The Exbury Strategy

Last year was a positive year for our Exbury strategy. Launched in November 2018 with one client and £13 million of assets under management (AUM), it had grown to £315 million AUM across 33 clients by the end of 2020, delivering a strong performance in a turbulent year.

The Exbury strategy is an extension of our core investment approach. As the graphic on the next page demonstrates, it sits in the ‘sustainable investing’ approach on the spectrum of capital, which means it incorporates all the principles of responsible investing but also actively seeks assets that deliver positive ESG outcomes. In the case of Exbury, this is positive environmental outcomes.

Specifically, the Exbury strategy invests in companies, securities and funds that support the transition to a low-carbon economy and facilitate progress towards the Paris 2050 goals.

We call these assets ‘Enablers’ and in 2020 we invested in number of new and exciting Enablers, including the World Carbon Fund and the NinetyOne Global Environment Fund.

We look for our Enablers to make a meaningful impact across four key areas:

  • Energy transition: e.g. renewable energy infrastructure and smart grids.
  • Electrification: e.g. fuel cell and battery technologies and electric/hybrid vehicles.
  • Resource efficiency: e.g. energy-efficient products, recycling and sustainable agriculture.
  • Environmental services: e.g. carbon trading, data provision, environmental testing and inspecting.

Enablers currently account for a minimum of 30% of the investments in our Exbury portfolio. We have committed to increase this threshold to 35% in 2021, and by a further five percentage points every subsequent year until 2024.

Enablers currently account for a minimum of 30% of the investments in our Exbury portfolio.

Enablers in focus: John Deere

According to the Intergovernmental Panel on Climate Change (IPCC) the global food system is responsible for up to one-third of global greenhouse gas (GHG) emissions, and farming production processes are the primary emitter.

John Deere agricultural equipment is at the heart of many farming operations and could therefore be considered ‘part of the problem’. We take a more informed view, and believe the company will play a vital role in transforming the agricultural industry over the coming decades, in line with one of the UN Sustainable Development Goals to promote sustainable agriculture.

We are long-term investors in Deere & Co and consider the company a leader in sustainability that meets our criteria for Enablers.

As a pioneer of agricultural technology (Agtech), the company is already helping farmers to maximise resource efficiency, improve crop yields and reduce their environmental footprint. Agtech is central to precision agriculture and regenerative farming, which help reduce herbicide and fertiliser usage, while lowering carbon emissions.

For example, Deere is not only an innovator within the field of no-till farming equipment but is also committed to educating farmers on the benefits of these practices, both for the environment and their bottom lines.

Deere is also focused on the carbon footprint of its own operations and reduced its GHG emissions by 19% in 20207 and procured 32% of its electricity from renewable sources, with the ultimate goal of reaching a 50% renewable electricity supply. Moreover, 67% of Deere’s new product programmes in 2020 had a reduced environmental impact compared with previous models.

(7) Compared with 2017 as a base year

The spectrum of capital

The spectrum provides an overview of the wide range of investment approaches that exist.

Source: Rothschild & Co and Bridges Fund Management. The “Spectrum of Capital”, created by Bridges Fund Management in 2003, maps out the range of risk and return strategies that exist within impact investing markets and how they relate to wider capital market strategies.

Enablers in focus: Ninety One Global Environment Fund

As part of Exbury’s mandate to allocate to ‘Enablers’ we look for direct investments in companies as well as external managers. In fact, a specialised manager in this exciting part of the investment universe can bring a lot to the fund, in terms of performance but also in observing best-in-class practices.

We made our first investment in the Ninety One Global Environment Fund in early 2020 as we believed the team and the fund met many of the characteristics we look for in a manager. They invest in companies with strong competitive positions and high returns on investment at attractive prices. That approach will probably sound familiar to regular readers of our publications. In addition, Ninety One estimates and monitors ‘carbon avoided’ data through the economic activities of the companies it invests in thus, contributing towards the goal of moving the world economy to net zero carbon emissions by 2050.

The portfolio consists of high conviction holdings that are invested across three key areas namely; the renewable energy value chain, electrification, and resource and energy efficiency. With these investments, the strategy aligns perfectly with Exbury’s objectives. The fund contributed positively to returns in 2020 and we look forward to a long-term partnership with Ninety One.