In the lead up to this week’s The Insider: Meet the Fund Manager, Jai Mirchandani from ELM Responsible Investments sat down with Reach Markets to provide a bit of information about his investment strategy, methods of ESG analysis, industries of interest and view on the market.

ELM focuses on sustainable, long-term investments that make a positive impact on society and address the United Nations Sustainable Development Goals (SDGs). Jai invests in responsible, well-managed companies based on risks and returns – in an effort to unite his clients values with their financial goals.

Specifically discussing the Australian market, he states that it is heavily indexed towards cyclical companies that are economically sensitive, such as commodity related businesses and banks. The long term structural trends around growth, inflation and GDP weakness lead him to hold an unfavourable view of these companies at the moment. He prefers to focus on high-quality, innovative growth companies that invest in new technologies and take market share, especially considering that those companies were hit hard last year as interest rates increased. Jai believes that interest rates will normalise, and when that happens, what was a macroeconomic headwind for those companies will become a tailwind.

Mr. Mirchandani sees opportunities in fintech and healthcare. He notes that there are high quality financial technology companies that are continuing to take market share from legacy banks, and healthcare companies that were held back during covid but have attractive earnings trajectories that look set to improve over the coming year. As a sustainable fund manager, he is particularly interested in renewable energy and believes that while fossil fuel companies and their commodities have performed well in the recent past, the trend is unsustainable, and renewable energy companies will flourish due to enduring structural trends.

ELM is sector-agnostic, and Jai has a refined and nuanced approach to investing from an ESG standpoint. His focus is on maximising investor returns and creating a positive impact through his portfolio. A perfect example of this is that despite the fact that iron ore, a key ingredient in steel, is required for the manufacturing of wind turbines, Jai is not invested in iron ore due to the environmental and social damage caused by the mining process.

According to CarbonBrief, the iron and steel industry is responsible for 11% of global CO2 emissions, and the mining of iron ore has caused environmental and social harm, as evidenced by the destruction of significant cultural sites at the Juukan Gorge by Rio Tinto in 2020.

Furthermore, iron ore’s exposure to the volatile and unstable Chinese property market is another reason to avoid the industry. Instead, he chooses to invest in high-quality renewable energy developers and new technologies that have the potential to reduce greenhouse gas emissions from energy-intensive industries. During the session, he will elaborate more on the exciting opportunities that he sees in technologies that can make cement production and mining processes more energy-efficient and environmentally friendly.

The process for assessing potential investees is extremely rigorous, and involves thoroughly analysing both positive and negative externalities. Before making an investment, ELM also considers the impact on all stakeholders, as well as scope one, scope two and crucially – scope three emissions. Criticism has arisen by limiting ESG analysis of business operations to scope one, which are direct emissions caused by a company’s operations, and scope two, which are indirect emissions caused by the production of energy that the company purchases. Scope three emissions are also indirect, but encompass all the activities of everyone in the value chain – including customers and suppliers.

Simply engaging in ESG integration is not enough, and Mr. Mirchandani utilises the Impact Management Project’s classification system and considers the 5 dimensions of impact – a proven model that can be used to measure the true impact of a company’s business practices – to give companies a sustainability score.

It’s a practice that Jai specialises in, and combined with traditional valuation and risk methodology, forms the backbone of a funds management process that is able to create a quantifiable, positive impact with its investments.

Mr. Mirchandani holds a Bachelor of Commerce and Bachelor of Science majoring in Biochemistry from the University of Melbourne, as well as an MSc in Accounting and Finance from the London School of Economics. He spent 9 years at JCP Investment Partners as a portfolio manager and senior research analyst, and was previously an investment banker in London.

ELM targets numerous SDGs, including sustainable cities and communities, climate action, industry, innovation and infrastructure, good health and well-being, gender equality, clean water and sanitation, affordable and clean energy as well as decent work and economic growth.

Join Jai Mirchandani this Friday, 17 of March, at 12pm (AEDT) on our weekly The Insider: Meet the Fund Manager webcast to hear him talk about his favourite stocks, investment strategy, market insights and more. There will also be an opportunity to ask questions during the session. To book yourself in, click here.

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