. The majority of firms – 63 per cent – are based in North America, and 31 per cent in Europe.

"The fund had a very good year in 2022, outperforming the index, but 2023 has been more difficult, partly as renewables, mainly within the solar space, did not perform so well," he said. Conroy, however, thinks that this is a short-term dynamic; he is positive about the solar space in the medium to long term. See other articles about KBI GI here. 

MIFL is a management company approved by the Central Bank of Ireland to manage UCITS or undertakings for the collective investment in transferable securities, which are investment funds regulated at EU level, and non UCITS funds.