Active Investing in Sustainable International Shares
Growing Generational Wealth through Ethical Investment
In my latest episode of the Your Money Matters podcast, ‘Active Investing in Sustainable International Shares with Tom King’, Tom shares his remarkable journey from Olympic gold medalist to ethical investor, explaining how lessons from elite sport - focus, discipline, and adaptability - shape his investment philosophy and approach. Together, we explore how the Nanuk New World Fund invests in companies driving environmental sustainability and resource efficiency.
We are releasing this podcast and blog during Ethical Investment Week 2025, an initiative of the Ethical Advisers Co-op. Each year, Ethical Investment Week highlights the objectives and benefits of ethical investments and advice. This year’s theme focuses on the strong connection between ethical investing and growing generational wealth.
Investing in shares is widely regarded as a key way to grow wealth over time. By investing in the shares of more sustainable companies, ethical investors aim to ensure that their money matters - helping to create a sustainable future by growing wealth that truly matters: financial, social, cultural, environmental, and spiritual - enriching generations to come.
Learn how active investing can help you grow wealth that truly matters - for your future and for the planet.
Disclaimer: The podcast and this blog are purely educational. They are not financial advice. This means that everything we cover is for the purpose of giving information and providing education only. Money Matters is not endorsing or recommending the fund or strategy. You are encouraged to consult with a qualified financial adviser before making any investment decisions. Investing involves risk, including the potential loss of principal. Always consider your own financial situation, risk tolerance and ethical profile before investing in any securities or investment strategies.
Podcast Transcript
In today's podcast, we're exploring investing in international shares by adopting an active approach, in which a fund manager invests differently from the share market index with the aim of outperforming by selecting companies they believe will perform well — and avoiding those they think won’t. At Money Matters, we often create portfolios using a combination of active and index funds, seeking to give clients the benefits of both approaches.
To provide insight to active investment in shares, we will explore the Nanuk New World Fund - an actively managed, diversified, global equities fund that seeks to outperform traditional global equity indices through investment in companies that are benefiting from, or contributing to, improving global environmental sustainability and resource efficiency.
The fund’s August 2025 Fact Sheet shows that the fund has outperformed the MSCI All Country World Sharemarket Index by 1.3% per annum since its inception in November 2015. Demonstrating that investors can make money and make a difference, this fund is consistently recognised as a Responsible Investment Leader. For example, the fund holds a Sustainable Plus rating from the Responsible Investment Association Australasia, which distinguishes it from funds that are not rated as highly. The fund is also rated relatively strongly by the Ethical Adviser’s Co-op Leaf Ratings.
Nanuk Asset Management is the fund manager for the Nanuk New World Fund – this is Nanuk’s key focus and single fund, which can be viewed as a strong advantage. Nanuk is a firm privately owned by its founders and staff located in Sydney, Brisbane, Melbourne and London.
I’m joined in Auckland by Tom King, who has been with Nanuk since its inception in 2009 and is a Director and the firm’s Chief Investment Officer and one of the firm’s portfolio managers. Welcome, Tom. Thank you for joining us.
Thanks, Rodger. It's great to be here.
Tom has 20 years of experience in the investment industry. He holds a first-class honours degree in Engineering from the University of Melbourne and furthermore, Tom has received the OAM – the Order of Australia Medal in recognition of his achievements in sailing, most notably winning a gold medal for Australia at the 2000 Sydney Olympics in the 470 class.
By way of introduction, can you tell us about your journey, Tom — from Olympic sailing gold to leading an investment firm? How did that path unfold? And what lessons from elite sport have influenced the way you approach investing?
I'm not sure how long you've got. That's a big question to start with, but a timely one, because this week is 25 years since the Sydney Olympics. So there's some celebrating being done. That was the end of a ten-year journey for me in sport that finished in a very nice way at that point. I studied engineering, and I had always intended to move straight out of sport and into a career at that point. I moved into industrial consulting, did some very interesting work in manufacturing performance improvement in large companies, and it opened my eyes to the potential for the world to operate much more efficiently than it did. And that became a driving force in where I wanted my career to go. But for a variety of reasons, I decided quite quickly that consulting wasn't the way I wanted to go about that, and that coming at that from an investment perspective and an ownership perspective was going to ultimately be a better way to change the world, to be a better, more efficient place. And that led me into funds management and then a period in investment banking and private equity. And then 15 years ago, I stepped out of that to start Nanuk.
I imagine in the sailing world, that notion of becoming more efficient and really seeking to eke out those extra gains is part and parcel of what you do. But not being an Olympic gold medallist myself, can you tell us a little bit more about some of those sporting applications, and how they might have crossed over to your mindset and your thinking that makes you so effective in the funds management world?
There's a variety of parallels. Some of it is just personality-related. Some of the things that made me good at sailing, being competitive, being, a bit of a perfectionist. Those traits, translate into the way that I have approached my work. There are also some very interesting parallels between sailing and investment. There are some very close similarities between picking wind shifts in a sailing race. So, positioning yourself in relation to what's likely to happen in the future compared to what everyone else you're competing against is doing, in an environment that's constantly changing and where the future is unknown. And that's a very close parallel to what you do when you are picking stocks in investment markets. And there's a series of frameworks for thinking about how you do that translate across. Then there's a passion for doing something new and different and better. That is part of what we're trying to do at Nanuk.
Terrific. We oftentimes hear these analogies, but it's rare to have someone who's won a gold medal and Order of Australia for, in fact, putting all that into practice. So, again, thanks for being with us today.
To help us understand Nanuk as a company and the Nanuk New World Fund we will use a framework I created in my PhD to describe ethical business in terms of the Four P’s: Purpose, Principles, Practices and Performance measurement.
