- Marketing Communication -
Sustainable investing is now more than just a trend. There are few capital market participants in Europe who can escape the pressure from the regulatory side and, above all, from client demand. This means that the sustainability movement is using the greatest possible leverage: the financial markets. Companies that do not address the issue will be penalised by lower investor interest and falling valuations. Consequently, laggards will have to react and adapt accordingly. Nowadays, generating returns and sustainability are no longer seen as diametrically opposed, but in some cases lead to significant outperformance. ESG is becoming the standard.
How does a multi-investment boutique like MainFirst succeed in meeting these sustainability demands? We want to avoid negative aspects through exclusions and at the same time promote positive aspects through changes in behaviour - and we do all this authentically by creating the utmost transparency regarding our actions through an open dialogue with clients, service providers, companies, and other parties.
Exercising influence as a trustee
In general, asset managers who take ESG criteria into account in their investment decisions can, on the one hand, promote sustainability-oriented business models, or exclude an investment due to a lack of or insufficient sustainability efforts. The effect of these exclusions and divestments: a persistent weakness in the share price is a clear signal to the Boards of Directors and, in the best case, leads to positive reactions. On the other hand, asset managers can actively work towards a change due to significant holdings.
The concentrated portfolios at MainFirst are often accompanied by significant shareholdings in numerous small to mid-cap companies. As shareholders interested in the long-term success of a company, this in turn opens up numerous opportunities for us to exert indirect or direct influence on decisions relevant to the company - whether through direct dialogue, engagement or the active exercise of voting rights. In these cases, we consider ourselves a sparring partner with a connection to the capital market. Above all, however, we see ourselves as the representatives of the interests of our investors, whose capital we manage in a fiduciary capacity. For this reason, we are constantly and intensively involved with the business models of the companies and do not shy away from in-depth discussions with their management boards. In our opinion, dialogue is the best way to overcome the apparent contradiction between economics and sustainability.
Particular efforts have to be made when dealing with small caps. For business reasons, the large sustainability rating agencies prefer to devote their attention to the large-cap companies. An investment in small or medium-sized companies requires more research and analysis on our part in advance, but we see one of the most decisive levers in our sustainability approach in these investments. Through years of contact with many decision-makers in the companies, we have built up a large network that helps us not only to better assess sustainability qualities, but also to bring about positive changes in individual cases. We are convinced that the value of any strategy is measured by its impact.
Transparency is key
Just as we demand more transparency from the companies in our portfolios, we also want to set a good example. MainFirst has made further efforts in recent years to increase its transparency towards its own clients. Publishing our sustainability report and the report on the exercise of voting rights were just the beginning.
At MainFirst, the individual further development of sustainability approaches is the responsibility of each Portfolio Management team. While the team focusing on global equities considers careful stock selection and clearly defined exclusion criteria to be fundamental to the sustainable use of capital, the team dealing with German and European equities focuses on active dialogue with the companies in which it invests. The goal is to drive sustainable action through interactions with the decision-makers in the companies. In doing so, we also make intensive use of the option of actively exercising voting rights. This demonstrates our pragmatic and solution-oriented approach. And it shows that even a product launched as a ‘conventional fund’ can score in terms of sustainability without rebranding by adding a ‘Sustainable’ or ‘ESG’ to the name. We prefer to bridge the gap between sustainability and return through active dialogue and our engagement.
The management actively supports this endeavour. It is important to MainFirst that the individual teams implement an authentic ESG approach in their investment philosophies. The fact that this work has been recognised externally makes us particularly proud.
Sustainability labels offer orientation in the jungle
For external observers, these types of developments within a company are not always easily recognisable. This also increases the relevance of transparent and comprehensible sustainability labels, in particular as there is no clear, overarching definition for sustainable investments. Here, too, we want to create transparency for our investors, therefore, we have our authentic sustainability approach externally assessed. In the Forum Nachhaltige Geldanlagen (FNG), a sustainable investment forum that operates in German-speaking countries, we have found a competent and renowned sparring partner. MainFirst is pleased to have been awarded the FNG label as a quality standard for sustainable investment funds in Germany, Austria, and Switzerland.
Preliminary discussions, extensive feedback questionnaires, and calls enable an intensive and individual assessment. As one of the best-known labels, the FNG label not only provides a result that is easy for clients to understand, but also differentiates quality. Quality before quantity also fits MainFirst. As a company, we do not allow ourselves to be cast into a fixed mould. Particularly in the ever-increasing regulatory confusion, it is helpful to have an established guide for orientation. Funds with assets under management totalling EUR 120 billion now bear the FNG label.
After four funds were awarded the label for the first time in 2020, we have now been able to increase the number of certified funds. Six of our funds received the coveted and industry-recognised FNG label this year. The MainFirst Global Equities Fund, the MainFirst Global Equities Unconstrained Fund, the MainFirst Absolute Return Multi Asset, and the MainFirst Germany Fund were awarded two stars. Our flagship product, the MainFirst Top European Ideas Fund, which took part for the first time, also received two stars, while the recently launched MainFirst Megatrends Asia received one star. All of the award-winning funds scored additional points in the areas of institutional credibility, product standards, and selection and dialogue strategy. The FNG label takes internationally recognised sustainability standards into account when assessing funds and is now a well-regarded quality standard in German-speaking countries. As such, it also provides orientation for investors who attach importance to sustainable investment strategies and can be helpful in making investment decisions. In the future, we want to continue to make our ESG approach as transparent as possible and to constantly optimise our strategy.
Author: Alexander Lippert, Portfolio Manager of the MainFirst Germany Fund and the MainFirst Top European Ideas Fund
* FNG label:
Two stars were awarded to the:
- MainFirst Global Equities Fund
- MainFirst Global Equities Unconstrained Fund
- MainFirst Absolute Return Multi Asset
- MainFirst Germany Fund
- MainFirst Top European Ideas Fund
One star was awarded to the:
- MainFirst Megatrends Asia
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