FTA: We all know we need to reduce emissions but how do we really achieve net zero - or even negative emissions across the whole supply chain?
GH: The companies in our universe are the suppliers of the solutions. The way to achieve net zero, or the way for the companies and individuals to reduce their own emissions is by embracing the green solutions available.
Possible solutions include: converting energy sources to 100 per cent renewable; renewing your fleet to 100 per cent electric vehicles; improving building insulation; using and storing distributed renewable energy; embracing telepresence and reducing corporate travel based on planes; using electric trains or transport whenever possible, etc.
FTA: Why do companies scoring highly on ESG metrics (all of the E, S and G!) make for good, sustainable long-term investments?
GH: It is important to be careful with ESG scores. They are still a black box and different data providers calculate the scores in different ways which can result in different ratings.
We always ask to see the ratings for companies such as Tesla, and it is shocking to see the standard deviation in the responses. We believe a company’s course of free cash flow (in other words, their revenue) is the key point to make the fundamental point of what a company does, and not just how the company operates.
A top-five ESG-rated FTSE name is a global tobacco company. This company produces cigarettes, it may do it in more sustainable ways, but cigarettes in our view are not in line with sustainable development goals.
Companies that are innovating to solve more pressing needs (for example: mitigation of climate change, bending our linear economy towards a circular one) and that do that by operating with robust ESG ways are very likely to be sustainable, relevant long term investments.
FTA: What do existing companies with low ESG scores and high ESG risk need to do to remain viable businesses?
GH: They need to innovate. They need to make sure that they are relevant. Relevance is connected with the ability to problem solve. Be in line with what will make the planet survive, regenerate.
Look at their operations and see how to produce (cost of goods sold) and sell (SG&A) in more sustainable ways. Moreover, put pressure on their suppliers to do so.
simoney.kyriakou@ft.com