Can you tell us more about the purpose? Nanuk’s reason for being when it was established back in 2009. And what was the founding vision or the purpose behind creating the firm?
Purpose
It's probably easy just to tell the story of how the business started, and it began in the middle of the global financial crisis, at a point where there was a huge degree of uncertainty about what was happening in investment markets and where that would lead the world. But there was a group of us in Sydney who knew each other through sporting and social connections, and we started talking about, well, where are the long-term opportunities going to fall out of what's going on at the moment? And that conversation gravitated very quickly towards, sort of corny way things to do with saving the world. We thought that over time, given what was going on at that point, that there would be significantly increasing focus on investing in parts of the economy that were aligned with improving, particularly environmental sustainability. And we looked into that in depth over an extended period, and it was obvious that there was no one really focused on doing that in Australia and very few people globally. And we thought there was an opportunity there to start a business that would be not only focused on an investment opportunity that was very interesting but doing something that was potentially good for the world as well.
That's a fantastic story and an exciting time to be exploring all of those things back in the GFC. Looking at the world of mission statements and vision statements, oftentimes people try to sum up their organisation's and their fund's reason for being in a sentence. How would you summarise Nanuk’s “reason for being” in one sentence?
We started the business to develop world-class expertise in the investment implications of sustainability, and to apply that through providing solutions to our clients to help them better manage the risks that we're going to face and to take advantage of the opportunities that will be there. So that's what we're all about.
In terms of money matters, we talk about making money and making a difference or doing well and doing good and Nanuk’s statement of purpose aligns nicely with that. Nanuk’s Sustainable Investment Statement defines sustainability as: ‘the ability to maintain healthy environmental, social and economic systems in balance indefinitely. This concept of sustainability can be applied at both a global and local or company level. It follows that unsustainable corporate practices, activities, products and services and relationships with stakeholders will inevitably be subject to change.”
How hopeful are you that this will be achieved?
That's a good question. You've got me at a point of weakness around this. We're in the middle of doing our annual seminars, and we're talking about the challenges of climate policy and achieving some of the climate objectives that countries have set around the world for very good reasons. I think the takeaway from that is that the world is not on a path to managing climate risks in the way that a lot of people hoped might happen. And the extension of that is that we are going to be living in a world that is changing, and we are not only going to have to continue to guide the economy to be more sustainable, but also be adapting to a changing world at the same time.
I'm really not at all hopeful that we're going to get to net zero by 2050. I think that is a lost cause that democracies can no longer successfully prosecute. But that doesn't mean that there isn't a sustainable outcome in the future. I think part of what we've learned over 15 years is that it's not so much about getting to a point of a perfect world and perfect sustainability.
What is important is getting to a very substantially better world as quickly as we can. I am still very optimistic about that. The world is moving. Despite what you might think, listening to Trump, the world is moving in a very rapid way towards a much better, more sustainable structure in the global economy. And that is going to see huge change over the rest of this century.
I'm not hopeful that some of these high-level objectives, like one and a half degrees of warming, will be met. But I am hopeful that we can become substantially more sustainable over time.
And it is inevitable that one way or another, things do have to become sustainable. And the question mark is not whether that's going to happen over decades or centuries. It's going to be what that sustainable state of being looks like. And is it something that we want, or do we need to act more quickly to make it a better sustainability outcome long term?
Yes. I think in the investment community, particularly the ethical investors, would certainly be highlighting the need for acting more quickly and people voting with their money in terms of how they are investing and seeking to make the change that they can be able to implement from where they are sitting.
Principles
If we take all of that and then drill it down into this idea of principles, and what are the principles that are guiding Nanuk as a fund manager, the first is Integrity – which is defined by Nanuk as “We are dedicated to exceeding expectations with integrity, transparency, and clarity in all relationships.”
Given that regulators, media and many investors question the integrity of some financial businesses, can you tell us about why this is important to Nanuk and how you go about meeting this principle?
I think it just goes to who we are and how we think is the right way to run a business and treat our clients with respect. We think it's the right way if we're being given the privilege of managing other people's money to do it with a high level of transparency, that's just the way we operate.
Can you give an example? When people go to marketing firms, they often come out with integrity. And you see the big financial institutions who talk about that, and then they get a big fine from the regulators, which we've seen in recent times quite a few examples of. So, for those tuning in, they hear 'integrity.' What does that look like on a day-to-day basis? What is an example for you and your colleagues?
In our business, it's largely about providing transparency and providing clarity about what it is that we do, and then reporting against the expectations. We set about what we do to make it very clear that we do what we say we do. We try and do that as a firm by being open about what we're investing in and why we're doing that at any point in time, and sharing the information that we have with our clients in an unfiltered way, to allow other people to make their own judgments based on that information, not tailoring it to present a particular message.
So we provide an ESG and sustainability report every year. We present all of the data across the key metrics that we look at to give a picture of the nature of our investments and the portfolio that we hold. And some of that will raise questions, and it would be easy not to present that. But we feel like that's the right thing to do and to be transparent and allow people to have that visibility and ask the questions if they want to.
Yes, and we'll go through some of those examples today and unpack them a little bit more. But I really do commend the Nanuk for the transparency that's very evident on the website and in the material published, and encourage people to really dig into that.
The second principle is Independence, where Nanuk states, “Our independent thinking, combined with analytical rigour, is critical in developing and applying investment insight.”
As a smaller and specialist fund manager, Nanuk arguably is better placed to be independent of some of the ethical conflicts of interest that larger financial institutions are sometimes challenged over. How do you perceive that and what helps Nanuk maintain true independence?
