Visible sustainability – Tecan, the factory in the forest

In this latest featured stock article, fund manager Rory Hammerson takes a closer look at the impact of some of the sustainable projects at healthcare and diagnostics specialist Tecan.

Four months ago, we came to the end of the stock stories of the month, encompassing a three-year journey of story-telling. One which the we hugely enjoyed, so we thought we’d angle the prism and look at the investments we make for our clients in a different way.

The team came up with an idea to drill down into a particular area of interest to try to ascertain the actual impact that is being made by the company in its daily operations. We need to unpack the word ‘impact’ in this context. Impact investment can be a confusing term, with its original roots being philanthropic, as investors share the returns with the investee operation. The nomenclature has become muddied and what different people define as impact is often very different. Castlefield is not an impact investor. We do, of course, want to invest in companies which provide access and solutions to a positive theme, and we report elsewhere on the alignment of our funds to themes such as health, education and sustainable infrastructure.[1]

This series looks beyond the themes and lifts the lid on how management teams strive to achieve positive impact. We want the companies that we invest in to not only deliver sustainable solutions, but to do so in a way that minimises negative and maximises positive social and environmental factors.

We regularly talk to companies about how they manage their businesses and in any given year we focus our company engagement along several different angles. This year we explore the need to accelerate the transition to net zero in terms of carbon emissions. We are also looking at the challenges faced by companies in both recruitment and retention of staff in a post pandemic world. Finally, though perhaps less interesting, we are keen to check that in a world requiring increased tax contributions both private and corporate that no companies we invest in are using creative tax structures which ‘optimise’ their exchequer payments.

So, onto our first visible sustainable story. We wrote about Tecan at the start of the pandemic in 2020. Tecan (www.tecan.com) is a leading manufacturer of automated laboratory instruments and solutions. Their systems help people working in clinical diagnostics at all levels of research and discovery to bring their science to life. The company has revolutionised a laboratory’s ability to process batch testing in a way that significantly speeds up the process, saving time and money - a clear advantage for any processing lab. The purpose of the company is clear, and its products add value to customers, improving health outcomes via speedy analysis of tests (10,000 samples in 24 hours).[2]

Recent financial results have been strong enough for the Tecan to upgrade its outlook for profits for the year. In this blog piece, we are interested in the how of Tecan’s business operations, rather than the what.

Firstly, we are pleased that the company has signed up to Science Based Targets (SBTi)[3] for net zero. This is in line with a global framework commitment to limit emission impact to 1.5⁰C of global warming. These targets typically split emissions into three scopes. S1 and S2 are characterised as direct costs of the business. S3 includes costs related to supply chains and those of clients. S3 also includes the cost of commuting for employees. Typically, S3 leaves the biggest of the three carbon footprints.

Tecan is taking net zero very seriously

Tecan have stated that they will cut S1 & S2 by 1/3 using 2019 as the yardstick with a target date of 2030. Current emphasis is likely to focus on S2 due to the production costs associated with manufacturing. Work has started in this vein, and solar energy already provides 10% of global manufacturing energy usage. We think that the pre-pandemic benchmark is reasonable, and we see that Tecan is taking net zero very seriously. It will be difficult to achieve, and the balance of carbon emissions will have to be offset.

the company has signed up to Science Based Targets initiative for net zero

Offsetting will necessitate a new industry of highly regulated mechanisms where companies will have to invest in platforms such as forestry investment and storage which soak up carbon. The structure and pricing of these new systems is as yet unknown but could be high, so companies’ internal efforts to diminish carbon emissions now is crucial.

If we look to what Tecan is trying to achieve there are more than just words and plans here. There is an excellent short video clip,[4] which shows how thoughtful concepts can be incredibly powerful when put into action. Tecan acquired a business in Penang, a Malaysian island where the company headquarters uses natural processes such as solar orientation, natural planting and water collection and cooling to limit the need for air conditioning.

These all aggregate to lowering the carbon emissions of the building by 40% per square unit of space. Aptly, the site is called the Factory in the Forest.[5]

We know that buildings account for around a third of total global carbon emissions. If architects were to adjust their briefs to embed carbon emissions into their grand designs, then not only would we be on a better footing to combat global warming, but Kevin McCloud could run a whole new series which we could circle boldly in our Radio Times.

By Rory Hammerson

[1] https://www.frc.org.uk/getattachment/307bd583-a5e0-4886-b8f0-86ea23e74aaf/Annual-Stewardship-Report-2021.pdf

[2] https://www.tecanannualreport.com/annual-report-2021/investor-relations/introduction

[3] Science Based Targets initiative

[4] https://uk.linkedin.com/posts/martin-braendle-3298623_tecan-paramit-lifescience-activity-6950813487669366784-mvYv?

[5] https://uk.linkedin.com/posts/martin-braendle-3298623_tecan-paramit-lifescience-activity-6950813487669366784-mvYv?