Case Study

Sycomore Asset Management: Helping investors calculate ESG risks and opportunities in the food industry

Sycomore Asset Management is a Paris-based fund manager established in 2001 with more than €8 billion of assets under management. It has been a signatory to the UN-supported Principles for Responsible Investment since 2010 and a member of the Global Impact Investing Network since 2016. The firm’s entire range of SRI funds has been awarded the SRI Label, a French government-approved recognition of the quality of its sustainability approach.

Adding SPICE to food company investments

As a bottom-up, long-term investor, the company has developed a valuation tool that factors ESG considerations into investment decisions to find companies able to generate sustainable value.

At the heart of this tool, Sycomore Asset Management looks at whether a company creates value for its stakeholders, specifically suppliers, civil society, people, investors, clients
and the environment (SPICE). The SPICE model structures financial and ESG research work and is fully integrated into Sycomore AM’s proprietary research and valuation tool.

Sycomore AM recognises that investing in large food companies presents clear environmental and social risks. For example, more rigorous environmental and animal-welfare standards
have raised farmers’ costs significantly over the past ten years and European consumers are eating less meat. It also presents considerable opportunities, with the sector as a whole standing to benefit from further population growth.

For example, in 2016, food companies such as Unilever, Bonduelle and Fleury Michon all received a top SPICE score (A) through their efforts to manage ESG issues and increase

Quantifying the environmental impact of companies

In June 2017, Sycomore AM partnered with BNP Paribas Securities Services to further accelerate the deployment of its environmental analysis of companies through the use of the Net
Environmental Contribution (NEC)TM metric.

The NEC is a new metric which assesses the environmental impact of the economic activities of a company, a portfolio or an index. Developed since 2015 and in association with I Care & Consult and Quantis’s experts, the NEC indicator assesses the contribution of a company’s overall activities towards energy and ecological transition, and measures the degree to which a business model is aligned with the transition as well as climate change goals.

For example, as shown in Figure below, the NEC also helps compare the environmental performance of industrial and organic food products.

The NEC uses a scale ranging from -100%, for activities which are the most harmful to natural capital, to +100%, for the most environmentally-friendly solutions. In the case of the food industry, the NEC indicator classifies different types of food according to their respective environmental impact (climate, water, biodiversity) and the associated nutritional content (proteins, lipids, carbohydrates).

Christine Kolb, Cofounder of Sycomore AM says, “The NEC marks a new stage in quantifying the environmental impact of companies and the ongoing search for sustainable performance
levers. It is proving to be a useful compass to measure our environmental impact and to separate, within our portfolios, the winners and pioneers from the green-washers and the
endangered economic species turning into stranded assets. We are convinced this indicator will also be of great use to investors.”

Bertille Knuckey, Head of Sustainable & Responsible Investment at Sycomore AM adds, “Based on Sycomore AM’s methodology,companies in the food sector can be positioned
based on the NEC ranging from a company selling meat originating from intensive farming with a NEC close to -100% to a company positioned in unpacked organic and plant-based food with a NEC close to +100%.”

Sycomore AM’s work is shining an important light on the food industry and how the integration of ESG criteria can affect companies’ adjusted beta.

Figure: A snapshot from Sycomore AM and Quantis of the position of traditional food products based on their environmental performance.

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