U.S. small-cap equities case study
ESG in action




Key Points

Completed a tour of Armstrong World Industries’ facilities and were encouraged about the company’s goals around efficiency and sustainability.
Analyzed and found investment conviction in Bridge Investment Group’s ability to expand its offering of affordable housing.
Engaged with Jefferies Financial Group’s board on executive compensation and shareholder alignment.


On a recent visit to the corporate campus of Armstrong World Industries (ceiling and ceiling-grid solutions designer and manufacturer) in Lancaster, Pennsylvania, one of the first things we noticed when walking through the nearby manufacturing facility was a large sign hanging from the ceiling with a line struck through the word “SCRAP” (think of the Ghostbusters logo).
This was encouraging since we knew that Armstrong targets three perfect manufacturing efficiency goals annually and are always eager to see how this is implemented in the day-to-day operations. As it so happens, waste reduction and recycling play a critical role in these margin-expansion initiatives.
Early on, Armstrong realized that those environmental practices made just as much business sense as they did common sense. Simply by cutting down on waste, Armstrong can reduce costs and expand margins. From installing industrial size vacuums, to collecting and reusing sawdust, to having contractors ship back broken and discarded ceiling tiles to be recycled into new tiles, the reduction of waste has been a part of Armstrong’s culture for years. By 2030, Armstrong is targeting a 30% absolute reduction in Scope 1 and 2 greenhouse gas emissions, a shift to 100% renewably sourced electricity, and a 50% absolute reduction in waste from operations.
armstrong by 2030
30% Reduction
in Scope 1 and 2 greenhouse gas emissions.
50% Reduction
in waste from operations.
With customers actively seeking LEED (Leadership in Energy and Environmental Design) and WELL-certified buildings, demand is increasing for more sustainably sourced materials and healthy space options. We anticipate that Armstrong’s environmental initiatives will not only reduce manufacturing costs over time but drive increased demand for healthy and sustainable products. This should bolster Armstrong's market position as the industry leader and drive even higher margins over time as customers demand more premium products.


Over the past year, we invested in the initial public offering of Bridge Investment Group, a private equity firm that invests in real estate. A portion of our thesis was predicated on Bridge’s opportunity to expand its offering of affordable housing.
Specifically, Bridge launched its first Workforce and Affordable Housing (WFAH) fund in 2017 to invest in affordable rental housing communities where at least 51% of units are occupied by families earning less than 80% of the area’s median income. This meets a significant and growing social need, as roughly 12 million households in the U.S. spend over 50% of their annual income on housing. Bridge’s WFAH funds focus on preserving and rehabilitating older multi-family properties while offering community enhancement services such as on-site education, health, and employment services in partnership with non-profits like Project Access. The funds have been a success for both investors and tenants and have received several awards, including being named “ESG Private Markets Strategy of the Year” by Pension Bridge, “Social Fund of the Year” by Environmental Finance Sustainable Investment Awards, winner in the category of “Best ESG Investment Fund: Private Equity,” and runner-up in the category of “Best ESG Investment Fund: Real Estate/Property” by ESG Investing.
Moreover, Bridge was an early-mover in launching Qualified Opportunity Zone (QOZ) funds in 2019, which develops much-needed apartment stock in economically distressed communities that have been designated for tax benefits to promote economic development. These funds represent Bridge’s first foray into real estate development (as opposed to investment in pre-existing structures), which will contribute directly to spurring economic activity in underinvested communities. With US$3.4 billion of assets under management in these zones, Bridge is now one of the largest managers of QOZ-focused investment strategies. Combined, Bridge’s WFAH and QOZ strategies have grown to represent over one-third of Bridge’s total AUM since they were launched in 2017 and 2019, respectively, and have significant opportunities for continued growth.


Led by CEO Rich Handler and President Brian Friedman, Jefferies Financial Group, the New York-based investment bank, has undergone a very impressive transformation over the years. We commend both executives for the incredible job they have done refocusing the business and positioning it to grow for the long term.
However, as is often the case in the financial industry, top executives at Jefferies are very well paid. We have engaged with the company’s board of directors since 2014 on numerous items, but more specifically on top executive pay. We have provided as much input as we can to help ensure that if executives are going to receive above-average compensation, it should be linked with above-average performance that ultimately benefits common shareholders.
On this note, top executives at Jefferies have received the majority of their pay in the form of restricted stock units and performance stock units that vest over time. For example, since becoming CEO, approximately 69% of Mr. Handler’s compensation has consisted of non-cash, equity-related securities vesting over three to five years. That same figure sits at approximately 72% for Mr. Friedman since becoming President. This compensation structure incentivizes Jefferies management to avoid optimizing for the short term, and instead focus on the kind of long-term value creation that we look for.
We take comfort in this alignment of interests, knowing that for management to win, all common shareholders must win alongside them."
Additionally, Jefferies’ CEO and President are two of the largest shareholders in the business and together own over 10% of the company’s common shares outstanding. We take comfort in this alignment of interests, knowing that for management to win, all common shareholders must win alongside them.
Sources: Company filings, Burgundy research

About the Author

Steve Boutin
Steve Boutin, CFA
senior Vice President,
Portfolio Manager
After reading The Canadian Establishment by Peter C. Newman, Steve became interested in equity markets and bought his first stock when he was 15 years old. Since that time, Steve has developed a passion in Canadian and U.S. small-cap investing, where he has spent most of his career. At Van Berkom & Associates Inc., he was a partner and played a key role in building the U.S. small-cap division from an incubator project to a successful business venture. Steve has an entrepreneurial spirit and before joining Burgundy, he founded Tonus Capital, a money management boutique specializing in focused investing. Steve still reads extensively about business and has the same thirst for learning about companies and potential investments as he had more than 30 years ago when he bought his first shares.
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