SPONSORED BY Waratah
Environmental, social and governance (ESG) have come sharply into focus, driven further and faster by the climate crisis and the coronavirus pandemic. We are at an inflection point in society and the global economy where the social and profit motives are intersecting and no longer oppose each other.
Off balance sheet costs that were thus far borne exclusively by society are now going on balance sheets due to changes in investor tolerances. Capital intensity, margins and valuation are now directly impacted by ESG and this will only accelerate as investment flows intensify into these responsible strategies.
Investors are actively seeking out new investment opportunities, optimising opportunities to do well and at the same time do right. As one of the first alternative investment firms to develop and launch an ESG integration strategy, Waratah Capital Advisors is at the leading edge.
Three years into our research and development on ESG, it became clear that by applying a new lens to investing, one which emphasises ESG factors, we could better identify and manage inadvertent ESG risk factors.
It also allows us to identify incremental opportunities to deploy capital in new high-growth areas of economic activity, such as water technology, battery materials, waste mitigation, renewable energy and energy-efficient real estate, to name a few.
Early on, in the product development phase, we realised we were not going to be able to rely on third-party ESG data sets, which are based on voluntary corporate ESG reporting. In response, we set out to build a team and a proprietary scoring methodology that is dynamic and based on primary research with company management teams and asset site visits.
“By closely scrutinising a company’s activities through first-person fundamental research, combined with industry and third-party data, we can subjectively allocate an ESG score in real time that accurately reflects how it is performing,” says Blair Levinsky, co-founder and chief executive of Waratah.
“A prime example is the water industry, where we are long on companies that build valves and fittings for municipal infrastructure and desalination plants, and short on companies that use large diesel trucks to deliver water jugs to office buildings.”
Jason Landau, portfolio manager at Waratah, adds: “We have a non-exclusionary approach to ESG and do everything on a relative basis. We believe the greatest way to make a change is by encouraging an industry to do better. We feel that incorporating ESG into our fundamental investment analysis not only makes us better investors, but is the right thing to do.”
A bad ESG-scoring company making improvements can have a greater positive change on society than a good-scoring company getting incrementally better. To address this dynamic we established a framework, which can go both long and short on a negative-scoring company.
We feel that incorporating ESG into our fundamental investment analysis not only makes us better investors, but is the right thing to do
That’s where Waratah fits in with its resilient approach to investing, reflecting our name, derived from a tough Australian plant that grows in the harshest environments. By taking a long-term view and integrating ESG both long and short, Waratah strives to achieve sustained compound growth and protect our investors’ capital while leading the way towards more sustainable investment.
Waratah is a Canadian investment manager with a track record of more than ten years and over C$2 billion of assets under management. Our alternative ESG philosophy is to compound wealth and protect against loss through integrating ESG factors into our fundamental investment and risk-management analysis.
For more information about ESG investing with Waratah Capital Advisors please call +1 416 687 6791 or email info@waratahcap.com
Contributor disclaimer
Waratah may change its views in the subject companies discussed in this article at any time for any reason and disclaims any obligation to notify any party of such changes. The information and opinions contained in this article are not and should not be perceived as investment advice or a solicitation to buy or sell securities. Waratah makes no representation or warranty, express or implied, as to the accuracy or completeness of the statements made in this article nor does it undertake to correct, update or revise those statements.
