Responsible Investment Report No. 10

Troy

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.


Disclaimer

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 www.taml.co.uk. 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

Website Terms and Conditions

Welcome to the website of Troy Asset Management Limited (“Troy”, “we”, “our”, “us”).  Please read these terms and conditions carefully.  By accessing this website you are indicating that you have read, acknowledge and agree to be bound by the following terms and conditions and that you have read Troy’s Privacy Notice (which can be accessed here).  If you do not agree to these terms, you must stop using this website immediately.

This website uses cookies and similar technologies.  Information about our use of cookies is included in our Privacy Notice accessed here.  You can edit your cookie settings on this website.

Troy Asset Management Limited is authorised and regulated by the Financial Conduct Authority (“FCA”) of the United Kingdom which can be contacted at 12 Endeavour Square, London E20 1JN.  Troy is registered on the FCA’s register with firm reference number 195764.  Troy is 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 is the owner and operator of this website and can be contacted using the details set out in section 11 below.

This website describes Troy’s capabilities and is for information purposes only.  Nothing in this website should be construed as investment, tax, legal, accounting or other advice.

The securities described on this website are not intended for use and are not offered in the United States of America or to U.S. Persons.  Please see section 2 for further detail.

  1. Who may access this website – subject to local restrictions

The information on this website is directed at persons in the United Kingdom (“UK”) and not otherwise. The availability of any funds managed by Troy or services provided by Troy mentioned on this website in any jurisdiction other than the UK is subject to local restrictions.  Except as specifically set out below the funds mentioned on this website have not been registered or approved for distribution under the laws of any jurisdiction other than the UK.

If you are accessing this website from a jurisdiction other than the UK, you are required to inform yourself of and observe any applicable local restrictions.  If you choose to access the website and you do so from a country other than the UK, you do so at your own risk and Troy will not be liable for any breach of local law or regulation that you commit as a result of doing so. The information available on this website does not constitute an offer of, or an invitation to apply for or purchase, any securities.

Trojan Investment Funds and its sub-funds are UK funds established under the provisions of the European Directives on the co-ordination of laws, regulations, and administrative provisions relating to undertakings for collective investment in transferable securities (“UCITS”) (Directive 2009/65/EC) as implemented in the UK.  Trojan Investment Funds is authorised by the FCA.  Certain sub-funds are available for distribution in Ireland (for professional investors only), Singapore (for institutional investors only), Switzerland (for qualified investors only) and are registered for distribution to the public in the UK.

Trojan Fund (Ireland), Trojan Income Fund (Ireland), Trojan Global Income Fund (Ireland) and Trojan Ethical Fund (Ireland) are sub-funds of Trojan Funds (Ireland) plc which is an Irish UCITS subject to the laws of the Republic of Ireland.  Each is authorised in the Republic of Ireland by the Central Bank of Ireland, and is a scheme recognised by the FCA under the Financial Services and Markets 2000 Act (“FSMA”).  Trojan Fund (Ireland) and Trojan Income Fund (Ireland) are registered for distribution in Austria (certain share classes only), Germany (certain share classes only), Ireland, Italy (for institutional investors only), Singapore (for institutional investors only), Spain (certain share classes only), Switzerland and the UK.  Trojan Fund (Ireland) is also registered in Portugal (certain share classes only). Trojan Ethical Fund (Ireland) is registered for distribution in Ireland, Singapore (for institutional investors only), Spain (certain share classes only), Switzerland and the UK.  Trojan Global Income Fund (Ireland) is registered for distribution in Ireland, Spain (certain share classes only), Switzerland and the UK.

  1. Important information for U.S. Persons

This website as well as the securities described on this website are not intended for use and are not offered in the United States of America (including the District of Columbia or any other territory occupied or possessed by the United States of America) or to U.S. Persons (including residents of the United States of America, residents within an area subject to its jurisdiction and U.S. Persons who are resident outside the United States of America).  As such, by accepting these terms you represent and warrant that you are not a U.S. Person as defined under Regulation S of the United States Securities Act of 1933, as amended.

U.S. Persons interested in services provided by Troy should instead contact us directly on [email protected] or call +44 (0)20 7499 4030.

  1. Suitability of products and services

The products and services described on this website may not be suitable for all investors.  Troy does not provide investment advice or make personal recommendations to investors.  If you wish to obtain advice about the suitability, or have any doubt about the suitability, for you of products managed by Troy or services provided by Troy, you should contact a financial adviser.

