Each of the fund managers that Moneyworks recommends have different methods of choosing the investments that they select. From top down, data driven, desk based research, to the total opposite where the fund manager focuses on the people in the company and understanding what they are doing, and how they will and do make decisions.
Whatever their approach is, we are looking for fund managers that have a deep commitment to research and are adding value to their investors (apart from the small handful of ‘defined index’ funds that we recommend).
When we were meeting with Artesian for our fund manager project analysis this year, they explained how their research works, and gave us a great example, of when their research suggested that they shouldn’t invest. They have given us permission to share this with you.
Artesian are an Australian based fund manager, who are a B-Corp and they have two parts to their business, their Bond/Fixed Interest arm, which we use and their Venture Capital business (which we don’t use).
We recommend their Artesian Green & Sustainable Bond Fund, which is available to our clients through the NZ currency and tax environment PIE fund, which is distributed by Devon.
This Green & Sustainable Bond Fund invests in Global Bonds, that meet their Green and Sustainable criteria, including the requirement that the issuer has women on their board. The research process that Artesian carries out is a deep process, they don’t assume that just because a bond has a label that says it is green or sustainable that it is, and they prefer their own research instead of taking the word of an independent verification agency.
It is important to Artesian that the fund invests true to label and that they are avoiding Greenwashing as far as possible.
JBS USA Sustainability Linked Bond
This bond was offered to the global markets in late 2021 by JBS Foods, through their USA entity. JBS Foods are a ‘leading global food company, with operations in the United States, Australia, Canada, Europe, Mexico, New Zealand and the UK’. You can find out more here: https://jbsfoodsgroup.com/. JBS is the worlds biggest meat company.
The bond interest rates were tied to the company’s ambition to achieve net-zero greenhouse gas (GHG) emissions by 2040 and to reduce GHG emissions by 30% by 2030. If JBS failed to meet those commitments, it will be penalized and will pay bondholders ‘a step up amount or premium payment’.
When Artesian carried out their analysis of the offering and the company, they were concerned about the ethics of the organisation, including (but not limited to) the following concerns:
1. Involvement in price fixing and anti-competitive behaviour
2. Employee health and safety incidents
3. Numerous animal welfare incidents
4. Bribery and corruption scandals, whereby management were accused of paying bribes to secure contracts.
Artesian declined to participate in the offer, but despite this, the issuer raised USD 1 billion in this transaction and an additional +2 billion in other Sustainability Linked Bond transactions. These bond issues were oversubscribed and resulted in some of the lowest borrowing costs in the company’s history.
What happened next?
In January 2023 (14 months after the bond’s issue), the NGO Mighty Earth filed a whistle-blower complaint to the US SEC, seeking an investigation into alleged misleading and fraudulent ‘green bonds’ issues by JBS. Despite the claims when the bond was issued, emissions had increased, with the claim that JBS had the highest methane emissions of any company in agriculture, exceeding the combined total of France, Germany, Canada and New Zealand.
Deforestation in the Amazon by the Brazilian country was either knowingly contributed to or ignored by its suppliers. JBS admitted that it bought about 9,000 head of cattle from illegal farms in the Amazon (claiming it was a victim of fraud).
Although the company denied the claims by Mighty Earth, the business risk increased, with public commitments by European buyers (large multi-national supermarkets) to remove beef products tied to JBS from their shelves.
The regulatory risk increased -with accusations of greenwashing, and several investors publicly announced divestments form JBS as a result of this information being published.
The value of good research
The publicity highlighted the information that Artesian had found in their research, that in 2017 JBS settled four price-fixing cases in the United States, and had paid $27 million for violations of the Foreign Corrupt Practices Act.
For the Sustainability Linked Bond investors [USD3.2 billion worth] that didn’t do their research, the value of the investments fell as the controversies came to light.
This is why we look for fund managers that walk the talk and do the detailed research and analysis. This doesn’t guarantee that every investment that our fund managers make will be an outstanding success, but doing the deep research is more likely to find duds and investments to avoid.