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A Letter of Introduction From The Portfolio Managers

Dear Fellow Investors,

We have long argued that sustainability for an investor should incorporate every sense of the word. It is part of the virtuous circle of capitalism; mostly it just makes good business sense. In our October 2020 investment letter we warned about the ESG Genie seeming to magic up goodness and endless streams of investment wishes. Inevitably, the warm and fuzzy narrative has been juxtaposed with a harsher reality. Over the past year, the investment community has been appraising sustainable investing principles more diligently. To us, scrutiny is a necessary step for progress. Our guiding principle is continuous improvement, captured in our annual offsite motto: “we can always get better.” This growth mindset is essential, and we hope critical examination will strengthen the validity of sustainable investing yet identify areas which need improvement.

We once learnt that there is a half-life to facts.1 This is not intuitive. What is considered true today is often superseded or refuted in a few years as new knowledge emerges.2 Scientometrics3 predicts systematic patterns of new ideas updating old beliefs which applies aptly to sustainable investing. The role of nuclear energy and natural gas in sustainable portfolios is evolving.4 As intermittent renewables supply a larger portion of the energy mix this increases our need for flexible backup power sources, necessitating more natural gas on standby. Our job as investors is to update our beliefs based on new information—both good and bad. We hope that recent challenges to sustainable investing will serve to strengthen good ideas and displace outdated facts.

In this spirit we read Material World about the history and production of vital commodities for electrification such as lithium and copper.5 Paradoxically an electrified future is contingent on increasing carbon intensive mining today. The world is complex, and investing is nuanced—as highlighted by these inconvenient truths of tackling climate change— so we must ask awkward questions. Thus, we cannot outsource our research—be it fundamental to investment banks nor ESG ratings to MSCI or ISS. In a subjective topic there is no external arbiter of the “truth”.

Our focus is on sustainability initiatives which generate material cashflow today and meaningfully differentiate the company from rivals. We are wary of 2050 commitments that are immaterial or irrelevant to today’s core business drivers. Our gold standard of “meaningful and material” is rare but underpins our Sustainable Business Advantage (SBA) framework whereby the SBA compounds a relative competitive advantage. In other words, we believe the SBA will be durable and create value over our 5-10 year investing horizon. In short, we want a direct connection between the sustainability narrative and our investment’s financial performance.

We are incredibly optimistic about the change our investments can bring and detail case studies within. The direction of travel is clear: more of our companies have published targets, more are SBTi approved, and our carbon emissions remain exceptionally low versus the benchmark.6 We hope this report provides insight and will no doubt prompt some discerning questions! We look forward to engaging over the coming year.



Mick Dillon, CFA
Portfolio Manager 

Bertie Thomson, CFA
Portfolio Manager





1 The Half-Life of Facts: Why Everything We Know Has an Expiration Date by Samuel Arbesman.
2 Half-lives vary wildly—some sectors change rapidly (social sciences & medicine) vs physical sciences and mathematics which can take centuries. In contrast to chemical half-lives, a fact’s half-life duration can change due to innovation.
3The study of the evolution of knowledge.
4While the Global Leaders Strategy does not have exclusions in place, please note that the UCITS Fund seeks to exclude companies whose primary business activities are directly tied to conventional exploration, extraction, production, manufacturing or refining coal, oil or gas; companies whose primary business activities are directly tied to producing electricity derived from fossil fuels; companies with significant assets directly invested in conventional fossil fuel reserves.
5Material World: A Substantial Story of Our Past and Future by Ed Conway.
6Source: MSCI ESG Manager. Data reflects portfolio holdings as of Dec. 31, 2023. Portfolio information is based on a Brown Advisory Global Leaders representative account. Benchmark is the MSCI ACWI Index. Please see the end of this report for important disclosures.