Should you have any general queries or require support relating to Troy or its products and services, please do email [email protected] or call +44 (0)20 7499 4030.

  1. Risk warnings

The value of investments and the income from them may go down as well as up and investors may get back less than they invested.  Changes in rates of exchange may cause the value of investments to go up or down.  Past performance is not a guide to future performance.

Tax legislation and the levels of relief from taxation can change at any time.  Troy does not provide tax, legal or accounting advice and therefore the information presented on this website should not be relied upon.  Please consult your own financial advisor before engaging in any transaction.

The information on this website is for information purposes only and does not constitute a recommendation, solicitation, offer or invitation to purchase or sell any investment product, perform any other transactions, or conclude any other legal transactions.

Changes to website content

These terms and conditions and the information contained on this website is subject to change without notice and no guarantee is made as to its accuracy, completeness or fitness for a particular purpose. Troy has expressed its own views and opinions on this website and these may change without notice.  Troy is under no obligation to update information and visitors to this website should not rely solely on the information contained on this website in making an investment decision.

We keep our terms and conditions under review.  These terms and conditions were most recently updated on 8 September 2023.

  1. Intellectual property rights

Troy is the owner or licensee of all intellectual property rights (including copyright and database rights) that subsist in this website, and in the material published on it.  No right is granted to use the website:

(i) to create a database (electronic or otherwise) that includes material downloaded or otherwise obtained from the website except where expressly permitted on this website or by written agreement with Troy;

(ii) to transmit or re-circulate any material obtained from the website to any third party except where expressly permitted on this website or by written agreement with Troy;

(iii) in such a way so as to remove the copyright or trademark notice(s) from any copies of any material made in accordance with these terms.

No use of Troy’s name, logos and/or other trademarks (whether registered or unregistered) may be made by you without separate express written agreement being given by Troy (or its licensors).

  1. Liability

Whilst Troy has sought to ensure the accuracy and completeness of the information contained on this website as at the date of publication, save as required by applicable law and regulation, Troy gives no warranty or representation and accepts no liability in respect of the accuracy, adequacy or completeness of such information.

Whilst Troy endeavours to maintain the availability of this website Troy cannot guarantee that your use of this website will be free from error and/or uninterrupted.  Accordingly, the website is provided on an “AS IS” and “AS AVAILABLE” basis without any warranties of any kind.  We do not accept any liability arising from any interruption in availability.

Whilst effort has been taken to ensure that the website is free from viruses, no warranties are given that it is free from viruses and users are responsible for ensuring that they have installed adequate anti-virus software.  Troy shall not be liable for any viruses or any other computer code, files or programmes designed to interrupt, restrict, destroy, limit the functionality of or compromise the integrity of the website or any hardware on which it is hosted.

  1. Third party websites

This website may contain links to external websites operated by third parties.  These links are included to give users the opportunity to access other pages that it is felt may be of assistance to them.  Troy makes no representations as to the accuracy or any other aspect of the information contained on such websites and Troy accepts no responsibility for the content of such websites.

  1. Data protection

On some pages of this website, users are asked to contact Troy to provide, or obtain, further information.  Please refer to our Privacy Notice (which can be accessed here) which provides information about how we gather and use personal information.

  1. General

Each of the paragraphs of these terms and conditions operates separately.  If any court or relevant authority decides that any of them are unlawful or unenforceable, the remaining paragraphs will remain in full force and effect.

If we fail to insist that you perform any of your obligations under these terms and conditions, or if we do not enforce our rights against you, or if we delay in doing so, that will not mean that we have waived our rights against you and will not mean that you do not have to comply with those obligations.

These terms and conditions are governed by English law and are available only in English.  You and we both agree that the courts of England and Wales will have non-exclusive jurisdiction over any dispute or claim arising under these terms and conditions.

  1. Contact details

Troy Asset Management Limited, 33 Davies Street, London W1K 4BP, United Kingdom; Telephone +44 (0)20 7499 4030; Email [email protected].  Troy Asset Management Limited is a limited company registered in England and Wales under company number 3930846 and has its registered office at 33 Davies Street, London W1K 4BP , United Kingdom. Except where otherwise required by applicable law or regulations, all communication and documentation sent to you by Troy will be in English.  You may communicate with us in English.

For more information about this website, including information concerning the personal data Troy holds about you, please contact us by email via [email protected].

© Troy Asset Management Limited 2023. All rights reserved.

 

 

I accept these Website Terms and Conditions