Global Sustainable Outcomes | News & Views Q3 2019 | 1

GLOBAL SUSTAINABLEOUTCOMES

News & Views Q3 2019

As we have moved through the year – and certainly in the third quarter – climate change and its impacts have moved up the agenda. As this focus intensifies, investors are increasingly looking to the corporate sector for evidence of their own progress on sustainability.

It has been a bumpy quarter for global equity markets, with the MSCI All Countries World index ending slightly down over the quarter. Geopolitical tensions continued to weigh on global markets with no resolution to the US tariff wars or Brexit. However, equity market valuations were supported later in the quarter by global cuts in interest rates.

The Global Sustainable Outcomes strategy navigated through this market turmoil while continuing to deliver on our sustainable themes. Several companies held in the strategy made ambitious environmental targets at New York Climate Week from 23-29 September:

Ingersoll Rand This global leader in heating and air conditioning equipment announced its “Gigaton Challenge” with the company aiming to reduce a gigaton of carbon emissions from its customers’ footprints by 2030. This is equivalent to the annual emissions of Italy, France and the UK combined.

Givaudan The Swiss flavours and fragrance business aligned its emissions targets with the goal of limiting global warming to 1.5°C. This is no mean feat, requiring an emissions reduction of 70% from 2015 levels by 2030. The company was already a member of RE100, a global initiative bringing together influential businesses committed to 100% renewable electricity, so aligning to 1.5°C is a natural progression.

Pauline Grange Portfolio Manager, Global Equities

Jess Williams Portfolio Analyst, Responsible Investment

Consumer companies are increasingly looking into more environmentally friendly items and packaging.

Next quarter we expect to see further activity in the area of sustainable outcomes with COP26, the United Nations Climate Change Conference. Traditionally a conference for policymakers to meet and agree global government-level ambition (the Paris agreement was the outcome of COP21), the private sector has in recent years had more of a presence. More targets in the same league as Ingersoll Rand and Givaudan would certainly end 2019 on a sustainable outcome high.

Activity over the quarterThere is more focus on the damage

single-use plastic packaging has on the environment, with consumer companies increasingly looking for more environmentally friendly packaging. Over the quarter we increased our investment in companies providing innovative, sustainable packaging solutions, thus increasing our exposure to our theme of Sustainable Resource Management and Transformation, which is aligned with UN Sustainable Development Goal 12,

Responsible Consumption and Production.During the quarter we also started new

positions in: Sig Combibloc Group AG A global

supplier of aseptic cartons, whose products help improve food hygiene standards. Its recent product innovations have focused on more environmentally friendly packaging ranges, including for example SIGnature and EcoPlus. These products are sustainably sourced, recyclable and have lower lifecycle carbon emissions than traditional packaging options.

UPM-Kymmene Oyj A conglomerate primarily focused on paper and forest products. UPM’s paper divisions produce products that are made of renewable material which is recyclable and biodegradable and produced using bioenergy where possible. UPM is also the world’s largest user of recovered paper. Its recent innovation has focused on developing wood-based biofuels and biochemicals that can help replace fossil fuels in transportation and plastics.

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Sadly, our food systems are facing fundamental changes and challenges on multiple fronts and in their current form, are not fit for purpose: ◾ Demographic growth increases

pressure on resources: it is expected that there will be almost 10 billion people on the planet by 2050, around a 30% increase from today.2 Due to this population growth we will need more food in the next 40 years than all harvests in history combined!3

◾ However, climate change poses risks to global food production: In 2017 alone, climate-related disasters caused acute food insecurity for c.39 million people across 13 countries.4 At a time of increasing drought risk, agriculture is also the largest consumer of the Earth’s available freshwater: 70% of “blue water” withdrawals from watercourses and groundwater are for agricultural usage.5

◾ Whilst agriculture in turn contributes to climate change: It is estimated that agriculture and land use has accounted for 24% of Global GHG emissions with dairy & cattle around 40% of this total.6

◾ Industrial farming threatens the Earth’s Biodiversity: One of the most alarming impacts from the growth in intensive agriculture is the destruction of our natural ecosystems or “Biodiversity”.

The heavy use of pesticides and the loss of natural habitats to make way for farming are the key reasons for the shrinking of animal populations, with the number of animals living on Earth having plunged by half since 1970, according to the WWF. Insect species are disappearing at an alarming rate, with their rate of extinction 8X faster than that of mammals, birds and reptiles. Our current food systems are not only threatened by climate change but are also exacerbating the problem. There is a critical need for not only greater risk awareness, but innovation and scaling up of alternative models and sustainable farming solutions. Mainstream financial markets can play a role in supporting companies offering these solutions as they seek to scale up and broaden their impact.