There are a few layers to this at a firm level - where we're an independent firm, so we're owned by our founding shareholders and staff and not owned or controlled by an organisation involved in activities that might conflict with what we do. And I do think that is important and removes the potential for conflicts of interest.
We're also mindful that good active investment involves thinking in a way that may not be the mainstream way of thinking about things. And we're conscious to try and preserve independent thinking within the firm and encourage independent thinking as a firm to be providing thought leadership externally and to be using that kind of thought leadership internally in the way that we invest.
And then there's a layer internally as well, because we manage the fund with a team of quite experienced portfolio managers. And one of the things that we do, perhaps differently to some of our peers, is those individuals are given quite a lot of independence and autonomy in the way that they go about expressing their investment skill to find good things for the fund to invest in. And we encourage the individuals in inside the firm to think and act with independence so that we don't end up with the sort of groupthink type outcomes that you would get if we all tried to get on the same page. And in active management, that can be important, because very often the best ideas are ones that are only held by a few people at the beginning.
The third principle is Excellence and Nanuk states: “Our pursuit of excellence drives us to achieve long-term investment success for our clients.” That value is in the title of the groundbreaking book ‘Ethics and Excellence’, in which renowned business ethics scholar and a mentor to me in my PhD, Professor Robert Solomon wrote about the contrast between business with a focus on excellence and virtue and business based on “a mad scramble for survival and quick profits.”
You are a person who has achieved excellence in the sporting arena and clearly knows about long-term commitment – please tell us more about how ‘Excellence’ is viewed and encouraged at Nanuk.
I think it starts with the vision for the firm. So we want to build a business that is world class in what it does. That is excellent. And, that drives how we've set the business up and how we manage it. And, of course, we want to deliver good investment returns on an ongoing basis. And that's the primary focus of the work that we're doing. But in order to be excellent over the longer term you need to have a commitment to thinking about what excellence looks like not just today, but in the future. Because you know, what is good today will not necessarily be what is at the leading edge in the future, and continuing to try and improve what you're doing all the time.
So we do spend quite a lot of time, looking at and analysing and thinking about how do we improve what we're doing all of the time. And so it's an evolution of excellence. It's sort of it's an attitude towards not accepting that what we're doing is good enough. And always thinking about, how we can be substantially better about what we do in the future.
And it's an exciting time in our business around that at the moment, because AI and the large language model tools that have suddenly burst onto the scene in a way that has gone from a curiosity or a novelty a couple of years ago to being extraordinarily powerful tools for doing things within business has really changed the game in terms of what we can do with our investment research and how we can find more good opportunities and make better investment decisions more quickly. And so it's an exciting time to be pursuing that.
It's really encouraging to see how you're taking that and applying it. I'm interested when you talk about someone who comes from Brisbane, and we were chatting about sports before, and I'm reminded of a rugby league coach who was very famous in New Zealand, and his quote was “good enough is not good enough”. And I think that notion of continuous improvement is something that investors would certainly be wanting to see from their fund managers.
Practices
Let’s now turn to the Ethical Investment Practices applied within the Nanuk New World Fund.
Exclusions
The Nanuk website includes an ESG (Environmental, Social and Governance) Policy. The Exclusions or Negative Screening is described as “We seek to avoid investing in companies assessed to have a material level of involvement in activities that are not consistent with the firm’s focus on sustainability.”
The Policy includes a comprehensive listing of potential exclusion factors. For example, the first Factor is Coal, and under the heading ‘Involvement’ Nanuk firstly addresses ‘Exploration and Extraction, then under the ‘Definition’ refers to “Extraction and sale of thermal and metallurgical coal”, then under the ‘Threshold (% of revenue) Nanuk states ‘0%’.
This example, which is the first on the alphabetically organised list, might seem obvious; however, there are plenty of investors and politicians who want to invest in coal, so Tom, using this example, can you explain why avoiding businesses involved in coal Exploration and Extraction is consistent with the firm’s focus on sustainability?
I think it requires you to have a view about what better sustainability looks like in the future. We've spent a lot of time thinking about what are the things that need to change in the economy in order to have a more sustainable outcome. Our focus is largely around environmental sustainability and resource efficiency, and that is largely driven by the impacts of climate change over time and the need to address the underlying causes of climate change. There are a series of other very severe and worsening environmental issues and resource constraints around air pollution, water pollution, land and soil degradation, and pollution and plastics in the oceans. You can go on and on and on, and all of those things need to be addressed over time in order to have a sustainable outcome.
But climate change is the big one, and in order to address climate change, we need to substantially reduce the emissions from coal. And that guides where we focus our investment, which is in the technologies that will contribute to and benefit from the transition away from coal. But in order to make sure that we're consistent in the way we do that, we also want to ensure that we're not then also investing in companies who are on the wrong side - so mining and using coal in power generation and industry. And so we apply those thresholds. And as you said, it becomes a very long list. The way we think about it we break our exclusions down into three buckets.
There are a set of environmental exclusions - activities that are inconsistent with improving environmental sustainability and resource efficiency over time. And that includes other things like deforestation and uranium mining activities that have a very negative environmental impact.
We also have a set of exclusions that are more ethical or values oriented. So, because we're focusing largely on investing in a set of applied industrial technologies that are assisting the economy to become more sustainable, we don't, because of that positive screening, invest in a lot of the areas that are of ethical concern to investors. The typical ones would be things like gaming, gambling, alcohol, tobacco, pornography, things to do with weapons and defence and so on.
And so we have a second set of exclusions that relate to those. And because there's very little overlap in the activities of the companies we focus on in those kind of areas, that's easy for us to do. And we have very tight thresholds around those things.
