Sustainability

We believe the best ESG policy is owning businesses that do not need one. When a company's business model is inherently low-impact, its competitive position is unassailable, and its management thinks in generations, the traditional ESG risks - environmental liabilities, governance scandals, labour controversies - are minimised at the source rather than managed through policies and reporting frameworks.

Our investment approach entails a number of characteristics that naturally support sustainable investing.

• Environmental: Our focus on companies with high returns on invested capital implies a preference for business models with limited physical assets. As a result, the portfolio will naturally have low exposure to capital-intensive and polluting industries.

• Social: The majority of the portfolio companies operate in North America and Europe — two regions with well-established labour market policies and high standards for employee welfare. As part of the investment process, we also analyse company culture, employee conditions and tenure, as we consider a long average employee tenure a positive indicator a strong company culture.

• Governance: Our investment process includes a thorough assessment of company management, board composition, remuneration structures and the treatment of all shareholders.

As an example, industries such as gambling, defense/weapons, tobacco and fossil fuels fail our quality test due to a mix of heavy reinvestment needs, unpredictable demand, commoditized products, fierce competition and regulatory tightening, just to name a few. By focusing on high-quality companies with limited physical assets, we automatically avoid the industries and business models that account for the vast majority of the world's carbon emissions, resource consumption, and environmental risk.