François Bourdon, managing partner of Nordis Capital in Montreal.The Globe and Mail
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Investing through an environmental, social and governance (ESG) lens has lost its way in recent years, a shift that money manager François Bourdon blames on “sustainability tourists” – and not the travel kind.
The managing partner of sustainability-focused firm Nordis Capital, based in Montreal, says too many companies venture into sustainability in one part of their business while maintaining other parts that can be harmful to society and the environment.
“ESG is becoming a bit toxic. Nobody really knows what it is and what it includes or doesn’t include,” Mr. Bourdon says.
The result is a shift from ESG investing, which is more about risk management, toward impact investing, in which capital positively impacts society and generates a financial return, he says.
“This evolution is better for sustainability investing. It will help clean up the sector,” says Mr. Bourdon, whose firm oversees about $100-million in assets. “We believe investors who care about sustainability want a manager committed to it throughout its business practices, not just paying lip service.”
The firm’s global equity strategy has returned 5.3 per cent over the past 12 months and returned 9.3 per cent since inception on Dec. 21, 2022. The performance is based on total returns, net of fees, as of April 25.
The Globe spoke recently with Mr. Bourdon about his investing strategy, what he’s been buying and selling, and a couple of stocks he wishes he hadn’t sold.
Describe your investing style.
We’re a sustainability-driven investment firm. We have a combination of micro and macro stock-only strategies across four buckets.
The first is shorts: These companies produce products that aren’t good for society. An example is Phillip Morris International Inc. PM-N, which is on our short list because cigarettes aren’t good for people.
The second is a neutral bucket: We don’t touch these companies. Their products are good for society and the planet, but their operations and governance are bad, so one crosses out the other. An example is Tesla Inc. TSLA-Q, which we don’t own for this reason.
Third is our long bucket, which includes companies that are needed for society and have very good operations from a sustainability perspective. An example is Walmart Inc. WMT-N.
Fourth is our impact bucket, which includes companies with products and services critical for society and the transition to a low-carbon future. An example is uranium producer Cameco Corp. CCO-T, which has a commodity that’s needed for the energy transition.
What’s your market outlook?
It will be a volatile year in the markets, driven not by the economy but by the U.S. election in November and the ongoing Russia-Ukraine and Israel-Gaza wars. We think the global economy will expand slowly, at around 3 per cent this year, while growth will be about 2 per cent in the U.S. and 1 per cent in Canada. Commodities such as copper, oil and gold remain strong. We also think higher inflation of between 3 and 4 per cent, and higher interest rates, will be the new normal for the near future.
What have you been buying or adding to lately?
We recently added Teck Resources Ltd. TECK-B-T after it sold its coal business last year and Freeport-McMoRan Inc. FCX-N. Both are copper producers. Copper is used in products such as power lines, solar panels and wind turbines, and plays an important role in the transition to renewable energy.
We also bought Valemont Industries Inc. VMI-N, which makes fabricated metal products and tower structures used in developing and maintaining the electricity grid, which we think will be critical. We also added to green infrastructure company Ameresco Inc. AMRC-N. It got crushed alongside other green stocks last year, and there’s some misplaced bankruptcy risk related to that company.
What have you been selling?
We recently sold technology company Autodesk Inc. ADSK-Q, educational tech company Duolingo Inc. DUOL-Q and biopharma company GSK PLC GSK-N. Each had reached a level we liked, so we took profits.
We also threw in the towel on Belgium-based materials recycling company Umicore SA UMICF. It changed its business model to recycling car batteries, which are tough to find. It’s not meeting expectations, and we’ve lost confidence in the business and sold it.
We also sold Unilever PLC UL-N not because of its financial performance but because of its sustainability credentials. It has overcommitted and is too slow to deliver.
Name a stock you wish you had bought.
There are two: General Electric Co. (GE) GE-N and Rolls-Royce Holdings PLC RYCEY. GE is right up our alley with the electrification trend. We owned it from late 2021 to early 2022 and have not participated in the upside since. We owned Rolls-Royce around the same time. Rolls-Royce isn’t really about cars anymore; it’s involved in better-performing motors and nuclear power. It’s a darling of the U.K. government. We’re looking for a pullback with these stocks, and if it happens, we’ll jump back in.
What advice do you have for new investors?
Don’t extrapolate too far. Recent performance isn’t indicative of future performance. Also, don’t underestimate change. An example is the rapid rise in interest rates. Many businesses were caught off guard when rates rose quickly in 2022.
This interview has been edited and condensed.
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