Then there's a third set of exclusions that relate to business practices. So whether companies are operating in alignment with norms for responsible business practice, that covers off on poor performance in areas like labour standards, child slavery, animal welfare and so on. So we have a set of exclusions that relate to that.
By having those in place, we hope we don't have companies in the portfolio that are of significant concern to our investors.
Thanks Tom. That is very comprehensive and well-articulated, and also available on the website and in those documents.
Inclusions
And so moving from exclusions to Inclusions or Positive Screening, Nanuk states that it “invests exclusively in companies whose activities are believed by Nanuk to be contributing to improving global sustainability. This is implemented via a universe constructed through positive screening for exposure to selected industries, technologies, products and services based on their assessed contribution to improving global sustainability.”
Nanuk’s website provides further details of the positive screening and how that is applied to the construction of the firm’s investment universe. There is a four-page schedule which outlines the policy and presents the Major Trend (and Key elements of the trend), then lists ‘Relevant solutions’ (industries, technologies, products and services) and ‘Specific industries, technologies, products and services’.
These nine Major Trends are presented as:
1. ‘Sustainable Energy’ with the Key elements of the trend being ‘Decarbonisation / renewable and environmentally sustainable supply’. The first of the ‘Relevant solutions’ is stated as ‘Renewable and sustainable energy generation’ and the ‘Specific industries, technologies, products and services’ for this are:
a. Solar
b. Wind
c. Hydro
d. Hydrogen
e. Geothermal
f. Fuel Cells
Other ‘Relevant solutions’ are stated as ‘Grid modernisation (decentralisation, intelligent control), Energy storage, and Sustainable fuels.
Tom – talk us through an example of ‘Sustainable Energy’ companies the fund has invested in:
The contemporary one is in the wind energy industry. So the fund has investments in Vestas and Nordex, which are two of the leading wind turbine generator manufacturers outside of China. Vestas is the largest of those, and Nordex is a smaller, more European-centric competitor. They make the wind turbines that are being deployed globally as part of this transition away from fossil fuel-based electricity generation to more renewable, and that historically has been largely driven by policy and regulation. But as the industry has matured and the technology has improved and scaled up, the costs of wind energy are coming down to the point now where it's an economically viable alternative to fossil fuel generation as a source of new supply in many parts of the world.
The investment in that industry is being dictated not so much by policy now, but by the need for more electricity and the economics and constrained by the regulatory and approval processes. We are optimistic about the outlook for both those businesses who've been through a very difficult period of 3 or 4 years following some significant supply chain disruptions during Covid. But those have been worked through, and you're starting to see the benefits of more rational industry behaviour flowing through to their bottom lines, and we hope that'll be a good thing for our investors.
2. ‘Sustainable Food & Agriculture’ with the Key elements of the trend being: Improved productivity significantly reduced or sustainable environmental impact/healthier foods/reduced wastage.
I'll give you a couple of examples. We had an investment a couple of years ago in business called Sprouts Farmers Market, which is the largest organic grocer in the US. And that's a business that's been very successful in scaling across the country and as a result of that became a very good investment for our clients.
At the moment, we only have limited investments in this food and agriculture space, in part because the commodity cycles globally have been unfavourable for a lot of companies in that area. But that's a cycle that will turn and present more opportunities in things like agricultural technology and precision agriculture. And that's an area we're looking at the moment.
Right now, we have a couple of small investments in the salmon farming industry through Norwegian salmon farming companies, which might seem like an odd, investment for a sustainable fund. But if you look at the environmental impact of producing high quality protein from beef, pork, chicken - the major sources, and compare that to salmon's carbon emissions, use of water, feed conversion rates and so on are extraordinarily better than all the others. And whilst it'll never be a universal source of protein for the world because it's difficult to scale, we think if done in the right environmental areas, so not Tasmania but in places like Norway, it is a very good solution for producing high quality protein. And it's an interesting industry because of the economics of the industry, which are heavily regulated and that means supply constrained. And as the world wants more high-quality protein, that means pricing likely goes up over time, which hopefully, once again is good for our clients.
3. ‘Sustainable Cities and Infrastructure’ with the Key elements of the trend being lower energy and resource utilisation/lower environmental impact/efficient infrastructure.
There's always lots of interesting examples. We have investment in timber based, engineered timber solutions in construction. We have investments in things like building energy efficiency – building management systems, more efficient building products - things like building insulation and insulated glass.
And we have a couple of investments in the escalator and elevator space. So if you think about sustainability holistically - urbanisation and denser living is certainly part of a more sustainable, longer-term solution. If we have a high population level and companies like Otis and Kone, which are holdings of the fund, are leaders in not only supplying elevator equipment, but the ongoing service and maintenance of those, which is critical and actually the profit centre for those businesses. And they're very attractive business models, providing a product that's essential to more dense living in the future.
4.’Sustainable Transport’ (Reduced environmental impact/more efficient resource utilisation/safe /reduced demand)
Obviously, the big trend is the electrification of road transport. We don't have many investments that are directly related to that because it's a very challenging industry to invest in. We have had investments in the rail industry, which is a substantially more sustainable mode of transport for long-distance freight and passenger transport. And in some parts of the world, you're now seeing things like flight shaming and regulations being directed at a government and company level towards encouraging people to use more rail transport. And that's an area we think is a sustainable solution that is likely to do better over time than people are anticipating.
