NextGen ESG Strategy and Approach
NextGen ESG Strategy focuses to companies that actively contribute to the global efforts to Our key areas of focus are companies that are striving towards positive sustainable transformation, including the achievement of the climate goals as outlined by the Paris Agreement.
As we expect investors to increasingly allocate capital towards the achievement of this transformation, these companies will have higher growth, and valuation support from investor demand, and will create positive externalities exceeding the initial investment. As a result, portfolio with the strategy has lower ESG risks and provides better outcomes for a healthy society and planet.
Stock selection based on rigorous analysis
The core and main alpha driver of the strategy is stock selection. Our experienced investment strategy and analysis team identifies opportunities on a company level with an investment horizon of 36–60 months. We meticulously specify the core assumptions for each of our cases. We complement our stock selection skills with strong portfolio construction capabilities to mitigate risk. The main source of risk will come from the stock-specific factors.
The team develops a joint investment ideas pipeline, and this process is complemented by our ongoing in‐person company meetings, industry conferences and fairs, sell‐side research, expert discussions and in‐depth sector knowledge and experience. We also conduct site visits with the companies we invest in on an annual basis.
We seek companies where managerial action and/or underestimated operating leverage will significantly increase operating margins and returns over next 36–60 months. And re-rating of these companies will lead to increase in returns on invested capital. These companies can also have strong economic moats. In addition, re‐investment of returns into the growth of the business from free cash flows will create a higher base from which to value the company.
We use a rigorously-tested analysis to identify companies that exhibit the following attributes: absolute ESG impact potential; quality of ESG management; clear, and effective engagement levers; and of course business competitiveness. Using ESG and climate data and other insights allow us to identify these attributes earlier and clearer than other market players.
Thoughtful engagement for growth and impact
NextGen ESG Japan is an engagement-centric strategy. The aim of our engagement-centric approach undertaken is to drive the transformation of companies to more sustainable business models.
We discuss and agree with each portfolio company to assign a number of Environmental, Social and Governance KPIs and these are presented to investee company and tracked over period of 36-60 months. All ESG engagement KPIs have financial leverage for the respective company.
Proven ESG methodology
Our proprietary ESG analysis generated by the Rubicon ESG engine gives us a broader and more complete understanding of our cases. In addition, deep understanding of – and practical experience in – key ESG material leverage points, combined with company-specific climate factors enable us to significantly reduce long‐term and ESG tail risks in the portfolios with our strategy. We integrate this in every step of our process. As a result, the portfolio has lower ESG risks and provides better outcomes for a healthy society and planet.
All our cases are based on detailed key performance indicators as well as fair value. The key performance indicators (KPIs) are the core assumptions of the investment case for which the analyst has formed an explicit forecast. They can either be the most underestimated aspect, the most financially‐sensitive variable or the most forward‐looking indicator.
Outstanding global team
We have an exceptional team that includes both award-winning global ESG investment expertise, as well as some of the world’s leading practitioners and policy leaders on sustainability and the Sustainable Development Goals.
*SDG Impact Japan act as an ESG/SDG advisor of NextGen ESG strategy