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GRAPH OF THE MONTH
We clearly prefer a fundamental and qualitative analysis of the real challenges and issues companies face to automatic and standardized filters which often fail to identify the full range of tangible risks but also opportunities in terms of ESG. Hence, when a quantitative filter allows you to invest in nearly 1,400 global companies, how will thematic research linked to sustainable research enable you to invest in about fifty names of conviction?
IDENTIFICATION OF THE VALUE CHAIN
This is where the positioning on the value chain comes in. Indeed, the thematic and sustainable approach may enable you to identify the structural trend towards the electrification of transportation. When this opportunity has been identified, it is relevant to look into the entire value chain which contributes to the electrification of vehicles.
Prior to making this reflection, we should identify the themes which are relevant to that specific value chain, i.e. the part of the chain which is best positioned in terms of technological development which offers solid pricing power (1) and the one which will optimally benefit from sustainability aspects, which will consequently be less exposed to ESG risks (2).
When it comes to the electrification of vehicles, the upstream of the value chain and the various metals which are required result in an exposure to mining companies, which come with various ESG risks, both in terms of the environment (exploitation zones) and social matters (respecting labour rights, respecting communities, etc.). Identifying ESG risks and opportunities will result in an exposure which is more geared towards the downstream part of the value chain.
The issue of innovation and opportunity is also important. The electrification of vehicles may be played via the vehicles themselves, namely the finished product, or its components. Knowing that electric vehicles have five times as many power semiconductors as their counterparts with a combustion engine, the opportunities are clear to see.
Then, we still need to identify the companies which are best placed to profit from this thematic. Which company has the greatest sustainable competitive advantage thanks to a long-term focus on innovation?