5. ‘Sustainable Industry’ (Decarbonisation of industry/more efficient use of natural/financial/human resources, sustainable use of natural resources)
This is one of the larger areas of focus in the fund over the last couple of years. That's because the big trend in industry and industrial efficiency is the adoption of the Industrial Internet of Things - this concept of sensors and computing being attached to industrial equipment connected to networks, cloud computing, big data, AI, and now sort of machine learning to manage industrial assets significantly more efficiently. And that's a trend that's been underway for a decade but is suddenly accelerating very quickly because of AI. And we have investments across the value chain of implementing that - all the way from people making things like the microcontrollers used to control industrial automation, through industrial automation and robotics businesses, to the downstream end of monitoring and managing those kinds of assets.
There's some very interesting applications. A recent investment for the fund is a business called Vusion Group, which is a French company that's the leader in electronic shelf labelling. I'm not sure whether that's something that is widespread in New Zealand yet. It certainly isn't in Australia. But if you go into supermarkets in Europe, increasingly you'll see no longer paper labels on the shelves but digital readouts that enable more efficient management of stock and pricing. Those are connected to inventory management systems, which allow retailers to manage their stock and supply chains much more efficiently. Vusion Group has just signed a long deal with Walmart to roll out its technology across all of Walmart stores in North America, and the business is growing very quickly because of that. So, it's applying technology to deliver efficiencies in business, and there's going to be a lot more of that as the technology gets better and trickles down.
I really noticed that example in the recent presentation for advisors, and it's great for people to be able to be sitting in New Zealand and seeing how their investments are impacting globally and literally what it's like to walk through the supermarket where that technology is being employed. So there's some great material that the Nanuk's providing to help us to tell those stories.
6. ‘Sustainable Healthcare’ (Cheaper, more efficient, more effective healthcare services and solutions)
Our focus in this area has historically been largely around the providers of diagnostic technology—so diagnostic imaging and in vitro diagnostics for diagnosis in a clinical sense, but also in drug development. We've had a number of successful investments in that area.
We also focus on medical devices - therapeutic devices that help reduce the cost and strain on what is a very resource intensive healthcare system around the world, because in order to have a more sustainable economy in the future, a lot of those resources directed into an inefficient healthcare system, particularly in places like the US, need to be redirected into other areas and health care devices that keep people out of hospitals and provide a much more effective, cheaper means of treating chronic illness are a very important and sensible thing.
The best example in that in the portfolio today would be ResMed, the originally Australian-based company that is now the global leader in CPAP devices for sleep apnoea. That's an investment that's done very well for the fund. We recognised a couple of years ago that the advent of GLP-1 drugs, the weight loss drugs which many people assumed would be the solution for sleep apnoea, was unlikely to be a solution and, in fact, was going to lead to a lot more people recognising they had sleep apnoea or needing CPAP devices. At the time, the share price fell significantly. That provided a great opportunity to buy into a great business, providing a solution that is going to be used by a lot more people in the future.
This is a really clear example of active management, where you can take a view about what the market's thinking and do something differently and profit from it.
7. ‘Sustainable Consumption’ (Reduced consumption, sustainably produced products, recycling)
The big thing here would be recyclable products. We have an investment in the paper-based packaging space. We've had a number of successful investments over a decade now in that area. Today we have a position in a European business called Mondi. Mondi is one of the leaders in cardboard packaging in Europe, which is obviously recyclable packaging. Fibre based packaging tends to get reused through the cycle multiple times, reducing the drain on natural resources. It's also a leader in paper bags. So if you're getting paper bags from a supermarket in Europe, probably that's a Mondi product.
But they are the leader in paper-based packaging for industrial applications as well. So things like cement come in paper bags and they make those kind of heavy-duty paper bags. We think they're going to benefit over time because that industry is expanding its product range slowly and incrementally displacing plastic usage. We all see that in our day to day lives and in the supermarket. And as things like barrier technology get better - the waterproofing you can put with paper and fibre technology, will allow fibre solutions to be used in things like bottles that they aren't at the moment. And ultimately that should help grow the market for companies like Mondi.
It's a really heartening example and a very tangible example of what sustainable investment looks like.
8. ‘Efficient Businesses and Economies’ (improved efficiency in the development, production and delivery of products and services/more efficient technologies delivering lower cost financial services)
This is largely around digitalisation in business, using software and digital solutions to make the economy more efficient. E-commerce is an example of that, although there are some question marks about the sustainability of e-commerce. Our focus has more been on how digital solutions are being implemented.
So we have some investments in some of the leading consulting businesses like Accenture and in Europe, Capgemini, who are helping large enterprises implement more efficient digital solutions in their businesses. That's an area, once again, where AI is going to have a big impact and likely to be a driver of growth for those businesses because we're getting quickly now to a point where AI is going from this interesting sort of novelty with a few use cases to something that needs to be applied in a very fundamental way across businesses and they won't be able to do that themselves.
It's a huge subject and a big challenge.
9. ‘Sustainable Environment’ with the Key elements of the trend being: Reduced environmental impact, minimisation or reversal of environmental degradation.
In the fund today, our investments in this theme are primarily waste management businesses - both large municipal waste businesses. We've got investments in Veolia. I'm not sure if they operate in New Zealand. They certainly do in Australia. And Waste Management, which is the largest North American municipal waste business.
And we have an investment in a business called Clean Harbors, which is one of if not the leading industrial waste management business in the US. So they, as the name suggests, deal with oil waste as part of their business. They also collect things like used cooking oil and oil waste from around the country and have a re-refinery business that takes used motor oil and re-refines it into a recycled motor oil product. They're a leader in environmental solutions like PFAS chemical removal. That's an area that's likely to grow significantly as governments and industry grapple with how you address some of the environmental problems that have been created by using these forever chemicals over the last few decades.
