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Ethical Investment Series #11 – Transcript

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Ethical Investment Series

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SUMMARY KEYWORDS

advisors, esg, greenwashing, ethical, funds, investing, clients, investors, investment, work, people, assets, marketing, companies, episode, fund managers, product, messaging, space, specialize

SPEAKERS

Fraser Jack, Elizabeth Hatton, James Harwood, Paul Garner, Alexandra Brown, Phlip Moffitt

 

Fraser Jack 

Welcome back to the x y advisor podcast I’m Fraser Jack and today we are kicking off our five part series around all different topics around ESG investing essentially looking at environmental, social and governance focused investing. This is a podcast series brought to you by Russell investments. And we have got five amazing speakers to talk through five different topics. In this episode, we’re looking at some of the marketing messages. In the next episode, we’ll be thinking about is there actually a need for ESG? And what is it? We’re going to dive deep in the third episode around 50 shades of green? Then we’re going to look into the E, S or G and how do you prioritize those. And finally, in the last episode, we’re going to be looking at supply and demand. Now I’m very very fortunate today to be joined by Philip Moffitt. Now Philip is a dozen many wears many hats, I guess you could say he runs a business called Doug green road consulting. He is a director and on the Investment Committee for aware super he is also got a fund called beacon capital which looks at really looks at the impact investing in businesses that can making an impact on the world. And not only that, he’s doing a PhD and one of my favorite subjects of all time they psychology and behavioral finance and decision making of human beings. Welcome Philip.

 

Phlip Moffitt 

thanks very much Fraser, I you know, one of the biggest issues I had to face was to decide whether to join this or not, who is a quick and easy decision to make?

 

Fraser Jack 

Certainly was well, we sort of looked at you and go well hang on a minute. Is there anybody that knows this topic below the news. so fantastic. Thank you for spending some time with us today. Now this topic, the first topic we’re kicking off is around the concept of the marketing and promotion in the in the noise that we’re hearing in the marketplace. I love using the phrase so hot right now, when it comes to ESG. What are you hearing and seeing in the space?

 

Phlip Moffitt 

It was handled so hot right now? Right? Yeah, that’s exactly right. institutional investors in particular, but organized group of investors globally are focused on what you know, they loosely call ESG. And they’re focused on it for a couple of reasons. Number one is because globally, the understandings growing that assets, not just companies, but assets produce more than just financial returns. They interact with communities, they produce kind of what an economist would call externalities, you know, so they they might pollute, or they might create jobs, or they might educate kids or you know, they can be good and bad stuff that they do. And so loosely, they can be grouped into environmental impacts and social impacts. So that’s CNS. And how do we think about companies or assets managing those impacts beyond the financial returns, or that’s G, that’s governance. So loosely, those three letters get bandied about to try and help investors think about something that’s above and beyond just a straight financial return from an asset?

 

Fraser Jack 

Yep. We’re seeing a lot of marketing in the space. Obviously, a lot of companies, I’ve got statements, a lot of mutual funds that are coming out or making statements. How do we make sense of all the statements? How do we how do we find the message within the noise?

 

Phlip Moffitt 

Yeah, so I go back one step. And so what is the issue matter, apart from feeling good, and talking broadly and loosely about social licence, and all that kind of stuff, issuing matters, because markets increasing our investors increasingly understand that unless businesses and assets are sustainable, their values will be reduced. And so you want to be investing in assets that not only generate good returns, but they generate sustainable returns, and what’s going to sustain a business or an asset. It’s not just its financial returns. It’s also the role of plays in our community. And so the obvious example, is carbon pollution. So increasingly, carbon output can be measured, and in some jurisdictions, it’s taxed. In others it’s not, but if you look at an Australian asset that has a big carbon foot It actually trades at a lower valuation than a similar asset with a with a lower carbon footprint. So as an investor, whether there’s a carbon tax or not, you want to know about the carbon footprint of the asset because it’s going to affect the return you make. And so for investors who are driven by total long term returns for their for their clients or themselves, is G’s really, in my mind, it’s shorthand for sustainability. It’s just a way of thinking about sustainability. Sustainability is broader. industry is narrower and easier to measure and address. But it’s really all part of the same thing.

 

Fraser Jack 

Yep. And how do we how do we dive through some of the messaging? I mean, I think, sort of this episode, I really want to try and knuckle in on that, how, what’s being fed to the marketplace? And how do we how do we make sense of it?

 

Phlip Moffitt 

Well, look, if anything’s popular, frankly, people will try and find shortcuts to get benefit out of it, I don’t want to, you know, necessarily imply that it’s exploited. But, you know, we’re on lockdown. And there’s COVID going on right now. And I’m getting text messages every few minutes from people who are telling me they’ve got a COVID test result, and they’re just trying to get into my phone and rip off my personal data, you know, so that motivation to try and get as much as possible for as little effort out of movements or brands is endemic to the way we live our lives. So that’s, that’s the kind of psychology and behavioral finance part of it speaking, in terms of ESG companies, in particular, listed companies, you know, being evaluated and have to report according to certain standards. And so they’re addressing the issues by firstly producing some measurements that are ostensibly there to try and help investors gauge what their impacts might be in those areas. And secondly, they’re going to make a lot of statements about what they’re gonna do in the future. Now, what you’re gonna do in the future is no different to what you get from a politician speaking or coach talking about next season, or whatever it happens to be, it’s not really much used to you unless you can see some evidence of it taking place. So I discount all of that.

 

Fraser Jack 

So what you’re saying is past past performance matters in this particular is more of an indicator of future performance.

