Company: de Pury Pictet Turrettini (PPT)
Category: Active Ownership Project of the Year (shortlisted)
In the spirit of showcasing leadership and raising standards of responsible investment among all our signatories, we are pleased to publish case studies of all the winning and shortlisted entries for the PRI Awards 2019.
Project overview and objectives
The Cadmos Peace Investment Fund is the first fund of its kind to tackle directly the UN’s 16th Sustainable Development Goal (SDG16): the promotion of peace, justice and strong institutions. De Pury Pictet Turrettini (PPT) joined forces with the Swiss peace foundation, PeaceNexus, to launch the fund in January 2018. One of the primary motivations was our belief that companies that have adapted to performing responsibly in the complex environment of conflict-prone countries are more likely to be resistant to shocks, and outperform their peers. The peace fund is one of four engagement funds operated by PPT as part of its Cadmos ‘Buy and Care’ investment strategy. It is targeted at investors who seek both market or above-market financial performance, alongside a tangible peace-building dividend. Only companies with large economic footprints in fragile countries and with the most promising financial outlook are selected for inclusion.
Of these, the fund will only invest in companies that have a net positive impact to peace building, as measured by PeaceNexus’s proprietary Peace-building Business Index. This index ranks the 300 most economically significant listed companies in 76 fragile states, according to peace-building criteria that extend beyond standard environmental, social and governance (ESG) criteria.
The project in practice and challenges overcome
The fund puts regular company engagement at the heart of its strategy. Together with PeaceNexus, PPT works with companies to produce a concise, company-specific peace-building assessment that maps their contributions to SDG 16, and peace-building more widely. These reports focus on the main observed gaps to best practices and include tangible suggestions for improvement. Recommended next steps may include strategic support, the provision of technical local expertise or peace-building assistance in specific markets.
When speaking to companies, PPT makes sure to stress that peace building is not a new category of ESG but an extension, aimed at strengthening the practices that contribute to conflict prevention and stabilisation in fragile countries.
For example, sourcing policies should ensure that suppliers take steps to avoid procurement of conflict-related resources. And labour practices should include affirmative-action programmes whereby populations at risk, such as minorities, women and, ex-combatants, are included in the workforce.
PPT’s also discusses companies’ peace-building scorecard, and particularly their position in the PeaceNexus ranking. This ranking appeals directly to companies’ competitive spirit and can often spur action. The primary focus of all these meetings are to find gaps in best practice and then help companies to do something about them.
PPT faced and overcame two central challenges in establishing the fund.
The first challenge was in finding consensus on the fund’s responsible investment strategy and defining ‘active ownership and engagement’ at its core. It would have been more convenient to put the emphasis on a ‘best-in-class’ strategy. But PPT felt that peace building was unsuitable for this approach, hence the decision only to invest in companies with a net positive contribution to peace building. This approach allows PPT to eliminate key reputational risks without creating unwanted financial bias, while also preparing the ground for productive engagement meetings.
The second challenge was that the appetite of multinational companies to engage on peace building was not yet tested before the fund’s launch. PPT conducted a pilot phase with 10 companies during 2017-2018. This was an unexpected success, with nine companies agreeing to follow-up with PPT’s peace-building experts at PeaceNexus. By the end of the pilot phase, in June 2018, two companies, SAP and L’Oréal, had agreed to a thorough peace-building assessment. The latest engagement meetings are pointing towards even better results, and the first tangible peace-building projects will be reported in the 2018-2019 report.
Success against objectives
The Cadmos Peace Investment Fund is breaking new ground within mission-related investments. It was co-created and co-seeded between a foundation and an asset manager, with both parties providing know-how and expertise throughout the investment and engagement process, with the aim of generating positive financial performances and tangible positive additional peace-building impacts.
The fund’s financial performance after its first year of existence is aligned with global equity indices. And, as of the date of this award submission, the cash flow returns on investment of the underlying companies are almost twice as high as the companies from the MSCI World Index