Nanuk’s Research Framework highlights key questions that Portfolio Managers are encouraged to consider when assessing the quality of a company and its investment merit in terms of Sustainability Quality. Can you talk us through some of the factors and questions that you and your team are considering?
When we're looking at an investment, it will have already passed our screening. So it will be a business that is doing something aligned with longer term sustainability by virtue of the positive screening. And it will be an ethical investment because it will have passed our negative screen, and it won't be an egregiously bad performer in terms of environmental outcomes or business practices.
And when we're analysing companies, we're trying to understand whether they will continue to be good businesses in the future, and if they can be, that's a precursor to being a good investment.
And instead of looking at things through a traditional sort of ESG framework, we talk about sustainability and governance. We look at that with an eye to understanding whether the way that the company is governed or its sustainability will require the business to change in a potentially costly way over time.
And we look at five governance factors and five factors related to sustainability that we think are the material ones in thinking about whether a company's structure or profitability will have to change in the future. And when it comes to sustainability we're not only thinking about whether the company's products and services are sustainable and might need to be changed in the future, or might have their markets disappear over time. And we're not just looking at the sustainability of the operations of a business - are they doing things in an environmentally sustainable way?
But we're looking at the sustainability of the company's relationships with its customers, with its employees, with its suppliers, with local communities, with the government and with society more broadly, and trying to understand whether the way in which the company is operating is sustainable, because if it's not, it will have to change, usually in an expensive way that will be costly to investors. They're the things that we tend to focus on when thinking about making our investments.
It's really great for me to hear you articulate that in my PhD, which was back in the 90s, I had a model which I mentioned in terms of the Four Ps, that looked at these different stakeholder groups and the practices for the stakeholder groups, and Nanuk in the material on the website, and as you've just summarised then, really does take that seriously and considers specifics of what that can look like.
So in the interests of time, we won't dive too deeply into those particular aspects. I really encourage people to check out the material on the website. But of course, you’re a funds management business and I say to clients that we do expect first and foremost, that there's an excellent funds management business in terms of the traditional sort of financial measures. And then we're asking for ethical excellence as well. In terms of the financials, with financial quality on that list, you talk about questions around:
Is the company able to generate increasing economic value?
- Are returns on incremental capital investment attractive?
- Is the financial profile improving? Why?
Is profitability stable and predictable?
Is the financial position sound?
In terms of the financials, can you give us an expansion on those points?
So this is a topic in and of itself. We are an active manager so we're trying to add value through our stock selection, not just buying and holding stocks for years and decades in the hope that things will work out but being selective about when we buy stocks and when we sell them to buy other stocks that we think will offer better returns.
The primary thing that dictates those outcomes is changes in the economic fundamentals of businesses over time. That's something that is difficult to assess because there are lots of unknowns that determine how the economics of companies do evolve over time.
Our framework is to think of that in terms of rudimentary economic principles. So almost exclusively, if you look backwards, you'll see that shares perform well or perform poorly for reasons that, in hindsight, seem quite simple. Mostly they're because of, things like industry cycles and supply and demand and changes in competitive positioning. So we focus very strongly on those kind of aspects when we're thinking about the evolution of a company's financial profile and what that might mean in terms of investment merit and investment performance over time.
Voting
The next Practice we will cover is ‘Voting’. Nanuk presents a summary of the numbers of meetings at which it voted by proxy, votes for, against and withheld, and the number of votes with Management, Against Management and votes on shareholder proposals. Amongst other things, full details are provided in a Proxy Voting report available on Nanuk’s website.
The Nanuk Sustainability and ESG Report presents an appendix of Details of Votes Cast Against Management Recommendations that is probably of particular interest for ethical investors. These include a Proposal for the company Global Payments to Report on Political Contributions and Expenditures and another for the Canadian National Railway Company to Adopt a Paid Sick Leave Policy.
Tom, can you tell us more about these examples and the practice of sometimes voting against the management?
I would have to go back and check the records on those two issues. My expectation would be that those were shareholder proposals that were put to the company, and that management recommended that shareholders vote against those proposals, and that we have voted against that recommendation, that those proposals are carried forward in line with the shareholder proposals. But you can you can pick me up on that later on if I'm not right. I say that with some confidence because the way that we do our voting, we,as you've indicated, vote comprehensively. So we vote at every opportunity that we get. We feel like that's what is expected of us by our clients. And we do that in a way that is aligned with the philosophy of the firm.
We obtain proxy voting research and recommendations from an international group called ISS (Institutional Shareholder Services), who are specialists in proxy voting recommendations. They have a sustainability aligned set of recommendations that we will typically follow. But we won't where we feel like those votes are not in the interests of our clients as minority shareholders in those businesses, because sometimes there can be a conflict of interest. That would typically be in sort of instances like the recommendation is to change members of the board to achieve, perhaps gender equity balance on the board. You've got six women and four men, and they're suggesting you need to put another man on there or whatever it might be. If the board is performing very well in the interests of our shareholders we would often perhaps consider not following that recommendation on the basis that it's not in the interests of our clients to follow that purely on a sort of academic type basis. We look at whether the board is doing a good job and delivering what they should be. And we would tend to support a board who is doing is doing a good job.
It's quite a nuanced approach that you're taking and thinking through.
It is - in many of these cases, it is not a clear black and white, and we do have to exercise some judgement. You will also sometimes get a whole series of shareholder proposals for the company to do different things - to spend a lot of money, reporting or undertaking investigations. That may not necessarily be an appropriate use of the company's resources, even if some shareholders happen to think that's the case. And we need to make judgements about whether those kind of activities are going to help achieve the objectives that they're trying to - because generally we favour more and better disclosure or whether they're actually going to hinder things because they're going to require management time and effort and money to try and solve a problem that is insolvable, or that the company is already doing a good job to address or whatever it might be.