Our investments: The Global Sustainable Outcomes

strategy has invested in several companies offering innovative, sustainable farming solutions, including:

Trimble has developed precision agriculture technology which can be used by farmers to optimise farm yields whilst preserving natural resources. Their ag tech solutions help farmers make data driven decisions in real time resulting in

improved farm yields of up to 30% as well as improved sustainability, for example reducing farm water use by up to 20%.7

Croda offer crop enhancement products. Through their acquisition of Inotec, Croda is now the market leader in vegetable seed coatings. Seed enhancements is a way of improving crop yields by enhancing the quality of the seed planted. The superior seeds also require 80-90% reduction in the amount of plant protection product, helping to reduce the amount of chemicals sprayed onto crops.8 They have also developed spray drift reduction technology to reduce the amount of pesticide that drifts away from its intended target risking damage to neighbouring crops, pollution of surface and ground water and risk to human health and local wildlife.

Sustainable theme focus: The future of food The food value chain is vital to the success of many economies, global financial markets, and sustainable development. The UN Sustainable Development Goal 2, Zero Hunger, emphasises the importance of nutrition, food security and sustainable agriculture to global development and prosperity.1

1https://sustainabledevelopment.un.org/sdg2,2 UN.org, World population projected to reach 9.8 billion in 2050, and 11.2 billion in 2100, 21 June 2017

3 Food Security Information Network, 2019 Global Report on Food Crises

4World Economic Forum, Global Risk Report 20195https://www.globalagriculture.org/report-topics/water.html6IPCC. Barclays 7https://www.trimble.com/Corporate/RCC/Our-Solutions.aspx8Croda Sustainability report 2018.

At a time of increasing drought risk around the globe, agriculture is the largest consumer of the earth’s available freshwater.

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9Bloomberg New Energy Finance10Bloomberg New Energy Finance11Ørsted, Investor presentation, Q1 201912https://www.brighthorizons.com/newsroom/fortune-100-best-companies-2019

Company Sustainable Theme & ESG Quality UN SDG & Sustainable Impact

Orsted is an offshore wind farm developer and operator, partly owned by the Danish government. It is the leading player in the market, with 26% market share supported by its scale and brand competitive advantages.

The company was previously known as DONG Energy with significant exposure to fossil fuels. Having rebranded in 2017, the company is in the process of eliminating all coal exposure, having already sold its oil business.

Offshore wind is a high growth market with a 17% compound annual growth rate expected to 2030 driven by government carbon targets and the improving cost competitiveness of wind.

Research and engagement with management is evidence of the company’s commitment to material ESG issues including employee welfare and safety.

In H1, 2019, the “green” share of Orsted’s total heat and power generation reached 82% (up from 71% y/y) getting it closer to its 2025 target of close to 100%.

Its total installed, decided and awarded renewable capacity grew 30% y/y to 18GW. It has achieved first power from the new UK offshore wind farm Hornsea 1 which, when fully operational in Q4, 2019, will be the world’s largest offshore wind farm with 1.2GW capacity.

Bright Horizons offers child care and early education centres at or near work sites. It is the largest provider of employer-sponsored child care.

It also provides backup child and elder care, as well as education advisory services for adult learners and prospective college students.

Bright Horizons’ services not only promote early years education, but also a more inclusive workplace by enabling those with caring obligations to re-enter the workforce. It also enjoys a solid ESG rating supported by strict hiring and supply chain checks. Its policy is to pay teachers a fair wage with tuition increases allowing for consistent wage growth. It is consistently voted one of the 100 Best companies to work for by Fortune magazine. This solid reputation supports its strong competitive position.

In Q2, 2019, Bright Horizons added 12 full-service centres. It also expanded its back-up care and educational advisory cleint portfolios with recent launches for Nestle, Peloton and WeWork.

Through to June 2019 it has invested $50 million in new centres and acquisitions and $20 million in existing operations.

As at 30 June 2019 it operates 1,083 centres with capacity to serve 120-200 children partnering with more than 1,150 clients. It also covers more than six million lives with back-up care.

Cooper Vision is a leading manufacturer of contact lenses.

It also offers a range of birth control options and is one of the only companies to offer the non-hormonal, copper IUD in the US.

As well as the health benefits from Cooper Vision’s products, it is also developing more environmentally friendly packaging solutions.

Cooper Surgical offer more than 600 clinically relevant medical devices used by women’s health care providers, enabling women to have greater control over family planning.

It is conducting research into new myopia (short-sightedness) products and has developed a range of corrective lenses called MiSight, slowing its progression. The prevalence of Myopia is projected to increase from approximately two billion people worldwide in 2010 to almost five billion people in 2050, bringing with it near- and long-term health challenges.

Health, Wellbeing & Food Security

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Inclusive Work & Economic Development

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Inclusive Work & Economic Development

Energy & Climate Transition

Education & Training

We round up the quarterly activity of a number of companies we hold, looking at their sustainable and ESG activity and how it contributes to the United Nation Sustainable Development Goals.

13Bright Horizons, Investor Presentation, August 201914https://www.coopersurgical.com/medical-devices15 https://coopervision.co.uk/myopia-management-coopervision#targetText=The%20prevalence%20

of%20myopia%20is,and%20long%2Dterm%20health%20challenges.

Company Q319 Sustainable impact highlights

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