 

Phlip Moffitt 

Yes, exactly, exactly. And so you want to say the plans are being put in place, and so on, I think what we get from ESG, from from people are embracing it properly, both on the investor side and the end the investors side, is they started to focus in on a couple of things that you can measure. So I think about carbon footprint, for instance, that’s that’s this, there’s essentially broadly agreed kind of metrics that can be applied. And so you can start to make some comparisons is probably easier to manage than measure, then then as the social impact, but you can still talk about the number of jobs or the healthcare or whatever it happens to be, you can put some metrics around it. And g one is more on internal structure, what I think you’re getting at is, should we be trusting some of the product that’s been created around these two metrics? And should we be trusting and investing on the basis of the promises made by the asset to the companies and the assets that we’re investing in? And I, you know, I would encourage skepticism around all of that. But also, the fact that it’s starting to be discussed in this emetrics emerging is, is is a positive. You know, this whole triple bottom line, quadruple bottom line process isn’t going away. So we’re on the pathway. The biggest, biggest problem for you know, greenwashing or SG washing and whatnot, is that there’s no real agreed set of metrics. So you can come up with your own metrics and publish them and they’ll look good. But when you drill into them, maybe, you know, statistics and statistics, what is it really telling?

 

Fraser Jack 

Yeah, like I said, they’re like, the, the idea is to really look out at the messaging and say, is it? Is it a gunner? Is it? Is it something that sort of, or very vague? Or is it something more specific, intangible?

 

Phlip Moffitt 

Yes, exactly. And the more tangible it is, and, you know, the more that it can be evidenced by actual data that reports what has happened rather than what we’re planning to do, the more credit the market will give, and the more companies move that way, the more credit for future plans will emerge. And the real, the real coalescence of all of that will be when it becomes more and more clear to investors, that you can actually make financial returns out of all of these things. So there’s still this residual view, I think, in investors minds, that ESG sustainability, impact, whatever terms you want to use around, it might come at a cost of financial return, I think the revolution has begun and will will will emerge that what we see is that you don’t make reduced financial returns, you actually enhance financial returns by embracing all those issues

 

Fraser Jack 

moving forward. And I want to get into that in the next episode as well. But just on the idea of that idea, where consumers are right now, what’s the messaging that advisors should be using in this space and if they want to lean into ESG investing is something that one of their philosophies to promote to the market or to their clients?

 

Phlip Moffitt 

Well, I think the first thing I would compensation I personally We would have would be that the whole idea about ESG is that it’s just a somewhat simpler group of measures to attack this whole issue of sustainability. the sustainability of businesses and assets will drive returns from those assets. And so that’s something you want. So here’s an area we should be focusing in on, number one. Number two, you really want to be looking for organizations that are trying to measure in some form these components, and that they clearly explain how they’re measuring them. What what the framework they’re using, is to try and avoid the any washing that’s going on, or any kind of taking advantage of the thematic. And the third is to is to insist really, that those that you are working with, who are not talking about ESG in their portfolios, or measuring it, that you think that at some point in the future, this will be essential for your clients to remain involved with them. So that you know, it’s not it’s not going to be an optional, it’s just going to be an essential. And to be honest, if you go to the big world of big world, that sounds really arrogant. I don’t mean that but you know, big pools of capital. So the big soup is globally, not just in Australia, particularly in Europe. It’s not It’s not an art and they do ESG as well, if there’s no ESG measurement or understanding the assets, they just don’t even qualify to be looked at. Very good. And

 

Fraser Jack 

so you mentioned sort of greenwashing, which is obviously a bit of a theme that’s had a lot of conversation around at the moment. So this is greenwashing from fund managers down or companies out outwards. Is it also something that advisors need to be careful with with their own messaging?

 

Phlip Moffitt 

Course? Yeah, absolutely. And you know, one person’s greenwashing isn’t it is, is not another person’s Great. So sometimes I talk to people about you know, they’ve been high church and low church in this, this space, there are some people who have set themselves incredibly high standards that are actually quite difficult to meet. And that limits the pool of assets or businesses that you can invest in, because they’ve got to meet these very, very high standards. And that’s great. But the vast majority of the assets in businesses aren’t going to going to achieve those high standards on day one. And so moving them towards a better outcome. Personally, I think that’s a great objective for investors to have. So working with people who don’t really understand their ESG, but are improving it and embracing it is a really valuable thing to do. So you’ve got to make a decision as an individual, whether you want to work with a broad group who are getting better, or you’re only going to work with the ones who are good already, my preferences is to try and move the bulk. But I understand that there’ll be some people who are you know, who, who just want to be involved with the with the very highest church?

 

Fraser Jack 

Yeah, I can I can, I can get that too. And I can understand that that means an advisors role is to find out where that client was, yeah, what they what they want in that space, and whether they want to help influence, or whether whether they just want to sit in the space that’s already been there, done that. Yeah. Well, so

 

Phlip Moffitt 

let me give you a really obvious example, we knew mining, you know, you’re going to mind stuff, even if it’s to make batteries for cars, you’re going to mind stuff. And so you don’t need oil or coal, maybe, but you do know, so I’m not going to invest in any mining, well, then you’re not going to get electric cars. So are you going to invest in a minor who’s improving their environmental footprint, and at the same time, bringing us technology that’s going to reduce greenhouse gas emissions and so on? That’s the kind of conversation you need to have. Fair enough.

 

Fraser Jack 

Okay. Very good, deep, deep, deep conversations. I love it. Philip, thanks for catching up on this episode. We look forward to hearing from you in the next episode, we’ll be getting into the is there an actual need for ESG, which I think you’ll have a lot to say on chatting to you then. Thanks for Welcome to this episode, Elizabeth Hatton.

