Responsible Investment Report No.11

Troy

The natural world and its capital

“Only when the last tree is cut down, the last fish eaten, and the last stream poisoned, you will realise that you cannot eat money.”

Cree Indian Proverb

As we bid farewell to the winter solstice, we embark on a new year with days slowly stretching longer. The promise of spring lies on the horizon, and we will soon witness nature’s transformation. Amidst our admiration for nature’s beauty and its wonder, there lies an often-overlooked question: what economic value does nature hold?

Natural capital in many ways forms the foundation for all other types of capital. It delivers essential services crucial for businesses and people, including providing resources (food, water, timber), regulating climate and disease, and supporting nutrient cycles and crop pollination. In 2019, the OECD estimated the annual value of natural ecosystems at $125-140 trillion, surpassing global GDP by more than one and a half times1.

Over time, human activities have stressed natural ecosystems and reduced biodiversity. This degradation poses both business and financial risks, ranging from the increasing scarcity of raw materials to less stable supply chains.

New policies to protect the natural environment will also impact companies. For example, the EU’s law on deforestation-free products, which impacts various sectors like agriculture, energy, construction, and infrastructure, ensures products consumed in Europe will not contribute to deforestation or forest degradation. The regulatory focus is only likely to increase for companies interacting with biodiversity and nature.

The Task Force on Nature-related Financial Disclosures (TNFD)

The financial realm has also found itself under intensified scrutiny. In September 2023, the TNFD released its highly anticipated disclosure framework. This is a global initiative pushing businesses to disclose and manage their impact on nature.

Investors will now have greater transparency from companies to evaluate the nature-related risks (and opportunities) impacting the financial sustainability of their investments. This in turn means that investment professionals will have to give greater thought as to how the loss of nature and increasing regulation has the capacity to impact the durability of long-term portfolio returns. 

Given Troy’s historically significant exposure to consumer staples companies, our focus on biodiversity, deforestation, and water scarcity has been an important part of our research and company analysis for some time.

In 2019, we first explored the topics of plastic use and palm oil and have since explored other nature-related themes. Our aim is to gauge the efforts that portfolio companies make to mitigate their impact on nature and prevent damage to natural ecosystems. This serves to safeguard the resilience of their businesses while mitigating regulatory and reputational risks.

Pernod Ricard and Diageo on sustainable agriculture

During the quarter, dedicated sustainability meetings with both Pernod Ricard and Diageo highlighted their efforts to protect raw materials against soil erosion and challenging farming conditions. Both companies rely on commodities such as grapes, barley, corn, wheat, and agave for premium spirits.

They seek to use these resources whilst reducing their own environmental impact by prioritising regenerative agricultural techniques that enhance the health of ecosystems. Pernod particularly focuses on preserving land in the Cognac and Champagne farming regions.

Not only is land degradation from human impact a long-term risk, climate change is also changing farming conditions. As summers become hotter, many grape varieties are becoming less acidic and sweeter, which may be problematic for cognac supply 20-30 years from now. Pernod is investing in the development of new grape varieties that can withstand the effects of climate change.

By investing in regenerative agriculture both Pernod and Diageo are shifting away from conventional practices to promote natural processes, minimising chemical use, and fostering local biodiversity. Pernod has been an early supporter of the International Union for Conservation of Nature’s Agriculture and Land Health Initiative. This offers subsidies to farmers that adopt more efficient and environmentally friendly equipment. Through its Sustainable Solutions programme, Diageo collaborates closely with smallholder farmers, who supply up to 80% of their raw materials, emphasising strategic and long-term supplier relations to promote sustainable supply chains.

These conversations are encouraging for investors in these businesses. They reveal that Pernod and Diageo are proactive in taking a long-term approach and anticipating the lasting benefits that will flow from their sustainability initiatives. There is a lot of work ahead but we believe taking early action will position these companies favourably for the future.

Nestlé on deforestation

“Keeping your batting average high on future-focused projects has always been the hallmark of successful company management.”

Mark Schneider, CEO of Nestlé

Nestlé’s proactive stance on tackling commodity-driven deforestation has proven already to be a strategic advantage. The company invested in deforestation-free supply chains over a decade ago, committing to zero deforestation by 2025. This strategic move positioned the company ahead of regulatory changes, such as the recent EU regulations on deforestation-linked commodities.

In 2022, Nestlé achieved over 99% assessed deforestation-free status across many raw materials including meat, palm oil, pulp, soy, and sugar and is now targeting the same for coffee and cocoa. Their ‘Forest Positive’ strategy includes a reforestation goal of planting 200 million trees by 2030, emphasising support for suppliers and farmers in conservation and restoration initiatives.

Many of Nestlé’s suppliers are smallholder farmers. Deforesting land to increase their farmed land is often an economically advantageous choice, but one that comes at a cost to the wider environment. Nestlé’s strategy therefore strongly emphasises long-term supplier partnerships and education, providing financial support and forward planning to ensure farmers are not thrust further into poverty due to global efforts to preserve forests.

Nestlé is in the process of finding ways to communicate these efforts to consumers, so that brand perception and consumer loyalty are enhanced. The company is a prime example of what it takes to build and nurture enduring brands. A proactive commitment to environmental responsibility is aimed at remaining competitive in a dynamic and changing environment. This provides insight into Nestlé’s corporate culture and management’s foresight.

Large multinationals like Nestlé often face difficult trade-offs; aligning increased volumes with environmental responsibility is not without its challenges. Navigating this delicate balance requires strategic decision-making to ensure sustained growth without compromising on sustainability goals. Nestlé consistently strives for improvements and acknowledges that there’s more to do. While not perfect, Nestlé is an exemplar of a company that is rising to this complex challenge.

Nature and investing

Extended periods of human activity have resulted in the gradual degradation of our ecosystems. Despite this, nature exhibits a remarkable ability to rejuvenate and repair itself when given the necessary space to do so.

The TNFD serves as a valuable framework for organisations to report and address evolving nature-related dependencies, impacts, risks, and opportunities. This framework encourages a more intentional and structured consideration of these issues by businesses and investors.

As long-term investors, our goal is to invest in companies that can deliver sustainable and growing returns on capital. Climate change and nature degradation, coupled with increased regulation, will affect our portfolio companies over the timescales that we invest, hence the need to proactively consider such risks.

Our deep research and continuous engagements with companies aims to ensure their business models are founded on sustainable practices. The examples provided underscore the ways in which our portfolio companies are taking necessary action for improved future resilience.

While there is considerable work ahead, we recognise the importance of adapting. Just as ecosystems can thrive through gradual change, long-term investors must adapt to address the growing challenges posed by nature and climate change. The TNFD’s framework will further strengthen our efforts in navigating these changes.


1 OECD


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”) 2024. ‘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 2024

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