Profile: Fabio Ranghino, Ambienta
The Drawdown (TDD): You joined Ambienta in 2011 as an associate, having completed your MBA in business administration and management. What prompted you to join the company?
Fabio Ranghino (FR): I joined a bit by chance – at the time, I was trying to do my own MBO to buy out a small business but the negotiations fell apart because of price expectations. I was approached by Ambienta, which was looking for someone with a technical STEM background who could bridge investment decision-making with a better understanding of technical features of companies and businesses.
I had studied aerospace engineering, I had management consulting experience and an MBA in business administration and management, so I could link the investment and the scientific, environmental side of a business. Making agriculture more sustainable is about ensuring that plants can grow at a high yield to support global food requirements without destroying the soil – that's biochemistry. So, I was hired to try to observe how environmental issues reshape industries and value chains, creating investment opportunities.
TDD: In 2013, you were promoted to origination manager. How did your role evolve into head of sustainability and strategy?
FR: At first, my role focused on originating investment opportunities, trying to create potential deals. Over time, we understood that we needed to shift the focus and identify reference cases that can lead the origination effort of the entire firm. So today, my team has become the idea-generation engine and an internal consulting body to all our asset classes, among its other responsibilities.
In essence, the job is very similar, but it was formalised as I created the department. There wasn't a clear job description in the first place, but we had a clear understanding of what we needed to do. We had to shape our processes and build internal knowledge in order to add value to the investment decision-making process. Our aim is to ensure that the investment team’s time is spent wisely, not wasting time on things that shouldn't end up in the portfolio, as well as identifying hidden value-creation opportunities.
TDD: Why was there a need to establish a new department?
FR: There was a need to understand the direction of travel of industries to be able to generate alpha. Back in the day, it was more common to find generalist investors who, as they became more senior, might develop sector experience. The founders of Ambienta understood that they couldn't be too opportunistic. They needed expertise in a single sector to be able to invest in businesses that generate economic value alongside a positive environmental contribution. That’s what our investment strategy is about: the two things have to work together.
So, over time, we had to grow resources accordingly to be able to provide the same services across more geographies and more industries, while looking at more deals. In 2019, we also expanded asset class activities beyond private equity.
Back in 2011, maybe we had one due diligence process running every month. Now it’s totally different. We have several due diligence processes running simultaneously and we operate in private equity, public markets, and soon, private credit.
Today, my job entails more people management, as well as being a challenger for them, someone that the team can approach to discuss their views. We have grown from a two-person team to a team of eight and, over the years, we have expanded the remit of the department to include impact assessment analysis and ESG integration across our asset classes.
TDD: What is the Environmental Impact Analysis methodology and how is it used as part of your role in driving impact and sustainability?
FR: Ambienta’s aim is to invest in companies whose products and services contribute to environmental sustainability in terms of either resource efficiency and/or pollution control in their respective sectors. We developed a methodology, called the Environmental Impact Analysis, which initially was meant to be a reporting tool, a way of analysing the impact of things, like pollution, in numerical terms.
However, it was soon made clear it was also a due diligence tool to help avoid greenwashing and to make sure our investments have a real impact. Now, it has become a formalised procedure and is an independent due diligence process that runs parallel to the business’s due diligence, verifying whether our investments fulfil certain requirements.
We have been using this methodology for several years to report a granular level of data publicly and internally. The overall objective is to align financial returns and impact.
TDD: Now that SFDR is a requirement, do you find that methodologies such as the Environmental Impact Analysis have made it easier to comply with the regulation?
FR: It has helped us a lot regarding the ability to commercialise Article 9 products. This is because our methodology can be used to validate claims that our funds have sustainable objectives. For instance, our investment strategy fits very well with the Sustainable Development Goals, which were published in 2015.
Under the SFDR, there are two main levels characterising investments from a sustainability point of view. The first level is the sustainable investment definition. That definition and related requirements are mostly aligned with Ambienta’s approach and strategy, which has been in place for 15 years.
Obviously, there are differences and part of our job today is making sure that our existing framework fits in terms of the SFDR’s requirements, and the big burden that comes with dealing with such a complex regulatory framework.
One difference is the European taxonomy, which is a precise, technical set of guidelines, which outline different sectors and what is considered sustainable within them. The taxonomy is selective in terms of business models – for instance, whether you are a manufacturer or a distributor. For us, if you're distributing filters for air pollution, you contribute to sustainability. Even if you're just a distributor, you form part of the chain from the producer to the consumer and you make it happen by making it available. If you are a manufacturer of the machinery to produce that filter, that machinery is useful as well. Unfortunately, machine manufacturers and distributors are usually excluded from the taxonomy by definition, as it is much more restrictive. From Ambienta’s point of view, there is still merit in that.
Ultimately, it is just how the framework is set up. It is clearly in the very early days and it doesn’t make anyone’s job easier. However, I really respect the EU’s ambition of setting such a complex set of rules, which today might seem a burden but in the long-run, can be beneficial to the whole world.
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Sustainability is everywhere
Ranghino reflects on the growing need to foster sustainability as part of a firm's culture: “There may be some firms with hundreds of portfolio managers, but sustainability is left to only a few ESG analysts. How can these four or five employees really dive into company matters and engage with hundreds of people to drive investment decisions if they don't have any power from an organisational point of view? It’s impossible."
He adds: “It is important that the people dealing with sustainability get really embedded in the investment process, which requires dedicating more resources. Traditional investors also need to be informed as they may not be used to or willing to engage in sustainability. So, there is still a transition that needs to be done before these initiatives become more pervasive and more tangible, rather than a tickbox exercise.”