 

Elizabeth Hatton 

Good morning, and good morning to all good evening to everyone who’s listening. My name is Elizabeth and I run a small financial advice practice called Viva financial advice.

 

Fraser Jack 

Fantastic in and you’ve been running that practice for a few years now, when you sort of have a bit of a conversate a lot of conversation with your clients around ESG.

 

Elizabeth Hatton 

I do have quite a lot of clients in conversations with clients about ESG. And people are quite fired up about ESG. And what it means they find out about being ethical and ESG and ethical and sustainable investing isn’t just ethical and sustainable investing. But some people come to see me because they say are your ethical, and I’m looking talk to them about what their ESG preferences are. And they say that’s not why we came to see you. And so there’s a lot of I think the issue is that there’s a lot of mixed messages about what ESG actually means what ethical actually means what people’s interpretation over these, and therefore what their demand is when they come to see. But from my point of view, people come to talk to me because they have a problem. And that can be really one of a number of problems that I cannot can’t manage or help them with. And ESG. And looking at the ethical sustainable investing is one way of helping them move through what the financial solutions to some of the problems might be.

 

Fraser Jack 

Yep. Fantastic. And in this episode, of course, we’re focusing on the messaging and the marketing and the and all of the promotion that goes around ESG. There’s two sides of the story, really, there’s the the marketing and promotion information that’s fed to financial advisors themselves from the fund managers. And then there’s the messaging that comes out to consumers. Tell me about Tell me about the consumers coming to see you. We’ll start with consumers. When consumers come and see you, what are they hearing? What are their preferences around ESG? How are they being communicated to

 

Elizabeth Hatton 

the hearing this ESG and ethical investing is something that they can do when they’re already doing, and when we actually go into something they wanting to do. And so there are people who are wanting to do these in with various amounts of conviction, and passion. And I think that often, when we start to dig into the details of what they’re actually investing in, they’re surprised that they’re super or other investments aren’t as ethical as they might wish them to be. Happy hoping, yep,

 

Fraser Jack 

this is a really interesting point, isn’t it? The uncovering this, and we’re gonna slowly uncover this with some of the other episodes of conversations we’re going with. But do you do you feel like that some of the information that they’re getting in this space in their case is is not quite on the money or on the mark

 

Elizabeth Hatton 

is certainly not quite on the money on the mark from a purist point of view. But it may will be on the money on the mark in terms of the various options that, for example, a Superfund might offer, they may offer something that is more ethical or snort has got better ESG flavor than other sort of holdings or asset classes, as it are on offer, but it may not actually be as green as what it is that the client is wishing.

 

Fraser Jack 

And this is also the case for the information that’s coming out of well, the fund managers or the information that’s being fed to financial advisors around what is and what isn’t. And is there a Is there a perception versus reality conversation to be handy?

 

Elizabeth Hatton 

I think I think that there can be and I think that quite a lot of the time there is. And people who are fund managers who adamantly say, Well, yes, we do do things that are particularly green, often aren’t. And they don’t necessarily want to have that conversation with you about what it is that they’re actually doing, and the asset classes they’re around. And the way that they’re engaging with companies that they invest in, to try and make sure that their governance practices, principles, shall we say?

 

Fraser Jack 

Yeah, so how do you how do you dig deeper into it? How do you find out what what’s the underlying ESG components are, if everybody sort of saying that they are,

 

Elizabeth Hatton 

I belong to a couple of groups that are particularly interested in this, one of them is the responsible investment association of Australia and the other ones, the ethical advisors cooperative. And I actually do quite like digging deep, I actually like to go into a fund and see what their major holdings are like to see if they’re transparent in terms of their holdings, and the way that they’re reporting. I like to see what their voting record is on sort of particular ethical and sustainable issues. And I also like to see what their governance practices are like, and if they’re actually moving along the lines of what their policies and philosophies say they are. So

 

Fraser Jack 

this really falls back on you as the as the planner in in a couple of groups that you are a part of to go and find these things.

 

Elizabeth Hatton 

There’s Well, there’s quite a lot of research literature available out there. And I think that the issue is that the real research efforts in doing this sort of fairly, digging, digging fairly deep, is limited, because it’s pretty intensive. There are a few databases out there that you can look at. And I find that the products that are out there that are reasonably date grain limited. And of course some of this is also is also driven by what is the client’s wants and what they have in their own particular mind. And then that goes down to the issue of sort of, what level of risk can they tolerate, etc, etc, etc. Because there’s what it is that people are wanting to invest in from a values point of view, and also what they need to be doing in terms of their life genuinely, to make sure that they can live in a reasonable way. And those things often need to be negotiated or rejigged.

 

Fraser Jack 

Yep. So the messaging coming out of the that you’re receiving as an advisor, Do you often find that that’s correct? Or are you finding that, that, you know, when you dig deeper, it’s not quite the case?

 

Elizabeth Hatton 

Sometimes it’s correct. Okay. About 60 or 70% of the time? It’s correct. And 30% of the time, it’s not,

 

Fraser Jack 

is there? Is there a little bit of marketing that goes along with that then sort of says, Oh, we don’t do this, or we don’t do that. But then but then, you know, again, that there could be something that nobody does that nobody does this or that that’s just not

 

Elizabeth Hatton 

existing. I think that sort of that people say we don’t do this, and we don’t do that, but then nobody does that. Anyway. So that’s part of the marketing. Anyhow. But I think that the issue is that people that fund managers, and funds want investments. And so this is a marketing, a marketing exercise to actually get clients money invested in their particular option. And I think this because it’s the flavor of the month or, you know, probably the flavor of the year, then there’s a big emphasis to try and make your product as attractive as possible.

