Emerging Markets Sustainable Impact Fund

Fund manager: Nomura Asset Management

Total assets under management (AUM): Around USD 494 billion

• Nomura Asset Management is a global investment manager established in 1959 headquartered in Tokyo with 14 offices in Asia, Europe and America
• Nomura has a long-term track record of managing global and regional equities including in emerging markets

Investment manager: American Century Investments

• American Century Investments is a global asset manager founded in 1958, based in the US, UK, Hong Kong and Sydney, primarily owned by the Stowers Institute for Medical Research
• It offers advisory services, investment strategies and direct investment management for asset managers
• It is focused on delivering financial returns, while contributing to research and impact through its ‘Prosper with Purpose’ approach and has significant experience in emerging markets

Investment overview

Financial return profile

Returns: Market-rate

• +7% above benchmark [MSCI Emerging Market Index] for year 2020
• Price to earnings ratio 19.8x

Liquidity:

• Publicly listed equity
• Small levy imposed on sale within the first year

Risk profile

Business / concentration risk: Each equity will be no larger than 5% of total portfolio – currently 65 holdings, targeting 80-90

Liquidity Risk: Focus on markets with larger publicly traded equity markets, and only purchase small shares of companies

Investment thesis

Focus on growth and impact:

• The fund conducts an extensive ‘fund building’ process to identify companies with accelerating growth and scaling impact
• The fund’s philosophy is that investing in growth and ‘SDG relevance’ is more highly correlated to stock price performance than absolute current earnings
• The fund therefore does not require a minimum threshold of earnings or revenue for its investees, focusing rather on other metrics

Investment selection

Eligible investments

Exclusions: Violations of the United Nations Global Compact Principles, exclusions lists recommended by the Government Pension Fund of Norway and others

SDG alignment: Analysts’ proprietary research culminates in an impact thesis that explains current or projected SDG alignment in combination with the stock’s fundamental growth profile

Due diligence process

The portfolio is developed through a three-step investment process:

1. Idea generation: Assessment of around 300 companies making contributions to the SDGs and exhibiting accelerating growth
2. Fundamental analysis: Research on around 200 companies to ensure acceleration is sustainable and validate SDG impact through a careful impact and Environmental, Social and Governance (ESG) review
3. Portfolio construction: Actively select top-rated companies on growth, impact and SDG spread

Impact targeting

Impact thesis

Theory of Change:

• The fund provides financing to growing businesses that are directly contributing to one or more SDGs and can provide a compelling impact thesis
• It primarily focuses on SDG 9 – Industry, Innovation and Infrastructure (72%), SDG 8 – Decent Work and Economic Growth (25%) SDG 1 – No Poverty (23%) and SDG 11 – Sustainable Cities (22%),

Target stakeholders: SDG-focused businesses in emerging markets and their customers

Impact metrics and outcomes

• Selected companies will be closely engaged to confirm their SDG alignment and progress toward SDG impact, including developing customised SDG Key Performance Indicator (KPI) frameworks for each investee company
• The fund will release an annual report on the portfolio’s investment allocation per SDG and stock-per-stock assessment of impact achieved
• The first impact assessment report will be released in 2021