Responsible Investment Report No. 10


The Marshmallow Experiment

In the 1960s, a Stanford professor named Walter Mischel began conducting a series of now famous psychological studies to explore the concept of delayed gratification in children. The young participants were offered a simple choice: they could either indulge in an immediate reward, typically a marshmallow, or wait for a period and receive a double treat. The study revealed insights into self-control, willpower, and the ability to resist temptation.

Company management teams are often confronted with a similar challenge to the children in the marshmallow experiment. They can take their profit today or choose to invest now to generate more profit in the future. Their job would be far simpler if returns were known in advance, together with the cost of money at which investments were funded and discounted back to present-day values. Alas, uncertainties abound, not least with interest rates on the rise. It is easier to maximise near-term profits.

Hard yards in the long game

A similar dynamic exists in the management of risk, except the longer-term choice can appear even less appealing. Rather than focused on deferred gratification, risk mitigation can involve investments made today for the management of future calamities which may or may not happen. This is the context in which current ESG controversies can be understood.  Investing in decarbonisation or better labour practices help to safeguard profitability in the years ahead and often carries a significant upfront cost for compliance. 

At Troy, we believe that being patient and having a long-term focus gives us a competitive edge in investing. We look for these same attributes in the management teams of the companies in which we invest. How they approach environmental and social challenges gives vital insight into their commitment to outcomes far into the future, especially in the face of mounting short-term pressures. In some respects, it is the ultimate test of long-termism.

Over the quarter, we have had several meetings with investee companies to better understand how they are staying focused on the long term. These meetings focused on topics ranging from decarbonisation and biodiversity protection to responsible marketing and supply chain labour practices. The degree to which ESG issues can materially impact a businesses’ financial health vary depending on the industry, geography, size of the business and products or services it sells. This has been most pronounced for our consumer staples holdings, hence our initial focus on the sector.

Nestlé – Strengthening the Supply Chain

Troy hosted a call with Nestlé’s Heads of Dairy, Cocoa and Coffee to better understand how the company’s sustainable sourcing initiatives are put into practice. Nestlé’s relationship with its suppliers is a key competitive advantage; relationships are real partnerships rather than transactional ones. Some farmers have worked with Nestlé for over seven generations, many of whom are smallholders who rely on Nestlé for their livelihoods.

The rollout of various Nestlé sustainability programmes have enhanced and deepened the strength of these relationships. In January 2022, Nestlé announced their new Income Accelerator programme in which they will be investing CHF 1.3 billion until 2030. The programme involves making top-up payments to farmers conditional on them achieving specific objectives, including having their children attend school and ensuring they employ good agricultural practices that improve local biodiversity.

These measures have other benefits too. They improve supply chain resilience, enhance yields, and have contributed to the eradication of child labour in cocoa supply chains. The call also revealed the extent of Nestlé’s investment in data and technology to improve raw commodity traceability. Like with all companies, there is still much to do, but we came away from the meeting confident the company was making the necessary investments today to secure its resilience far into the future.

Unilever – Decarbonisation

Unilever has long been a leader among consumer staples companies in terms of its commitment to sustainability, as evidenced by the release of their Sustainable Living Plan in 2010. The Plan started out by addressing the ways that Unilever could both reduce costs and improve sustainable outcomes, including more compact packaging to minimise plastic waste and reduce input costs.

The purpose of our meeting with Unilever was to better understand how the company is addressing the most challenging aspects of their decarbonisation goals. The company’s emissions reduction targets are ambitious, aiming to achieve net zero in its supply chain and own operations by 2039. Unilever states that this comes from an assessment of what the business needs to do to align with society’s expectations and is also an opportunity to stay ahead of slower-moving competition. 

Nevertheless, there remain significant challenges in reducing carbon emissions in its supply chain. Indirect emissions, i.e., those from sources outside of Unilever’s direct operations, account for around 98% of the company’s carbon footprint. This includes emissions from raw materials, packaging, logistics and distribution. The sourcing of raw materials, which account for around half of the company’s carbon emissions, is particularly complex.  The challenge here is twofold: it is difficult to find cost-effective alternatives to fossil-fuel-based chemicals, and coordinating a long and complex raw material supply chain is no easy task.