 

Fraser Jack 

Yep. So what tips would you give to advisors in that space with a wanting to go deeper into the into the green, let’s say? What tips would you give to them about the marketing messages to hearing from hearing in the market?

 

Elizabeth Hatton 

And I would suggest that you don’t take anything on face value. And that you actually have a look at some of the background information. I mean, I think that two good places to start with is are the RA and ethical advisors, advisors, co-operative, they’ve got all this stuff up there on the web, is live ratings is voted on by the number of difficult advisors as well, that actually rates funds in terms of how green they are on an ethics only perspective. And so what you should do is look for funds based on their ethical credentials, and then look at the fundamentals in terms of finances down the track as the screening method.

 

Fraser Jack 

Fantastic. Thank you, Elizabeth. We’ll, we’ll catch you in the nips next episode where we start talking about, is there an actual need for ethical investing in ESG, really appreciate your time. Welcome to this episode, Paul Ghana.

 

Paul Garner 

Thank you. Appreciate it,

 

Fraser Jack 

that you’re very welcome. And tell us a little bit about yourself. I’ve noticed you’ve been an advisor for 15 odd years. And you’re you’re working in South Australia.

 

Paul Garner 

So I career changed into financial planning in 2007. And I, oh, well, a boutique practice gave me an opportunity. They said we it was it was at the height of the market in 2007. And they said they couldn’t find anyone suitable. So if I was prepared to start at the bottom, they’d give me a goat. So that’s what I did and worked with them for three years and saw the absolute top and then the absolute decline of the GFC, the slow train wreck that it was, and work with them for three years and then worked. That finished and then worked for Westpac for three years, and always had the ambition to begin my own practice. And slowly, I’d developed that thought into also wanting to specialize in ethical and responsible investment, when I eventually went on my own. Yep. And so I saw the best of financial planning in the boutique practice. And then the bank was fantastic for a little while, and then just went all the other way, which is, you know, the whole kind of feel

 

Fraser Jack 

like you did took too short apprenticeships in that in that space, you know, like the the idea of working for a small boutique and then a large bank and getting a whole lot of different perspectives and then being able to set up the business that you wanted within the ethical investment space. Now you’re also you’re also an advisory board member of the the ethical advisors, Co Op, which I’ll ask you about throughout the series. And you’re on the the FDA policies and Standards Board as well.

 

Paul Garner 

Yes, one of the board committees. And so I you know, as a as a relatively, or as an older person, but a relatively young financial advisor. I just thought I’ll get stuck into everything I can to try to learn and and be part of it and try to influence the policy and the way things work or get an insight into how things work.

 

Fraser Jack 

Yep, brilliant. Absolutely. Now in this in this particular episode, we’re talking all sorts of things around ESG. But we’re talking about messaging, marketing and promotion. And this probably you mentioned the career change your marketing manager prior to that,

 

Paul Garner 

yes, I’ve done a number of things. But that was my last iteration career iteration. Prior to that marketing management team. It companies mainly and then had a stint a couple of stints in government.

 

Fraser Jack 

Yeah. Fantastic. So so you’ll know exactly what we’re talking about when it comes to messaging and marketing. We’re sort of covering off a lot in this episode around the concept of greenwashing. You know, perception versus reality than the messaging that’s out there. I keep saying this in this episode, but so hot right now, you know, to Hot Topic ESG talk to talk to us about what you’re seeing around in the space. And, you know, how do you make sense of it?

 

Paul Garner 

Yeah, look, I, I started my own practice, like 2013 2014. And that whole concept was not well known. That, you know, the myths about you have to sacrifice returns for for the ethical values was very prevalent. And there were just a few themed managed funds or filtered managed funds, otherwise, it was a compromise in, in trying to match someone’s values to to their investment. And, and the change over the last, since then, has been amazing in terms of the amount of funds available that for themed funds. So it’s like, so human nature is that when there’s a hot topic, they’ll inevitably be people to, Oh, this looks good. Let’s ride along, Matt. And so that’s been part of, I guess, the the due diligence, the vetting of looking at options to help match is always a match with people’s values. So the whatever is out there, it’s that it’s that match between what’s there and what people value or what they want to avoid what they want to support. And then finding that right mix. So there has been much, you know, a dramatic increase in ethical themed funds. So part of the work that we do as a as an advisor specializing that area, and also with the ethical advisors corporative. is we vet fund managers who build their bill, a financial product with that filter, and we assess them as to what’s good about them what’s not. And then that gives us and the community in general an idea of, well, here’s a fun with ethical or ESG or sustainable whatever in the title. But what does that actually mean? what’s underneath that, and there’s comprehend different funds have different compromises that they will make to fulfill their investment guidelines, as well as the ethical filters. So they will make that decision based on what they think it should be. And then it’s up to us as advisors to decide whether, okay, if that’s appropriate for the person we’re talking to, and if there’s compromises there, if they’re comfortable with those compromises, then that type of fund might be suitable. I guess the best greenwashing I’ve seen is where an Australian share fund out ahead ethical or whatever in the in the in the label, and they said their main exclusions was tobacco and armaments. And neither of those things are manufactured in Australia. So it’s like okay, well, what’s the difference between that and just a regular Australian share fund? But that didn’t last long. Yeah, that’s

 

Fraser Jack 

a really interesting, isn’t it? And then we exclude tobacco from the Australian ship and excellent so does everybody else because there’s no Yeah, yes. Yeah. It’s it’s interesting that the marketing spend less well that’s what I’m mean. You know, like your marketing background history, you try and find a thing to the thing about the product to promote. So but you mentioned the idea of the the work that you’re doing with the the, you know, the ethical advisors, co op in going in and then looking at those messages, and then bringing them to light. How can people sort of find out about that or see more about what you’re doing at the ethical advisors? Cool.