There's another aspect around the voting, where you work with others and collectively make votes and have an impact. So I think we can move now to acknowledging that we've got the area of voting under a pretty sharp focus at Nanuk.
Engagement
If we talk about the Practice of ‘Engagement’, which is oftentimes a focus for ethical investors, the Nanuk Sustainability and ESG Report published on the website presents details of Engagement activities undertaken during the last year. There is details there and to provide a framework Nanuk states that these:
“include both ‘top down’ engagement, through which we seek to communicate our views on key governance and sustainability issues to all investee companies, and selective ‘bottom up’ engagement on specific issues.”
Nanuk states that its investment process includes “interaction with the majority of companies in which the Fund invests.”
Nanuk also refers to Joint Engagements, through which Nanuk can elect to participate in joint engagement actions with other investors.
Please tell us more about this practice and any examples, recent or past, where engagement has made a particularly noticeable impact from your perspective.
Engagement is something that rightfully, I think now our clients expect us to do on their behalf. It's a way of shareholders influencing outcomes for the better.
We're in an interesting situation because the way in which we screen our investment universe means that most of the companies that we're investing in are already aligning their business well with a more sustainable future, and they're already not involved in areas of concern from an environmental or ethical perspective. And because of our screening in the way we invest, generally speaking being managed in a sensible way. And so it's not a selection of companies that are ripe for engagement work. We consequently don't sort of emphasise that as the focus of the fund.
If you want to use your capital to achieve change through engagement, really the sensible way to do that is to have a Fund that is investing in underperformers or companies with significant ethical or environmental problems, because those are the ones that need to be engaged with in order to change. And so we're not the logical manager to be executing an engagement strategy. But we do recognise that it is important and from time to time we have an opportunity to share our views in a way that might influence outcomes going forward. And we do that, as you say, through a few different approaches.
We send a top-down letter to all the companies that we invest in. That's a letter to the board that sets out our views on governance and sustainability. It goes through the ten areas that we focus on. And if there are specific suggestions that we have relating to that company and the way it's operating, we will raise those at that point in time. We often get very good feedback to those letters because they highlight issues that may be of concern to those boards, and it becomes one piece in a bigger puzzle of getting those messages through to the right people.
But we wouldn't generally ever suggest that our engagement as a small Australian-based investment manager is individually having a unique impact on the behaviour of large European and North American companies. I think it's important that we do it because if all of the other people in our kind of position do the same thing and share similar views, that will start to have a collective voice that really does matter. And that's why we do it. So it's hard to point to specific examples on a lot of the things that we do engage with companies on.
Where we can it's more often around things like disclosures and transparency. So as an investor, we're seeking to understand what the business is doing, whether it's strategies are being effective. If the disclosures the company is making are not adequate to allow us to do that, we will often go back and talk to the company about how they might address that. And in some of those cases, you do get responses that make it clear that what we've said has had some impact, because next quarterly or half yearly report, you're seeing disclosures you weren't getting previously.
I mentioned ten in relation to the top-down engagement. That's not the nine thematic areas we focus on. That's the five aspects of governance and five aspects of sustainability that are in our research framework and the areas that we think are material to the long-term outcomes for businesses.
Great and looking at the website, I see that there's a listing of engagement activities. You mentioned disclosure, and I was fascinated last night when I was having a bit of a discussion with my AI friend Mr. ChatGPT 5, about a particular US company who you wrote to asking for an investor day and some more transparency around that. And then sure enough, they had one, and the ChatGPT showed me all that was covered during the day, the agenda and various other things. So whilst it couldn't necessarily say this was because Nanuk wrote a letter, it's interesting to see, practical examples of these things flowing out. Transparency and disclosure is really important, particularly in the world of greenwash and people concerned about what's actually going on behind closed doors or essentially, there's a corporate veil.
Performance Measurement
Let's now move to the area of Performance Measurement, our fourth P. We've considered purpose. We've considered principles. We've considered practices. Now as an accounting major myself, I'm very fascinated in all the financial measures and accounting measures from that perspective. But for this podcast, we're really focusing on what's different with Nanuk, which is, of course, to focus in on the ESG, the environmental, social and governance measures, and how you present that. And in the context of Nanuk’s Sustainability and ESG report, you present a range of performance measurements.
Firstly, under the heading ‘Sustainability Outcomes’, Nanuk describes how it believes that the UN Sustainable Development Goals (SDGs) provide a relevant framework for assessing the fund’s purpose of delivering portfolios of companies whose activities are aligned with improving global environmental sustainability and resource efficiency.
The most relevant UN SDGs are listed as:
SDG6 – Clean Water & Sanitation,
SDG7 – Affordable and Clean Energy,
SDG9 – Industry, Innovation and Infrastructure,
SDG11 – Sustainable Cities and Communities,
SDG12 – Responsible Consumption and Production,
SDG13 – Climate Action,
SDG14 – Life Below Water, and
SDG15 – Life on Land.
Additionally, selected investments in the Healthcare Technology space and also SDG3 – Good Health and Wellbeing.
Nanuk monitors and reports on the alignment of company activities with the UN Sustainable Development Goals, your using independent research from specialist providers – there’s some excellent numbers and graphics presented.
One statistic that I’d like to highlight, Tom, is the SDG Solutions Assessment, in which the Nanuk New World Fund has an average rating of 1.6, and a fund of the MSCI All Country World Index that I mentioned in my introduction has an average rating of 0.7. So someone investing in a passive global index fund based on that index would have a 0.7 SDG score there. You've got more than double. Can you tell us about your view on this and how it's helpful for investors?
