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A belief in the transformative power of capitalism is behind the Keystone Positive Change Investment Trust, Baillie Gifford’s latest closed-ended fund. Jointly managed by Lee Qian and Kate Fox, the trust takes a strikingly different approach by actively investing in innovative companies that contribute to its goal of a more sustainable and inclusive world, rather than excluding sectors based on off-the-shelf ESG ratings. Fox says it’s about providing solutions to global challenges: “This isn’t just about avoiding companies doing harm, or supporting businesses adopting sustainable and responsible business practices, it’s about trying to identify the companies intent on delivering change to make the world a better place.”
Positive Change has four impact themes: social inclusion and education; environment and resource needs; healthcare and quality of life; and ‘base of the pyramid’ services that support economic improvement for the world’s least advantaged.
Danish company Ørsted builds and operates offshore wind farms, and in 2020 generated 21 terawatt hours of renewable electricity. “The impact of that energy is it helps to decarbonise our energy needs and reduce CO2 emissions,” explains Qian. “Last year, Ørsted helped reduce more than 11 million tonnes of CO2 emissions.”
Safaricom, a Kenyan mobile operator, provides basic but transformative connectivity. “We think technology will become even more important in all our lives, and is particularly impactful in emerging markets, where it makes basic services more accessible,” says Qian. Safaricom’s M-Pesa payment service has been operating for more than 10 years, allowing anyone with a mobile phone to transfer money to friends, family or retailers. “It allows people to participate economically, to trade, save or borrow money or to pay for their kids’ education. It’s extremely exciting and impactful.”
A more unusual impact investment is in the Dutch business ASML, whose hardware, software and services help to create critical components used in smartphones and consumer electronics. “Connectivity equals both productivity and inclusivity,” says Fox. “ASML is one of the most important tech businesses you’ve never heard of.”
And in the healthcare category, Dexcom makes sensors that can provide continuous glucose-monitoring for some of the world’s 476m diabetes sufferers. Based in San Diego, California, it provides a far more convenient, less invasive and consistent record of a patient’s glucose levels. “A continuous reading is really important in managing the condition,” according to Fox. Diabetes is a chronic condition that leads to long-term health complications and costs the US healthcare system alone an estimated $327bn every year. “Dexcom’s products improve patients’ quality of life and reduce the number of complications and hypo or hyperglycemic events. It’s a great illustration of how our objectives of positive impact and successful investing go hand-in-hand.”
The process of finding good fits for Positive Change is “organic”, explains Fox. The trust doesn’t use quantitative filters, but looks for compelling individuals with impactful ideas. The team identifies companies whose products and services are an improvement to the status quo, seeking growth businesses with sustainable competitive advantages. In addition to analysing the investment and impact potential, once a company is in the portfolio, impact is monitored through a robust assessment system. “We’ve identified a set of metrics that help us track and monitor change,” she adds. “We also link a company’s products and services to the UN’s Sustainable Development Goals, using the targets that underpin them, to help articulate how the holdings are driving change.”
Qian describes the character of the trust as fundamentally optimistic. “As we’re seeing people in different companies and different countries, we get a sense of optimism that there’s so much that unites all of us in striving for a better future. We’re excited about helping unleash the support and investment that entrepreneurs need to foster new ideas and grow their businesses.”
Fox, who started her career at Baillie Gifford in 2002, says “It’s a hugely privileged role being an investment manager, channelling capital to grow it on behalf of clients. As asset managers, we have a responsibility to contribute to meeting the UN’s Sustainable Development Goals by channelling capital and meeting that financing gap.” Delivering positive change and attractive investment returns go hand-in-hand. “There are still many challenges, but we believe businesses can be part of the solution. I can’t imagine anything more exciting than Positive Change, helping leverage the power of capitalism, entrepreneurship and innovation to create a better future.”
A longer version of this article appeared in the spring edition of Baillie Gifford's Trust magazine.
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