 

Paul Garner 

Yeah. So That’s a group of advisors who share the same ideals, same passion about the industry. And we work together to encourage the industry to develop appropriate products, to vet existing products and to work with financial fund managers to develop or enhance their existing products to be more suitable. So ethical advisors cooperative is we have a website, and we have recently or within the last two years developed a funds a leaf writing system, where we as a group will investigate and vet fund managers, and then we get a vote on it and give it a leaf rating. So five leafs, five leafs is the ideal. And so we base it on what an average. So it’s very subjective, but what an average ethical advisor would think of the investments within this fund. Yep. And so we write that we give that feedback to the fund manager. And then they take that on board or they they state their case, and we try to write it not on a investment performance criteria. That’s plenty of other people do that. But just on how we assess its ethical filter.

 

Fraser Jack 

Yeah. Now this is interesting, because we’ll probably get into this a bit deeper in some of the other episodes. But as you mentioned, it’s objective, there’s no, there’s no guide, there’s no exact science to this. Talk to me about is five leaf deep green, or is, is that what you’re looking? You’re looking for deep green is five leaves and crave is light, very light green. Yep, we’ll probably cover off in that in the third episode, we talk sort of 50 shades of green. But yeah, that’s that’s a fantastic, you know, system. And what’s the website for the ethical advisors, Co Op,

 

Paul Garner 

ethical advisors, Co Op, or leaf writings will search on those terms, and you will get straight there? I’ll let you know,

 

Fraser Jack 

exactly address are included in the show notes. Speaking of marketing messages, what should advisors be doing with their marketing messages when it comes to what they’re what they’re saying to their clients, or what they’re saying to their people, it might become clients of this?

 

Paul Garner 

Well, look, I specialize in this area. So all of my marketing messages are around this area. So I’m looking to attract people who have their interest and and want to reflect their values through through how they’re investing. So, for me, it’s a specialty. And I think if you’re going down that area, you’ve got to focus on that those issues. If you’re not special, obviously specializing in that area, and people are asking about it, then I think that’s probably more prevalent these days, and that the greater awareness of it through the media, through social interactions is is making it more high profile. But I think if you’re wise about it, you’re going to have to specialize in that area and make that messaging with that and and to expand on that issue for yourself. I think you can dabble in it.

 

Fraser Jack 

Yeah, it’s interesting is no, I sort of feel it’s a it becomes a you know, your investment philosophy in something that you then promote as a bias almost in the way that you select funds because we you know, we I personally have this bias for the the outcomes of, you know, ethical invest in ethical businesses on society, which we’ll sort of get to in another in another episode, or the next episode. But if that’s the case, then you will attract a new new outwardly say, this is my personal investment philosophy. That’s my personal bias when it comes to my financial planning, you know, recommendations, so you will then attract people who also agree with it.

 

Paul Garner 

Yeah. But I don’t make any judgment. It’s, it’s purely about whatever the values that the individual has, it’s about matching that with what’s available. So and that’s as different as and that’s the subjectivity of it, because it’s so different from person to person is what’s important to them. What are they want to avoid? Why don’t they want to support but don’t like,

 

Fraser Jack 

which we’re covering in another episode. So what we’ll do, Paul, we’ll leave it there for this episode, and we’ll look forward to catching you in the next one.

 

Paul Garner 

Thank you.

 

Fraser Jack 

Welcome to this episode, Alexandra Brown.

 

Alexandra Brown 

Thank you so much for having me today. Fraser.

 

Fraser Jack 

Fantastic. Now you you’re an amazing person in the space. You run a you’re the founder of a business called invest with ethics, where you actually work with financial advisors, helping them shape their businesses around, you know, providing ethical investment advice to their clients?

 

Alexandra Brown 

I do. So I absolutely love what I do I get to work with some of the best advisors who are really passionate about helping their clients in the ethical investment space, it’s a wonderful place to be.

 

Fraser Jack 

Yeah, fantastic. And of course, you, you do that through all sorts of one on one and accelerators and, and we’ll probably dive into a bit of other stuff as we go of all the stuff you do around the in this space, with the with the ethical advisors, co op of what’s your use of a lot of support, and you’re on the board with, and also the, as a research manager of a, an entity that I can’t pronounce, let’s let’s go with that. Tell us about that.

 

Alexandra Brown 

So so I am the head of research at out Yoram. It’s a sustainable online finance library. And we basically or effectively take all of the great research that’s out there on ESG and ethical investing, we summarize that pull out the key insights and, and transform it into a really digestible format for for users and for advocates who want to create change in the industry.

 

Fraser Jack 

Yeah, and you pretty much spend your entire life around this one subject, including all of your study.

 

Alexandra Brown 

I was about 10 years in academia prior to that, you know, doing lots of research on ESD, leader and legged portfolios and, and all sorts I live and breathe it. Absolutely. So have you done your PhD? I did my PhD research. So I did three or four years of a PhD. And unfortunately, there was a researcher in Queensland who published a report that was too similar to my own research. So it was no longer a unique contribution. And we tried to pivot and we tried to reinvent it. But it was it was too late. By that stage, it wasn’t going to be unique. Oh,

 

Fraser Jack 

my goodness. So So three years into a four year study. And otherwise, you could be speaking to Dr. Alexandra brown right now.

