Investment Strategy
Cadira Sustainable Japan Equity Strategy
At Cadira, we pursue sustainable investment in Japanese listed equities to achieve both societal impact and financial returns. Sustainable investment means investing in companies that actively seek to reduce the negative impacts of their business activities while generating positive impacts for society.
We focus on listed equities for their broad societal influence and accessibility as financial assets. Our approach is long-only cash equities with no derivatives or short selling. We invest across all market capitalizations: large-caps for their potential to drive societal change through leading practices, and small-caps for their innovative, proprietary solutions.
Investment Philosophy
Cadira Capital Management holds the investment philosophy that "Investing for Sustainability" delivers superior long-term returns. This conviction is grounded in three perspectives: corporate value, investment opportunities, and engagement effectiveness.
1. Strong sustainability practices enhance corporate value
A company's approach to sustainability has a profound impact on its corporate value over time. Companies both influence and are influenced by the environment and society. Positive external impacts ultimately circle back to enhance corporate value, while negative impacts materialize as risks and value erosion.
2. A sustainability-driven process leads to high-quality investment opportunities
By staying ahead of global sustainability trends and integrating new insights into the investment process, we can identify high-quality opportunities earlier. Incorporating sustainability factors into fundamental analysis enhances our understanding of each company and elevates the overall investment process.
3. Sustainability-focused engagement drives positive corporate change
For companies pursuing long-term growth, sustainability-minded investors offer valuable input for management decisions. Investors provide new perspectives and discipline through engagement, fostering lasting corporate transformation. When long-term management clashes with short-term profit demands, patient investor engagement gives leaders the conviction to stay the course.
Investment Criteria
Cadira emphasizes four key criteria when making investment decisions. By evaluating these factors, we ensure consistency with our investment philosophy.
- Impact: Is the company contributing to society?
- Improvement: Is its management continuously improving?
- Engagement: Is there willingness to collaborate with investors?
- Valuation: Is there latent value the market is overlooking?
Cadira defines companies that create both economic and stakeholder value as “Sustainable Companies,” giving them the highest investment priority. We assess economic value through consistently high ROE, analyzing long-term averages and standard deviations to gauge earnings quality, alongside balance sheet health, cash flow generation, and shareholder returns. Stakeholder value is evaluated using our IIV (Impact Integrated Value) framework, which assesses both positive and negative impacts on the environment and society.
Cadira also invests in “Improvers” — companies on the path toward becoming Sustainable Companies. A worldview in which only a select few companies thrive risks deepening inequality. Rather than limiting our investments exclusively to top-tier companies, we take an inclusive, forward-looking approach that encompasses companies demonstrating a commitment to improvement, thereby seeking to elevate the market as a whole. Since Sustainable Companies tend to command higher valuations, restricting investment solely to them may limit opportunities to invest at reasonable prices. Including Improvers strengthens the economic rationale of our investment decisions.
Impact Integrated Value
CCM has developed a proprietary methodology called Impact Integrated Value (IIV) to embed impact considerations into corporate valuation and the investment process. This approach adjusts corporate value by factoring in both positive and negative impacts alongside traditional fundamental analysis. Our proprietary algorithm evaluates companies on this basis, providing a more comprehensive assessment of their intrinsic value.
By embedding impact factors into corporate valuation through IIV, investment decisions become more impact-driven. If more investors adopt similar methodologies, companies generating positive impacts will command higher market valuations. In turn, this visibility would encourage corporate leaders to prioritize impactful initiatives, reinforcing sustainable business practices through market mechanisms.
Engagement
At Cadira, we engage with portfolio companies to support the enhancement of both stakeholder value and economic value. We place particular emphasis on dialogue that begins with sustainability-related topics and leads to improvements in corporate value. Addressing sustainability strengthens governance and impact responsiveness, which in turn contributes to enhanced environmental and social value.
When companies strengthen their governance and impact responsiveness, it improves operational quality, creating branding effects that increase satisfaction among employees, business partners, customers, and shareholders, while strengthening risk management. While there may be short-term costs associated with these efforts, once operational quality improves, they lead to enhanced economic value through improved profitability and capital efficiency.
Listed companies are typically at a stage where they fund operations from internally generated cash, and opportunities for investors to participate in capital increases are rare. In such cases, engagement should focus on the “use of cash flows.” While shareholder returns are certainly important for listed companies, we believe that encouraging the allocation of capital toward high-additionality activities that address social issues is the primary pathway for contributing to impact through listed equity investment, rather than focusing exclusively on shareholder returns.
