Event Voice: Your Questions Answered by Goldman Sachs Asset Management at the Investment Week Sustainable & ESG Market Briefing

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Can you give a brief overview of your strategy in terms of what you are trying to achieve for investors, your investment process and the make-up of the investment team?

The GS Global Environmental Impact Equity Portfolio has two objectives[1] at its core:

1. Investing in companies which provide impactful solutions to drive environmental sustainability;

2. Generating superior returns against global equities (measured by the MSCI All Country World Index)

In today's time where our world is at the cusp of a climate revolution, we believe thoughtfully investing in innovative solution providers can help drive greater sustainability and attractive returns for our clients. This effort is supported by attractive economics, as sustainable products become continuously more cost effective and start being less of a philanthropic endeavor and more of a sound investment decision.

We follow a bottom up, long-term focused investment process and consider all regions (DM+EM), sectors and market caps with a focus on companies which are aligned to five key impact themes: clean energy, resource efficiency, sustainable consumption, the circular economy, and water sustainability.

Anchored to our thematic framework, we have built an extensive proprietary universe of ~500 stocks which, in our view, capture the opportunity set holistically. To arrive at a concentrated portfolio of 30-60 names, we rely on fundamental research focused on selecting quality businesses at attractive valuations and strong thematic alignment, i.e. potential to generate meaningful environmental impact.

Our investment team of 8 research analysts, led by Alexis Deladerrière, CFA as PM, has an average investment experience of 12 years and leverages our broader platform of 80+ investors, who are locally based across key markets such as the US, Japan and China, which gives us access to under researched market segments.

How have you been trying to weather the storm caused by the Covid-19 pandemic and what could be the longer-term implications for your strategy?

When constructing our portfolio, we seek to keep a balance between more ‘growthy' (e.g. clean energy) and more defensive (e.g. sustainable consumption) areas of the market. The goal is to deliver robust performance across various market scenarios and this dynamic has played out well over 2020, including both the sharp drawdown and the subsequent recovery.

Taking the long view, today's crisis has reaffirmed our belief that we have reached an inflection point where governments, corporates and consumers are more unified than ever in their desire and willingness to fight climate change. COVID-19 has elevated the conversation around the importance of inclusive and sustainable growth and the focus on climate change has become more ingrained into how people spend money and how they invest. As the conversation shifts towards the rebuilding of our economies, governments around the world seem to be in agreement that a greener economy needs to be part of the policy agenda. However, it is crucial to reiterate that those are merely accelerating factors of a long-term, secular trend - thanks to the rapid pace of disruption in the space, cost curves have been coming down drastically and we are convinced the thematic we are targeting will profoundly change the way we live, work and consume not just because of a supportive policy backdrop, but simply because the economics have started to make sense.

Can you identify a couple of key investment opportunities for your fund you are playing at the moment in the portfolio? This could be at a stock, sector or thematic level. 

We focus our investments to five key themes which, in our view, collectively drive greater environmental sustainability via corporate innovation. Those themes can be broken down further into various sub-themes, which we target through our investments. This includes more established areas, such as solar panel manufacturing and grid services which fall into our clean energy bucket, as well as the electric vehicle ecosystem, ranging from battery manufacturers to charging stations. Beyond those more commonly known and owned areas, we see significant leaps in innovation in more nascent sub-themes, including sustainable fashion and food, biodegradable plastics, large scale deployment of floating offshore wind farms, and commercialization of carbon capture

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Source: GSAM as of 28th February,2021. [1] There is no guarantee that objectives will be met.

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The portfolio risk management process includes an effort to monitor and manage risk, but does not imply low risk.

There is no guarantee that objectives will be met.

Environmental, Social, and Governance ("ESG") strategies may take risks or eliminate exposures found in other strategies or broad market benchmarks that may cause performance to diverge from the performance of these other strategies or market benchmarks. ESG strategies will be subject to the risks associated with their underlying investments' asset classes. Further, the demand within certain markets or sectors that an ESG strategy targets may not develop as forecasted or may develop more slowly than anticipated.

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