 

Alexandra Brown 

You could you could end no doubt you will in the future, I actually purchased the Dr. Alexander brown.com URL. It is on the cards, it’s going to happen one day,

 

Fraser Jack 

that’s a good way of, you know, putting in your brain so it’s going to happen. Excellent. So all right, well, I won’t call you doctor. But we kind of know that you’re pretty much pretty at that level of I guess you could say. Let’s, let’s kick off this. In this episode. We’ve done a lot of talking around the concept of marketing and promotion and some of the noise we hear in the in the market at the moment. Tell us what your What are your thoughts on what you’re hearing?

 

Alexandra Brown 

Yeah, it really is. It’s so hot right now. And I think it’s because there are so many drivers happening at the moment with you know, the global trends and consumer demand. Climate change is at the forefront fossil fuel divestment, movement, net zero emissions targets COVID. You know, COVID is really broad around those social issue, issues in prominence, there’s guidance from financial regulators. And of course, this will mean that fund managers are really getting on board and they’re fighting to get in front of advisors. So it’s, it’s, it’s in the media, but you know, you mentioned the co op, and hear you say that it’s so hot right now. But the court is actually celebrating their 10 year anniversary this year. So, you know, for a long time, this has been at the forefront for a number of advisors, who, you know, recognize the need to represent and and I guess advocate on behalf of, of ethical and sustainable investments and clients that wanted this as well. So, yeah, it’s hot right now with fund managers and advisors. But then the media is catching up, but it has been there for a while.

 

Fraser Jack 

Yeah, that’s a really interesting point in it. Anybody can get be an overnight success in 10 years, can they? It’s sort of one of those one of those areas, if you stick to your guns and you work at it, I think that’s, I think, you know, I hear that a lot with stuff, you know, things that are booming. Don’t just boom, out of nowhere, there is you know, years of years of history, they go behind it. So it’s that’s a good point to make. And you’re right, there are a lot of marketing departments jumping on the bandwagon and messaging, what sort of messaging Are you seeing at the moment that could be considered to be you know, a little bit of greenwashing?

 

Alexandra Brown 

Oh, gosh, there is there’s definitely a lot of greenwashing. And, you know, simply put, it just means you know that a company or fund they’re using, they’re using words they’re using PR they’re using imagery that that seems makes them seem a little bit more ethical and environmentally conscious than than what they are. You know, I think some of the examples would be fund managers stating that they screen out certain things like fossil fuels, but they only screen out certain types of fossil fuel. Also, they might only be screening out coal, but like gas is still, you know, in the portfolio, or their their screening thresholds are really high. So, you know, fossil fuel companies are still remaining in the portfolio. I think for mixed asset portfolios as well, you know, the screening process is only perhaps used on the equities portion, but not on the fixed income portion. Other greenwashing examples that I’m seeing is, you know, saying that they’re ethical, but then they’re not voting against all the resolutions that are asking for increased climate change disclosure, or they’re voting against changes that are put forward that would support human rights and workers rights and indigenous rights. And, and I guess one more would be using just using vague language with no conviction behind it. I recently read a responsible investment policy and without a word of a lie, it said, It seeks to limit most carbon intensive fossil fuels. What does that even mean? You know, so, I would like to say, though, that there is a lot of greenwashing. But you know, it’s not always deliberate. There are funds that are moving into this space to and, you know, through my work with the, with the co op, I’ve seen so many improvements. And sometimes the court will go to a fund and they’ll bring, you know, to attention something that could be improved, like better disclosure, and or what have you, and, and the fund will improve that, or vice versa, a fund will come to the cop and say, like, what, what do they need to do? what it what are clients looking for? What is best practice in this area? So I think that, you know, there are a lot of funds that are trying to do the right thing. So, so it’s not always deliberate greenwashing. And I think it provides a really great opportunity there for dialogue between advisors, and fund managers to actually improve together as well.

 

Fraser Jack 

Yeah, it’s interesting, isn’t it? There seems to limit most I love that, that pretty much means you can do nothing. And you could still say you six, you were seeking to limit most. But you’re right, you’re absolutely right in that space there. You know, it’s turning a ship right there. You know, a lot of fund managers don’t have the ability to turn on a dime. And to be able to do the right thing, it sort of takes a bit of a bit of turning. And maybe it’s it maybe it’s being led by the marketing. But I guess what we’re doing now is by holding the marketing accountant accountable for acca. You said last year when do these things and you haven’t done it yet. Therefore there is a there is the problem.

 

Alexandra Brown 

Yeah, absolutely. accountability is a great point.

 

Fraser Jack 

Yeah. So there’s a bit of noise out there. Talk to me a little bit about what how you work with planners and what you say to them with regards to the messaging that they could be putting out around around ESG.

 

Alexandra Brown 

I guess, you know, if an advisor is providing ethical and responsible investment advice, firstly, they’re going to stand out without a doubt. And, and they can use that to their advantage. Absolutely. It’s a great positioning for themselves. Currently, if you go to the Ria website, which is the response to investing association of Australasia, there are 29 certified financial advisors with Ria, and seven of them are in New Zealand. So it’s only 22 Ria certified advisors here in Australia. And in the ethical advisors court, there’s about 36, advisor members. And, you know, granted that there are some advisors out there who specialize in in this space, and they’re not certified by Ria, and they’re not in the court. But to put this into perspective, there’s, I think about 19,000 advisors in Australia. So if you’re in this space, you are positioning yourself as as you know, as a leader in this space. And there is so much demand for ethical investment advice. And so, you know, just these numbers alone show good reason to get into the space and stand out. But I think, as far as positioning yourself goes, similar to the expectations of fund managers, advisors should be transparent about what they can actually provide in this space. I know greenwashing for advisors as well. They can use their websites use their communications, social media, client newsletters, to really highlight the ESG issues that are covered in their advice that they specialize in that matter most to their clients, advisors, running events, webinars, on ESG topics and to really demonstrate expertise. And I think it’s just the best opportunity to really just highlight the extra value that you offer in your services. You know, are you building portfolios that are aligning with the client values? Can you assist your clients with proxy voting and advocacy campaigns and there are so many benefits to it. Providing ethical advice,

