The Ecosystem of ESG investing Nanuk New World Fund Investing in the Industries of a Sustainable Future March 2020
Firm Objectives – Early Validation 600 MSCI All Country World Total Return Index (AUD) 500 FTSE Environmental Opportunities All-Share Total Return Index (AUD) 400 NANUK New World Strategy (AUD) 300 200 100 0 Sep-1999 Sep-2000 Sep-2001 Sep-2002 Sep-2003 Sep-2004 Sep-2005 Sep-2006 Sep-2007 Sep-2008 Sep-2009 Sep-2010 Sep-2011 Sep-2012 Sep-2013 Sep-2014 Sep-2015 Sep-2016 Sep-2017 Sep-2018 Sep-2019 Sources: Nanuk, Bloomberg, FTSE Russell, $A, annualised returns. The New World “Strategy” performance constitutes the followi ng: (1) Nanuk New World Fund net return since launch on 2 Nov 2015 , (2) New World Fund Model return since 3 March 2015 net of estimated fees and expenses of 2.5% p.a. and (3) performance series based on the long book of the Nanuk Global Alpha Fund less an annualized expense ratio of 2.9% from 31 Jul 2012 to 13 March 2015 . Past performance is not an indicator of future performance. 2
ESG & Responsible Investment Strategies Better Companies Better World Sustainably Ethical ESG Engagement Impact Themed Favour Reduced exposure investments Measurable Investment aligned Improving to related to positive E & S with values corporate behavior ESG risks improving E&S outcomes sustainability Unlisted investment Typically favours Involves direct Increasing focused on Typically negative (in some cases companies with high engagement with UN Sustainable screening philanthropic in ESG Ratings companies Development Goals nature) 3
Nanuk Outcome = ESG Strategies + Sustainability Better Companies Better World Waste Mastercard JPMorgan Microsoft Prysmian Tesla Connections Electrical & Fibre Specialty Finance US Bank Software Waste Managm’t Electric Vehicles Optic Cables Traditional Sustainalytics ESG Assessment ESG Rating 86 82 98 51 38 25 (/100) Sustainable Platform SDG based Sustainability Assessment Total SDG 21% 37% 44% 94% 90% 93% Contribution 4 Source: Sustainalytics & Sustainable Platform January 2020
Nanuk’s Focus ENERGY CLEAN EFFICIENCY ENERGY INDUSTRIAL WATER EFFICIENCY WASTE/RECYCLING FOOD POLLUTION CONTROL ADVANCED & HEALTHCARE SUSTAINABLE TECHNOLOGY MATERIALS 5
The Sustainability Revolution Agricultural Industrial Sustainability Digital Revolution Revolution Revolution Revolution 6
Drivers of the Sustainability Revolution ? 7
Population Continues to Grow Global Population – last 12,000 years 8 Source: Our World In Data
CO2 Levels Have Risen With Economic Growth Global Carbon Dioxide Concentration (ppm) 9
Extreme Weather Events on the Rise? 10
Drivers of the Sustainability Revolution - Wellington 11 Source: choices.climatecentral .org Feb 2020
Drivers of the Sustainability Revolution - Christchurch 12 Source: choices.climatecentral .org Feb 2020
Drivers of the Sustainability Revolution - Auckland 13 Source: choices.climatecentral .org Feb 2020
Waste 2 billion tonnes of solid waste per year 14
Water 3 trillion cubic metres of waste water 15
Key Drivers Underpin The Global Transformation Multiple influences are driving the transition to more sustainable technologies, products and services Government Policy Population Growth & New Demographics Technologies Advanced Economic Manufacturing Development Sustainable Technologies Environmental & Falling Growth, Technology Resource Complexity, Constraints Costs Inefficiency, Disruption 16
Disruptive Trends Driving Sustainability Revolution Sustainability related disruptive industry trends are widespread and growing Electric Vehicles Renewable Energy Advanced Manufacturing Energy Storage Industrial Internet of Things Collaborative Robots Autonomous Driving Advanced Materials 17
The Thesis - Economics of Sustainable Technologies Solar modules Power Inverters Data Network Equipment Wind Energy LED Lighting GPS Location Chips Lithium Batteries Sensors Industrial Lasers 18
Evidence – Cost of Renewables and Storage 19
What Is The Second Wave? The Initial Industry Long term Policy Point of LT growth develop- targets Support No growth phase ment Return 1990s TODAY THE FIRST WAVE (Efficiency, Renewables, Electric Vehicles) THE FIRST WAVE TODAY THE SECOND 10 – 15 years WAVE 20
