Are Quality companies closer to net zero?

The fast view

• Quality companies have high return characteristics, can generate large amounts of free cash flow and invest in their business model to ensure the longevity of that outcome.
• We believe that it is impossible to have a high-quality business that neglects sustainability. While recognising that the transition path will be different in the US, Europe and Asia, a quality company must be sustainable regardless of where it is based.
• On the path to net zero Quality companies start from an advantaged position. They are not found in the largest carbon emitting sectors, such as energy. Furthermore, a good proportion of Quality companies have science-based transition targets.
• However, that doesn’t mean we don’t need to think about how the companies we invest in can improve.
• When we engage with companies, we want to see clear progression: Does the company want to improve? Is it disclosing its carbon footprint? What targets does it have for the future?
• Sustainable businesses can be grouped as solution providers and companies benefitting from the tailwind of decarbonisation, which is where we are seeing most opportunities - such as Autodesk, a provider of design software for architects which is helping them create lower carbon buildings.
• Many solution providers, such as green energy, are still insufficiently developed to meet our investment criteria.
• In Asia our focus is on emerging technologies, healthcare and consumer companies. TSMC and Samsung are creating better operating and energy efficiency through their products.
• It is important to balance sustainable progress with the health of the business. We see certain industries underspending on capex to achieve over-ambitious sustainability goals.