 

Fraser Jack 

you really do. I really do feel it as a conversation once you get into it, that if this is your passion and your belief, then you know that that does resonate out into the marketplace. I was talking to an advisor the other day, who had been on a few different podcasts and, and said that, that clients were listening to those podcasts first, and then and then coming along and saying, you know, you, you believe in what I believe in, I want to I want to be your client, you know, obviously, and I can consider anything like that any investment philosophy that somebody has is a philosophy, it’s a essentially, it’s a bias, but it’s a good bias, because it’s, it’s upfront, and it’s in it’s transparent, and then people can then resonate towards that.

 

Alexandra Brown 

Yeah, absolutely. Absolutely. And it’s, it is you’re right, it is working with purpose, you know, aligning your role as advisor with with your own values to which is, which is so great. It’s meeting the client demand meeting those expectations. It’s increasing your connection with clients, you know, so many ways, building those deeper, longer lasting relationships, growing trust, growing loyalty. But overall, I mean, being an ethical advisor, it is a marketable strategy. So it’s, it’s seen as cutting edge, it’s a simply just by being across these things. It’s a selling point for you as an advisor. So it’s not only an effective client retention strategy, but it will also help you stand out to potential clients.

 

Fraser Jack 

In your research and any of your research. Have you done any ideas around? What percentage of the client market are interested in ESG? Yes, I have. Any reason I say that is because you gave us the stats on you know, the amount of people who specialize in this space, versus the number of financial advisors, which is obviously huge, huge one. So we might see if we can get that information out to you in a future episode. But in the next episode, I also want to jump on to that and have a bit more conversation around that alignment and purpose because I think, you know, when we talk about if there actually a need for ESG. You know, there’s also a fantastic opportunity for advisors to align their business with their own values. So Alexandra, thank you so much for coming on this first episode. We look forward to hearing from you in the rest of the series. Thanks a lot. Fraser. Welcome, James, to this episode on. We’re talking all things ESG. Thank you for being with us today.

 

James Harwood 

Thank you, Fraser.

 

Fraser Jack 

Good to be with you. Fantastic. Now, James, how would you are a Senior Portfolio Manager with Russell Is that correct?

 

James Harwood 

Yes, that’s correct. Fraser, I’m running Australian equity and global equity funds for Russell have specialization in ESG strategies. So running both ESG ETF Rory, and also also some of our low carbon funds in both Australian and global global shares.

 

Fraser Jack 

Fantastic. So you’re the expert in this in this field? Thank you for joining us today.

 

James Harwood 

Yeah, no, no, look, it’s been a it’s been a great area to be involved in over the last few years. And I think the great thing about ESG investing is it’s always evolving. So it’s probably the most exciting area of investment at the moment.

 

Fraser Jack 

Yes, it certainly is. It certainly is a Bobby it certainly is one of the hot topics around at the moment as well. We’re sort of talking a lot of things today, in this episode around the marketing and the messaging and the promotion that’s going along. There is a lot going on, isn’t there?

 

James Harwood 

Look, there is there’s I think probably the best reflection is just the flows of money into these ESG strategies. We’re seeing that, particularly in Europe, definitely in Australia, as well. And I think the US is starting to finally catch up as well. So it’s not been a big theme. In the US. I think, you know, with President Trump, he was clearly ESG was not a focus of his but I think even investors over there and our, you know, really following this kind of ESG trend as well. Yeah, it

 

Fraser Jack 

was good to see Australia as one of the world leaders in this space, I guess.

 

James Harwood 

Yes, I know, for sure. I think the the superannuation money that we have the super funds have big ESG teams. I’m sure we’ll be talking later about, you know, some of the, the investor groups and how they influence companies, you know, on their governance and corporate practices. And, you know, definitely, you know, the wealth of money that we have in superannuation and get the teams behind that is really helping, you know, drive drive the ESG trend in our market.

 

Fraser Jack 

Yep, exactly. Now, there’s, speaking of the promotional side and the marketing side, there’s a lot of information out there. It’s it’s a topic that sort of came out came along pretty quickly, as in the marketing promotion really ramped up around the sun that sort of not so long ago. What are we seeing out there with regards to some of the noise in the marketplace? versus the you know, I guess I’m trying to look at what sort of perception versus reality.

 

James Harwood 

Yeah, look, I think it’s a good question and I’m sure one that’s on the lips of a lot of advisors as well. Yeah, I think most most investment firms are now saying that they, you know, they invest with ESG considerations in mind or integrate ESG into the investment process. I think the question is, what does that that really mean? And, you know, in terms of products, you know, how to really avoid greenwashing. That’s that’s a term that’s become quite commonplace. And you know, greenwashing is really the overstating of a product’s PSD credentials. I think what’s what’s really important for, you know, for advisors is, you know, clear product labeling of a particular product, you know, how, how green is that products, it’s certainly something that we spend a lot of time thinking about it, Russell in terms of, you know, the the information we we, we provide on our ESG products, in terms of fact, sheets, etc, you know, what, you know, what characteristics, are they providing ESG minded investors? So, I think that that product labeling aspect of particular investment products is really important to to avoid greenwashing, basically.