Unilever has begun a process of engaging with its top 300 suppliers and supporting them in setting net-zero emissions reduction targets. We were impressed with Unilever’s candour. Net zero will be demanding. It requires innovation, resources, and must be done within the context of what is commercially viable. 

In the face of many unknowns, Unilever continues to invest behind their strategy. The path to net zero will not be linear and the company believes there is value in learning to work with new technologies and undergoing periods of trial and error. The longer-term commitment to transition to a low-carbon business protects Unilever from both future regulatory risk and customer scrutiny, which is why the company refuses to rest on its laurels. Unilever provides an example of a business willing to adapt and innovate in order to stay ahead of competition – essential characteristics to succeed within the fast-moving consumer goods market.

Heineken – Water Management

Troy met with Heineken during the quarter to discuss several environmental and social initiatives. Water management is the most financially material environmental issue the company faces since 95% of beer is water, and water shortages are a growing risk to Heineken’s business. Of the 170 breweries Heineken operates around the world, 26 are in water-stressed areas. The company started a dedicated water strategy in 2013 that has followed a journey from improving water efficiency to replenishing the water that goes into products. This includes investments in wetland restoration, rainwater harvesting and reforestation.

In 2021, one of Heineken’s key sites in Monterrey, northern Mexico, was hit with severe drought. Monterrey is a large industrial city, and although the beer industry only accounted for <1% of the city’s water use, Heineken immediately ceased operations. The company collaborated with local authorities, NGOs and local businesses to divert water to meet the needs of the local population and essential services. Heineken’s approach to water stewardship is exemplary and demonstrates the importance of balancing local community needs with business growth to retain a licence to operate.

Planting Trees

“A society grows great when old men plant trees in whose shade they shall never sit.”

Ancient Greek Proverb

Experience has taught us that well-managed and properly governed companies are those that plan for the future. They do so by aligning themselves with wider stakeholder interests and by operating with environmental and social considerations in mind. This helps to create more adaptable and resilient businesses that can sustain high returns on invested capital over time. Our recent meetings with several companies across Troy’s portfolios assure us that these are companies that are investing for the future and are well placed to deliver good shareholder returns that are sustainable over the longer term.


Further information relating to how ESG integration is applied to the fund can be found in the fund prospectus and investor disclosure document. For further information relating to Troy’s approach to company voting and engagement, please see Troy’s Responsible Investment and Stewardship Policy available at Please refer to Troy’s Glossary of Investment terms here. The document has been provided for information purposes only. Neither the views nor the information contained within this document constitute investment advice or an offer to invest or to provide discretionary investment management services and should not be used as the basis of any investment decision. The document does not have regard to the investment objectives, financial situation or particular needs of any particular person. Although Troy Asset Management Limited considers the information included in this document to be reliable, no warranty is given as to its accuracy or completeness. The views expressed reflect the views of Troy Asset Management Limited at the date of this document; however, the views are not guarantees, should not be relied upon and may be subject to change without notice. No warranty is given as to the accuracy or completeness of the information included or provided by a third party in this document. Third party data may belong to a third party. Past performance is not a guide to future performance. All references to benchmarks are for comparative purposes only. Overseas investments may be affected by movements in currency exchange rates. The value of an investment and any income from it may fall as well as rise and investors may get back less than they invested. The investment policy and process of the may not be suitable for all investors. Tax legislation and the levels of relief from taxation can change at any time. References to specific securities are included for the purposes of illustration only and should not be construed as a recommendation to buy or sell these securities. All reference to FTSE indices or data used in this presentation is © FTSE International Limited (“FTSE”) 2023. ‘FTSE ®’ is a trademark of the London Stock Exchange Group companies and is used by FTSE under licence. Issued by Troy Asset Management Limited (registered in England & Wales No. 3930846). Registered office: 33 Davies Street, London W1K 4BP. Authorised and regulated by the Financial Conduct Authority (FRN: 195764) and registered with the U.S. Securities and Exchange Commission (“SEC”) as an Investment Adviser (CRD: 319174). Registration with the SEC does not imply a certain level of skill or training. © Troy Asset Management Limited 2023

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