The $6 billion NSW Local Government Super (LGS) has signed a $50 million mandate with a global equities manager focused on sustainability.
LGS appointed Impax Asset Management in an attempt to reduce environmental, social and governance (ESG) risks in the its global equities portfolio, said Craig Turnbull, CIO at LGS.
The mandate, while small in size, was expected to impact significantly on the portfolio’s tracking error and would be monitored closely, Turnbull said.
“These guys are a specialist thematic manager. Just like we put on a tilt to emerging markets, small-cap or value equities, this is a tilt to environmental.”
He said stocks in the sustainability sector usually have a “growth flavour,” although wind farms are usually defensive. Overall, sustainability stocks provided “a balance of high beta growth, low beta defensive”.
Impax targets companies in the alternative energy, water and waste industries that it sees as likely beneficiaries from problems caused by environmental degradation, resource scarcity and climate change.
Turnbull said it was also an opportune time to invest in the sustainability industry. For example, negative investor sentiment towards the over indebted Spanish economy, which has long offered tax breaks to companies in the solar power industry, had created decent buying opportunities as “stock prices are being smashed because of the country they’re in”.
He said the London-headquartered Impax was finding opportunities outside the familiar markets of US, UK and Europe, such as China Everbright International, a technology and construction conglomerate focused on environmental protection and renewable energy businesses.
The investment with Impax was funded from LGS’ cashflow and a partial redemption of an existing mandate with Lazard.
Turnbull said sustainability factored into most of the investment decisions made by LGS.
“With all the managers that we employ, we like managers who are at least thinking about ESG risks. If they don’t we won’t hire them.”