Where are the Major Sources of These Issues? Direct Greenhouse Gas Emissions by Sector Other Energy Electricity and 10% Heat Production 25% Industry 21% Sectors impacted by Agriculture, Transport First Wave Forestry, Land 14% Buildings Use 6% 24% 21 Source: UN IPCC, 2014
Electricity 25% of Global Emissions Particulate and Air Pollution Heavy Water Usage 22
The Industry Has Scaled and Costs Have Fallen Levelised Cost of Energy ($/MWh, 2019) – United States Renewables + storage competitive today and getting cheaper Wind and solar now the cheapest sources of new bulk electricity generation 23 Source: Bloomberg New Energy Finance
Transport Major Contributor to Emissions and Pollution 24
Transport Emissions Transport Sector GHG Emissions by Mode Trains Planes 5% 11% Road - Cars Ships 40% 11% Road Road - Transport Trucks 34% 25
Electric soon cheaper than ICE Vehicles 26 https://eciu.net/netzerotracker
Industry Cement, Steel, Plastics c15% of Emissions 27
Economics of Hydrogen Production 28 Source: Bloomberg New Energy Finance
Agriculture 1/4 of Global Emissions from Agriculture Land Degradation Land Pollution Water Pollution Water Overuse 29
Agricultural and Land Use Emissions Sources of Agricultural and LULUCF GHG Emissions Manure management Rice Production 5% 4% Energy Use (fuel) 9% Land clearing, Land use Fertilisers change, forestry 11% 46% Ruminent waste 7% Ruminent enteric fermentation 30 19%
Solutions – Controlled Environment Agriculture 31
One Third Of Food Produced Is Wasted Distribution of Food Loss by Region and Stage of Supply Chain (percent of kilocalories lost or wasted) 32 Source: WRI analysis based on FAO 2011
Water Usage Global Fresh Water Usage Water Footprint per kg of Food Household 0 5000 10000 15000 20000 Drinking 6% 2% Beef Nuts Industrial Mutton 22% Pork Chicken Eggs Cereal Agricultural 70% Milk Fruits Vegetable 33
Buildings 34
Plastics >80% Discarded or Incinerated 35
Plastic Waste Infiltrating Food Supply 36
Packaging is the Major Source of Plastic Waste Plastic Waste by Sector (2015) Total 302 million tonnes Electrical / Electronic Industrial Machinery 4% Building and Construction 0% 4% Transportation 6% Consumer and Institutional Products 12% Packaging 47% Textiles 13% Other Sector 14% 37 Source: Geyer et al. (2017) Source: www.resourcelab.dk
The Second Wave – Likely Winners • Solar, Wind, Energy Storage • Smart Grid Technologies (Demand Response) • Electrification of Heat • Hydrogen (Power to Gas) • Sustainable Materials / Textiles • Recycling • Controlled Environment Agriculture (CEA) • Plant based protein • Waste Management / Processing Technology • Electric Vehicles • Rail Transport • Big Data and AI • Advanced Manufacturing 38
The Second Wave – Likely Losers • Fossil Fuels – Coal, Oil and Natural Gas • Centralised Electricity networks • Petrochemicals and Plastics • Traditional ‘Portland’ Cement • Blast Furnace Steel Production • Air Transport • Crop Based Biofuels • Agricultural Chemicals • Beef / Lamb 39
Investment Approach Good Quality Companies Benefiting from Industry Priced to Provide Good Trends Returns Financial Quality, Growth, Valuation Governance Earnings Improvement 40 Examples of Nanuk New World Fund stock holdings as at 30 January 2020
Stock holdings – SunRun Financial Metrics (Consensus) Market Cap (USDb) 1.9 Net Debt (USDb) 2.7 ROE (NTM) 5% PB (NTM) 1.6 Dividend Yield 0.0% 41 Source: FactSet
Stock Holdings – SIG Combibloc Financial Metrics (Consensus) Market Cap (USDb) 5.1 Net Debt (USDb) 1.4 ROE (NTM) 12% PE (NTM) 19.3 EV/EBIT (NTM) 15.9 Dividend Yield 2.8% 42
Stock holdings – Intuitive Surgical Financial Metrics (Consensus) Market Cap (USDb) 61.3 Net Cash (USDb) 4.0 ROE (NTM) 19% PE (NTM) 41.7 EV/EBIT (NTM) 31.8 Dividend Yield 0.0% 43 Source: FactSet
Stock holdings – Copart Financial Metrics (Consensus) Market Cap (USDb) 23.9 Net Cash (USDb) 0.1 ROE (NTM) 25% PE (NTM) 34.8 EV/EBIT (NTM) 25.1 Dividend Yield 0.0% 44 Source: FactSet
Stock holdings – Waste Management Financial Metrics (Consensus) Market Cap (USDb) 52.5 Net Debt (USDb) 10.5 ROE (NTM) 25% PE (NTM) 26.0 EV/EBIT (NTM) 20.4 Dividend Yield 1.8% 45 Source: FactSet
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