The Fossil Fuel Free Global Equity strategy is a high-conviction global equity portfolio managed by a stable team of experienced industry specialists with a tried and tested investment philosophy. The strategy is differentiated by its dedicated, risk-aware portfolio construction process. The RBC Global Equity team integrates material Environmental, Social, and Governance (ESG) factors into its investment decisions, and engages with issuers on material ESG issues. The team’s approach leads to performance that’s driven by stock-specific risk, a source of return that has no persistent correlation to other active return. The strategy also excludes investments in companies involved in extracting, processing and transporting fossil fuels.1
- Long-term ownership mind-set with integration of material ESG factors
- Companies assessed through Competitive Dynamics Framework prior to valuation
- Efficient usage of risk
- Exclude issuers involved in extracting, processing and transporting fossil fuels
The intention of the Fossil Fuel Free strategy is to provide long-term capital growth by investing primarily in equity securities of a diversified mix of companies operating in various countries around the world across a range of sectors, but excludes securities of issuers directly engaged in the extraction, processing and transportation of fossil fuels such as coal, oil and natural gas. To do this, the Fossil Fuel Free framework applies two exclusion lists that determine its investable universe:
1. The first exclusion list is based on the Carbon Underground 200 (CU200). Generally, any issuer included in the Carbon Underground 200 exclusion list is ineligible for the fund. The CU200 report identifies the top 100 public coal companies globally and the top 100 public oil and gas companies globally, ranked by the potential carbon emissions content of their reported reserves. The CU200 list is maintained by the independent third-party provider Fossil Free Indexes LLC and is revised quarterly.
2. RBC GAM has partnered with Sustainalytics to identify issuers for the second exclusion list. Based on its data, Sustainalytics prepares an exclusion list of issuers involved in the extraction, processing and transportation of fossil fuels, based on revenues derived from these activities.2
a) Securities of issuers that directly, or indirectly through a significant stake in a subsidiary, derive >0% of revenues from any of the following activities:
- Arctic Oil & Gas Exploration and Extraction
- Oil & Natural Gas Exploration, Production, Refining, Transportation (i.e. pipelines, railways, etc.) and/or storage
- Oil Sands Extraction
- Shale Energy Extraction
- Provision of storage, transportation, mining and refining services of thermal coal
b) Companies deriving >10% of revenues from any of the following activities:
- Oil & Gas Supporting Products/Services - refers to any tailor-made product and/or service that is provided by third-parties to support the oil and gas exploration, production, and refining process - e.g., rental of tailor-made equipment, geophysical engineering, chemicals to support drilling, etc.
- Power generated by thermal coal
The RBC Global Equity team has been managing client money the same way since our foundation in 2006. The investment team enjoys a very strong, collaborative culture based upon teamwork, transparency, alignment and continuous improvement.
The team believes culture is critical in turning a collection of skilled individuals into a strong team that is committed to making a positive difference for our clients, for investee companies, and for the communities in which we operate.
We believe that over the long-term, investing in great companies at attractive valuations generates value for shareholders that significantly exceeds the return on the average company or the market.
Great businesses can create contingent assets based on extra-financial forms of capital. These are often subtle, qualitative characteristics that can take time to be reflected in company financials; characteristics such as sustainable business practices, engaged employees as well as great relationships with suppliers, customers, and the community. Because these do not immediately accrue to the bottom line and are not reflected in typical financial reporting, we believe the market often underappreciates their impact. However, it is our view that healthy extra-financial capital mitigates risk and creates long-term economic value. We believe that by evaluating the health of extra-financial factors, including ESG, we may be able to reduce risk and uncover alternative sources of alpha, and also achieve a responsible allocation of capital.
Our Competitive Dynamics framework
We use industry analysis to identify great businesses within their competitive set before assessing them using our Competitive Dynamics framework.
Winning business model
Each business in the portfolio has a unique, hard-to-replicate element that we believe gives it a sustainable edge over its competitors. That element varies from industry to industry, which is why we are structured as a team of industry experts.
Market share opportunity
We pay close attention to the industry structure and nature of competition and expect a company with a true edge over competitors to expand or at least maintain its market share.
We believe that a company with a winning business model able to take market share will amplify the amount of value creation if it is exposed to growing end markets.
Management and ESG practices
We believe investing is not simply renting a share for a period, but taking an ownership stake in a business and accepting the responsibility that ownership entails. We want to partner with responsible management teams who can both operate the business effectively on a day-to-day basis and position it strategically over the long term.
Portfolio construction and risk management
In constructing the portfolio, we use our proprietary risk application in order to analyse the portfolio's risk exposures, enabling us to build-in sufficient diversification for us to capture the stock-specific intended risk sources whilst maintaining a focused portfolio of best ideas. By ensuring the individuality of those best ideas, we maximize diversification of unintended risk exposures and avoid bias-creating concentrations. The result is a portfolio where excess returns are dominated by the investment philosophy and stock-specific risk.