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. We prefer businesses where doing the right thing is the natural outcome of doing business well.

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.