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The Sycomore Eco Solutions Fund at the genesis of NEC

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Considering the major challenge it tackles, it is no wonder that the field of the energy and environmental transition is booming – as proven by the number of strategic deals carried out by the companies held in the Sycomore Eco Solutions fund. Also, the investment approach of the fund has turned out to create substantial value so far. In the light of his experience, co-PM Thomas Dhainaut traces the path of the Sycomore Eco Solutions fund and focuses on the underlying methodology of its environmental analysis : CEET becoming Net Environmental Contribution (NEC) in 2017. Explanations.

Testimony from an experienced fund manager

Launched in 2015, before COP21, Sycomore Eco Solutions is a responsible investment fund with a positive environmental impact. The strategy invests in listed equities and addresses investors who care about the impact of their investments. By its very structure, the fund only invests in companies that contribute significantly to the energy and environmental transition and that have a proven ability to manage social, societal and governance risks.

Thomas Dhainaut

An ambitious idea

Choosing to combine sustainable financial performance and positive environmental impact was an ambitious project and a major challenge that I wanted to rise to, alongside Jean-Guillaume Péladan and Alban Préaubert. Beyond the initial enthusiasm at the idea of creating and managing a new fund, I was particularly keen to take part in the project as I believed in offering meaningful investments through a new investment solution. Actually, it brought me much more, starting with a deeper understanding of the energy and environmental transition – a major challenge that affects us all.

Environmental damage is a global reality that has deep consequences for mankind as well as for ecosystems. According to the WHO, 23% of global mortality has environment- related causes; this represents 12.6 million people every year. Furthermore, since the end of the 20th century, human civilisation has exceeded the physical limits of what the biosphere could absorb. Every year, we use more natural capital than the planet can regenerate, as the works of WWF and the Global Footprint Network, conducted over the past 50 years, have demonstrated.

The environmental transition is underway!

The transition has begun across the world

The good news is that the environmental transition is underway. I was actually struck by the number of strategic deals carried out by the companies held in the Sycomore Eco Solutions fund. Since the strategy was launched in 2015, and taking into account transformative takeovers, IPOs and capital increases, 28 deals have taken place on issuers within the portfolio – in other words, more than 30% of our holdings.

The density of corporate action underpins the powerful dynamics that are driving the environmental transition. Car manufacturers did not sit waiting for the carbon tax to sell hybrid or electric cars; and energy players had started developing renewable energy production capacity throughout the world long before COP21… to the extent that since 2015, these newly installed capacities are exceeding those produced by fossil and nuclear power plants. The companies implementing and contributing to the growth of these solutions exist throughout the world, and particularly in Europe.

Spotting eco-solutions

We have created a specific research methodology designed to target the companies that develop eco-solutions. This research work, led by Sycomore AM with expert inputs from I Care & Consult and from Quantis, was a particularly interesting challenge.

Our methodology enables us to measure the extent to which companies’ activities are aligned with the energy and environmental transition: the intensity of their contribution, initially named Contribution to the Energy and Environmental Transition (CEET), is expressed as a percentage of their turnover. We therefore measure the CEET of each company. Companies offering a clear and fully aligned response to the issues of environmental transition and the fight against climate change will see their ‘green intensity’ indicator move closer towards 100%: organic foods, plant-based products, renewable energy, building insulation, public transport and recycling. If a business displays a neutral net environmental impact, or similar to the average solutions available on the market, its CEET will amount to 0%. Finally, if a company has a negative impact, it is excluded. In short, only companies with a CEET above 10% are eligible to the fund. The identification of businesses aligned with the environmental transition, and the rejection of those that are either indifferent or opposed to this transition, turned out to be a “value creating” strategy. Two years after its launch, the outcome is positive: Sycomore Eco Solutions has gained over 30%, which is twice more than European indices during the period.

The CEET becomes the Net Environmental Contribution (NEC)

Leveraging on our success, we have decided to expand the scope of CEET by applying this policy to all of Sycomore AM’s investments and 3 market indices. The CEET becomes the Net Environmental Contribution (NEC). The NEC provides an effective metric for measuring transition risk and can also be used to detect weaknesses – negative NECs – and to identify sustainable growth potential – positive NECs.

We have decided to expand the scope of CEET by applying this policy to all of Sycomore AM’s investments and 3 market indices. The CEET becomes the Net Environmental Contribution (NEC).

To summarise, the Net Environmental Contribution (NEC) enables us to focus our investments on dynamic segments that are aligned with current and future trends driving the energy and environmental transition. These companies benefit from powerful tailwinds and their positive missions, both inspiring and meaningful, foster their employees’ motivation. This is also the case within our investment team, particularly the team responsible for running the Sycomore Eco Solutions fund.

NEC

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This publication is not intended to be an offer or solicitation for the purchase or sale of any financial instrument whatsoever. References to specific securities and issuers are for the purpose of illustration only and should not be construed as a recommendation to buy or sell these values. Communication promotional in nature. This communication has not been prepared in accordance with regulations to promote the independence of financial analysis. SYCOMORE Asset Management or management companies involved with the preparation of this document are not subject to the ban on conducting transactions on the instruments mentioned by the publication of this communication.

Our Publications

Our compass for navigating the energy and environmental transition

28.12.2017
To navigate through the energy and environmental transition and enjoy its tailwinds, Sycomore AM has implemented its own compass - the Net Environmental Contribution (NEC). It enables us to measure the risk of transition. In order to fully grasp the implications of the NEC, our Responsible Way #7...Lesen

Our Publications

Environmental impact: a new indicator for investors

31.10.2017
Designed by Sycomore AM, the NEC (Net Environmental Contribution) indicator assesses the contribution alignment of a company's overall activities towards energy and ecological transition, and measures the degree to which a business model is aligned with climate change goals. Thanks to a...Lesen
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