 

Fraser Jack 

Yeah. And is there a bit of a benchmark around with that? Or like, how do advisors? How do they tell the difference?

 

James Harwood 

Not really, is the honest answer. I think the there’s a number of different metrics that, that we we measure our funds against. So, you know, for sure, carbon carbon emissions and carbon footprint, that’s a fairly standard way of looking at how green a product might be, or you know, how exposed to to carbonate it is, you know, as as this trend away from fossil fuels has, has, has gathered, gathered steam. You know, that’s, that’s something that that investors are really wanting to know now, you know, what is the carbon footprint of their portfolio, the fund that they’re investing in, relative to a benchmark like the ASX 200? So that’s something that that’s certainly the kind of things that we’re doing now as a standard really,

 

Fraser Jack 

yet, I guess it’s it’s trying to bring some factual information to, from what I’ve been speaking about and hearing, it’s about being that facts for information. And you sort of mentioned the words like, you know, with considerations and in mind, they’re all nice. They’re nice, fluffy words, actually mean anything to that they sort of it’s the, we’re looking for the the tangible stuff. Yeah,

 

James Harwood 

that’s right. And I think, you know, the, probably the most common thing now is that all investment firms say that they they consider ESG, in what they’re doing. What does that really mean? And what’s the end product and, you know, I think governance or the G of ESG, is, has been, you know, a key part of stock pickers for forever, really, you know, they’ve always been focused on the governance of companies. But, you know, I think the environmental side, the social side is becoming more and more important to investors. And, you know, we do have, you know, aggregate ESG scores, that we can also raise our funds on. So, you know, the rori ETF, for example, we, we always compare how that scores on overall ESG characteristics, versus its benchmark, the ASX 200. So clients can see there is a, there is an improvement over the standard kind of market.

 

Fraser Jack 

Market Index. Yep. And so it’s obviously this is something a world that advisors are looking at navigating this this the commentary around in their marketing and promotion, what sort of tips would you have for advisors? or How can advisors help to cut through the noise? Yeah, I think

 

James Harwood 

probably the first thing is to really understand what their clients are looking for. One thing that I speak a lot to advisors, and with our sales team, trying to understand, you know, you know, where a client sits on that ESG spectrum, or, you know, what kind of shade of green is that that client looking for? So I think there’s, there’s kind of one end of the spectrum is the, you know, the really dark green where, you know, clients might want to have no exposure to mining companies. At the other end of the spectrum, people want better ESG characteristics, but they don’t want to kind of take huge risk by not owning, you know, a lot of the, the mining companies, etc. And, you know, mining is clearly clearly a big part of our economy, it’s really important to to Australia, and, you know, all of our ESG funds, whilst there’s often some kind of fossil fuel related screen that we use in those strategies, we’re still we still have exposures to other companies say, like a Fortescue metals that’s, you know, it’s iron ore focus is not focused on fossil fuels. And I’m sure you’re aware that that company is really making significant investments in renewable technology as well with with hydrogen next cetera. So, you know, I think, you know, our, our opinion is that, you know, certainly mine is not all bad. You know, that’s, that’s the wrong perception and we haven’t designed those really dark green kind of products for that reason, you know, that, you know, I think a lot of these companies will be solutions, you know, in the energy transition, as we kind of move to a net zero emissions. We we need some of these big companies to change their business models and, and, you know, produce products, you know, with with, with the future in mind and lowering carbon emissions, etc.

 

Fraser Jack 

Yeah, it sounds like, obviously, yeah, as a fund manager, you need to have philosophies around that, and be able to then communicate that out to the market and to advisors?

 

James Harwood 

Yes, you do. Yeah. I think there’s, there’s a number of levels, the, the governance side remains important. So, you know, the, I think we spoke earlier about, you know, how, how ahead of the game, you know, a lot of Australian investors are so governance and how we engage with companies through proxy voting, we need to make sure that our shareholdings count. And, you know, what you’ve seen over the past few years is, you know, a lot of in industry bodies evolve, to really influence, you know, how companies behave and how they are transitioning for the future. So probably a great example, just recently, you know, bhp, that they’ve been looking to exit fossil fuels and have done a deal with with Woodside, that’s still not not effective yet, but I’m likely from next year, we’re going to have bhp is really more of a pure pure play kind of metals. Minor. And I think that that then makes it, you know, able and eligible for a lot of other strategies that that it might otherwise not have been allowed to reside in. So we saw that as well with with Woolworths just just recently with them spinning off and devere group their alcohol business. Yeah, I know, in our own ETF Rory was was excluded because of that. That alcohol exposure, we’re about to sit down and review those exclusions again. And, you know, look, we’ll be back permitted as an investment because it no longer has that alcohol exposure. So, this is happening, you know, everywhere, you know, not not just us, but a lot of companies are looking for, you know, companies to have the right exposures and kind of avoid those sin or the, you know, the the areas that do harm like tobacco as well. So, yeah, I think that’s it’s been a major theme and it’s really driving, you know, where superannuation funds and other other firms invest their money. So, I think, really understanding that is crucially important.

 

Fraser Jack 

Yeah. Fantastic. Thank you, James, for coming on. And joining us in this series, we’re going to wrap up this episode, but it certainly does sound like advisors. There’s a lot of work to be done a lot of reading to be done and a lot of understanding to be able to cut through the marketing and promotional side to get to get to what’s actually lying underneath the messages. So thank you, giants. We look forward to catching you in the next episode.

 

James Harwood 

Thanks, Fraser.

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