WHEB is a boutique that specialises in sustainable investing. It focuses on companies offering solutions to sustainability challenges, not just those with good corporate social responsibility reports. The team believe that sustainability themes and the ESG profile of a company are key to determining the quality of the business and its growth potential. An independent Advisory Committee reviews the portfolio holdings each quarter to ensure policies are adhered to. We would describe the ESG screening criteria as dark green i.e. relatively strict. As a consequence, performance is likely to differ from that of the MSCI World index.
The investment process has three stages.
Stage one applies quantitative sustainability screens i.e. looking for sustainable growth potential via the key themes. At least one third of a company’s business must come from one or more of the nine themes that are providing solutions to environmental and/or social challenges. This leaves around 1000 stocks in the thematic universe (20% of the MSCI World), of which WHEB have covered roughly 500 in depth. Stage two is the more detailed analysis of company quality and valuation (GARP). The approach sees ESG factors integrated to help determine whether a company is “quality”. The ESG factors include positive impact, reputation, innovation, ethics & governance, sustainability of earnings and opportunities. These factors sit alongside the more traditional analysis of market attractiveness (barriers to entry, stage of the cycle, growth potential), competitive position (pricing power, market share, margins), value chain (buyer and supplier power, cost controls, working capital), management quality (reputation and track record) and growth strategy (M&A, product development). For valuations, the team mainly look at ROE, EV/EBITDA and cash flow yield. Stage three is portfolio construction. The manager grades stocks A, B and C, with A stocks having 2% weights in the portfolio. The team look for broad exposure across themes, but can zero weight a theme and will not have more than 30% in a single theme. An independent Advisory Committee reviews the portfolio holdings each quarter to ensure policies are being adhered to.