What we really try to do is just provide a proof point using an independent assessment that what we say we do as investors with the fund is what people are getting. And whilst we don't select stocks in a way to try and optimise that number, what you would expect from the way that we screen our investment universe is that if we pick a portfolio of stocks, as we do from that, that the characteristics of alignment with longer term sustainability would flow through to the portfolio. And that's what we're trying to illustrate here.
As we talked about earlier, the concept of sustainability isn't clearly defined. But the Sustainable Development Goals of the UN provide a pretty good reference point where you can, in a consistent and structured way, think about whether investments are sustainable or not. So we've used that as a framework for trying to illustrate that if you have investments in the companies that we own, that the products and services that those companies are providing are having more positive and less negative impact on achieving those Sustainable Development Goals over time.
Another Performance Measure reported in Nanuk’s Sustainability and ESG Report is the fund’s carbon footprint and carbon intensity. It states that:
The Weighted Average Carbon Intensity (tC02e/$m revenue) was 48 for the fund vs 111 for the index, Carbon Footprint (tCO2e/$m invested) was 24 vs. 68, Carbon Intensity (tCO2e/$m revenue) was 50 vs. 151 and Exposure to Carbon Related Assets was 0% vs 5.4%. Those are heartening numbers and as you say, proof points for investors that they are getting what they expect.
The report also describes, and this is an example of transparency and integrity that we talked about earlier, fund’s largest contributors to portfolio emissions and portfolio emissions intensity with notes explaining this.
Can you expand on this area of performance measurement and give an example of one of these companies that on the one hand it's got significant emissions, on the other hand, it's included in the fund.
Sure. The carbon intensity of businesses is not a defining factor in what we do invest in and don't invest in. But going back to how we screen and select our opportunities set and where we're focused, you would expect to get what you see. So we exclude most of the carbon-intensive activities in the economy.
What we don't do, though, is explicitly go looking for low-carbon businesses, because if you want to invest in a portfolio of companies with very low carbon emissions, you would end up with a portfolio of banks and insurance companies and technology companies that essentially have no carbon footprint per unit of revenue. And that's not, I think, what a lot of people think of when they think of investing in a way that is aligned with a low-carbon future.
Yes, it's great to have businesses with low carbon footprints, but our interest is in investing in the companies that are delivering and benefiting from that change to greater sustainability. And most of those are industrial businesses with industrial emissions profiles, and most of them are working to bring those down over time.
But there are certainly areas we focus on that do have emissions. One of those is waste management. Waste management businesses are actually quite high in terms of emissions per unit of revenue, and that will show up in this analysis. So if we increase our exposure to waste management and recycling, those companies will have higher than average carbon intensity, and it'll push the portfolio levels up a little bit.
The second issue is where you draw the line? The numbers you refer to are Scope 1 and 2 - the sort of direct emissions that companies are making. But when you start to think of emissions on a Scope 3 or 4 basis, what are the products and services companies are providing and are those used in activities downstream that generate emissions - you can end up with some quite counterintuitive result. So if you want to invest in companies providing the transmission infrastructure that is essential to connecting renewable energy to the grid, as we do with investments in companies like Prysmian Group.
That transmission infrastructure is also used to transmit electricity generated using fossil fuels. And so the Scope 3 emissions can be very large notwithstanding Prysmian as a company is providing products and services that are absolutely essential to the transition towards greater sustainability in the future.
So I think you need to be a little bit careful about interpreting some of these numbers, and that's why we provide that extra disclosures so people can understand what it is that's in the portfolio and why the outcomes are what they are.
I think it's really important for people to see that it's not a perfect world and it's not, as you mentioned earlier, necessarily a black and white issue. It really does require a lot of thought, and if you like going beneath the surface, or the sort of greenwash that can so often happen.
So there's a range of other performance measurements that are presented in the various reports, and they're providing investors with great insight to the sustainable impact. It's really heartening to see all that reporting and transparency, and I really encourage anyone interested in learning more to go through the material on the Nanuk website.
Of course, that includes the all-important product disclosure statement, and from the point of view of education, which is the focus of our discussion today, we have to stress that we're not specifically recommending any particular fund here.
But today, we've been able to really go behind the scenes and get an in-depth insight. And, Tom, I really appreciate your time and the expert insights you've provided today. The leadership that you and the Nanuk team provide offers a really important example that financial and environmental sustainability don't have to be in conflict, and in fact, they can reinforce each other.
Well, thank you for the opportunity to come and talk about it. Obviously, it's something that I'm passionate about and is very much part of my life and what we do. It's an enormous topic and there are a very wide set of views and approaches about what is, you know, the right way to go about doing these things.
I think it's important to recognise that what we do is just one way of going about investing, in a more sustainable, more ethical, approach. And that may not be for everyone, because when it comes to thinking about things like sustainability and particularly values and ethics, no one's the same. Everyone has different views and different needs and different expectations. But I hope that what we do comes across as being a sensible way of trying to align good investment with, some of those other objectives and is useful to you and some of your clients.
Well, thanks again, Tom, and I'm very mindful you've got those 25th anniversary celebrations of the gold medal coming up. So have a wonderful time celebrating all of that.
And from the perspective of money matters and us working with clients to bring together a portfolio of active and passive funds to really customise to their particular needs we've got a great case study here of how an active fund manager can make money and make a difference. Thanks again.
Thanks, Rodger.
Thanks for tuning in and learning more about how the choices we make with our money today can help shape a more sustainable tomorrow. If you’d like to learn more about Nanuk and their work, you can visit nanukasset.com and/or contact me on 09 3661672 or email [email protected]
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