KBI Global Investors impact study reveals 'very positive' score for its natural resources strategies

Asset management boutique KBI Global Investors (KBIGI) confirmed on 22 July that its latest impact research study had revealed "overwhelmingly positive" Revenue Alignment SDG Scores (RASS) over 2023 for its suite of Natural Resources equity strategies aimed at achieving UN Sustainable Development Goals.

The firm said its pioneering research methodology, introduced in 2017 in the absence of any agreed or common approach to impact reporting or measurement, and fully detailed in the accompanying report, involves identifying the various business activities of an investee company, classifying all revenue streams, and determining whether the activity from which those revenues arise is contributing positively or negatively to one or more SDGs.

KBIGI said it remains one of a small band of managers with this type of capability. Many companies still do not even attempt to report on the impact of their own operation, and for the companies that do, it has been nigh impossible to compare the results with those reported by other firms.

The strategies invest in companies creating solutions to the global shortages of clean water, energy and food, that develop sustainable infrastructure, and support the transition to a circular economy – giving the portfolios a high-impact.

KBI Global Investors’ deputy CEO, Geoff Blake (pictured) said: “We started investing in Water, and what we today refer to as the ‘Energy Transition’, in the year 2000, so have seen the inherent source of alpha to be derived from sustainable investing over more than two decades. Instead of an informed hunch that investments in these strategies contribute to the achievement of the SDGs, we can now quantify this using a replicable and transparent methodology – and provide our investors with the reassurance that their investments are contributing in a positive manner.”

The KBIGI Global Resource Solutions Strategy, which invests in infrastructure and technological advancement across water, agribusiness, and clean energy, has this year delivered a particularly high RASS score of 80.2% – with a positive contribution to no less than eight SDGs. (See graphic further down for Global Resource Solutions).

The Circular Economy strategy, launched in February 2022 – the most recent addition to KBIGI’s suite of Natural Resources strategies – shows an even greater alignment with the achievement of the SDGs, posting a RASS score of 81.2%.

The annual review process sees the portfolio managers present the full list of business activities carried out by investee companies and suggest how these should be categorised – proposing with which SDG, if any, a business activity is aligned, and if that activity contributes positively or negatively to that SDG. Most activities are straightforward to classify, but the Responsible Investing Committee need to debate and make a call on some cases. In many instances, new business activities were added as companies were added to the portfolio, or companies provided more granular information.

Taking the Global Energy Transition as an example, KBIGI this year discussed how offshore wind affects biodiversity and marine life. The portfolio managers have continued to engage with companies on this issue – also engaging with companies on blade disposal and recycling as wind turbine blades are made of composite material and difficult to break down.

Most of the changes in the RASS scores for the Strategy have been in utility companies. This has been due largely to changes in fuel prices/generation mix, but also because companies provided more detailed information. In both 2022 and 2023, rising energy prices increased the share of revenues from fossil fuels, somewhat distorting RASS results for utility companies in several strategies.

Several companies disclosed more detail on business activities. One company disclosed revenues from turbochargers for the first time, for example. KBIGI deemed these revenues to be negative for the achievement of the SDGs, after considering if they should be treated as ‘neutral’, given that turbochargers make engines more energy efficient.

Geoff Blake said companies are increasingly trying to report on their own impact. He considers this a welcome trend and believes investors and stakeholders alike should encourage it.

“Data suppliers have recognised this gap and are beginning to provide investors (and asset owners) with reports on the extent to which investment portfolios are aligned with the SDGs. But to date, this has not been fully satisfactory. Data does not seem to be available at the right level of granularity (particularly for smaller companies), and the analysis is really challenging if it’s not done by portfolio managers or analysts who know their companies extremely well. We believe the way in which we have been able to quantify the impact score of our portfolios in this unique way gives us an edge, and that we remain one of very few managers to measure and account for a negative element when looking to measure impact. That negative element has proven to be a huge positive, creating further opportunities to engage with management.”

All calculations are based on KBIGI’s own methodology and are not independently verified. Based on the holdings in the portfolios concerned at 31 December 2023, using the most recent available data at the time the exercise was carried out, during the first half of the year of 2024.