When we interviewed Karina Funk about her role as co-portfolio manager of Brown Advisory’s flagship sustainable equity strategy, she emphasized how her team has developed an original fundamental research methodology focused on “performance first” investing at the intersection with long-term sustainability.
Funk approaches her work with a logical, analytical perspective that comes from her engineering background. As a partner and portfolio manager with Brown Advisory in Boston, she has taken lessons from private equity and publicly traded companies to create a framework to identify companies with advantages in sectors of the economy where the scale is already there—in other words, identifying sustainability as a driver of performance for public markets. “Three reasons to think of impact within public equities are scale, necessity and availability of capital. Large companies with large global footprints have a material impact on sustainability profiles,” said Funk as a panelist during the 2017 South by Southwest conference.
Lessons From Clean Tech
Funk’s interest in sustainable investing began when she was working as an investment manager at Massachusetts Renewable Energy Trust and spotted technologies in the marketplace that were equipped to positively impact the environment.
She maintains that her training as an engineer helped her identify the possibilities and challenges that were emerging in clean tech. “Mainstream investing wasn’t really latching onto what we now call clean tech,” says Funk. “Yet, as time went on, investors became really interested and every VC firm wanted a piece of it.”
Funk soon realized that there were big challenges in scaling and that clean tech was competing against commodities and liquid fuels. This led her to start analyzing financial statements and the way valuations were getting set. “At the time, venture capital deals went from a focus on forward earnings to anything relative to the last deal that had been done in the space,” explains Funk.
As history unfolded, the clean tech bubble burst and those VCs were left holding empty wallets. A lesson Funk reflects on, and one that Brown Advisory also prioritizes, is finding investment opportunity at the intersection between greater greed, and greater good.
“There are other motives to say or do the right thing, but the intersection between strong financial performance and sustainability is the most compelling investment opportunity in any asset class,” says Funk. “We can’t simply provide funding to companies that are limited in their ability to compete in today’s market.”
How The Sustainable Business Advantage Framework Works
Funk and her team’s investment process begins and ends with fundamental, bottom-up research. “We employ a research process and we stay focused on sustainability strategies and how they relate to company fundamentals,” says Funk. “We need to see proper evidence of sustainable business advantages that add to shareholder value.”