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Ethical Investment Series #12 – Transcript

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Ethical Investment Series

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SUMMARY KEYWORDS

esg, people, investors, investment, returns, companies, money, investing, business, advisor, financial, consumers, funds, ethical, client, assets, sdgs, governance, terms, figures

SPEAKERS

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

 

Fraser Jack 

Welcome back to The XY advisor podcast. We are in our second episode of a five part series on ESG focused investing. Today we’re talking about the actual need, is there an actual need for for ESG? What is it? And what is it from all angles. And today, of course, I’m joined by Philip Moffitt. Welcome, Philip. Good. Thank you for joining us. Now let’s let’s dive straight into this topic. What tell us about this ESG thing? And why is there a need for it?

 

Philip Moffitt 

Well, if you if you remember from our last episode, we talked about environmental, social, and governance is being really a shorthand way to measure some of the components of of sustainability. and sustainability means creating businesses or assets that that have long and productive lives, not just financial lives, but but also lives that contribute positively to communities in our environment. I think the the core issue is the idea that sustainable businesses traded or higher valuation or sustainable assets trade at a higher valuation and unsustainable ones. If you think something’s gonna last for 100 years, you’re prepared to pay a higher multiple of earnings on it, then if you think it’s gonna last for 10. That’s, that’s it. That’s the guts of it. And so investors forever have been trying to find ways to figure out whether the assets are investing in a sustainable or not. ESG is just a way of codifying that process and saying, here are some of the measures you might want to look at. And here are some of the measures that the assets and the businesses could produce that help you understand whether this sustainable or not. And so is it necessary? Yes, it’s necessary to try and make good investment decisions. Yes, it’s necessary from the assets or the company’s perspective to try and attract capital at a at an attractive valuation. And if it’s necessary, from both sides of the transactions, it’s necessary for the market.

 

Fraser Jack 

Now, if we pick up both sides of this transaction, you mentioned obviously sustainability, amazing concept for investors. for consumers, are they looking at sustainability? Or are they looking at more sort of their own patients beliefs, emotions at the time, what they’ve heard, what they’ve, what the beliefs are, all look.

 

Philip Moffitt 

And I think there’s potentially some confusion in the space, right. So people start talking about ESG, or sustainability or impact or being socially aware or triple bottom line, all these kinds of things. And it can be conflated between trying to generate an optimal economic outcome, whatever, however, you define optimal economic outcome, but defined more broadly than financial outcomes. So reduce pressures on the environment, better social outcomes, and so on some some sort of function that gets optimized compared to individuals or groups who may have very specific social, or environmental beliefs. And those social environmental beliefs may line up with the optimal business structure or acid structure, they may not, you know, I’m I really believe that, I don’t know, pick something that you shouldn’t take a fish out of the ocean, you know, and genuinely believe that. And so I’m going to invest in assets that only work to stop any fishing in the ocean. Others might think that, you know, there’s scope for some fishing, but it needs to be controlled, regularly need to do other stuff. And so I’m dividing those two things, I think, are really important. And there will be a group of providers of assets or portfolios who adhere to very strict controls around very specific constraints. And they’ll they’ll be appropriate for that small group of investors who have kind of a really, really strong belief about an individual topic. issue, I think, is a much broader idea after the investment market.

 

Fraser Jack 

So one of the things that, as you mentioned, sort of in the first episode, and we and we sort of touched on the idea of trading in a high multiple, the financial logic that came with, with the idea of investing in ESG funds. And as you mentioned, consumers are at that space where they still sort of may believe that their financial logic doesn’t stack up or that it’s an emotional decision. What are your thoughts on that? Well, I

 

Philip Moffitt 

think that they genuinely believe that the finances don’t stack up, they shouldn’t invest. It’s the manager of the asset or the advisor who’s working with the client who needs to be able to make the case and challenge that set of lips. If somebody believes something, it’s it’s all you can do is engage with with the facts and try and persuade. But if you can’t change the view, you can’t change the view. I do think that, increasingly, we’re going to see it, we can sit in the marketplace now that businesses with a lower carbon footprint, trade at higher multiples, to ones with a higher carbon footprint, and we get caught up in the politics, you know, should there be a carbon tax shouldn’t be a capitec? Should there be a mining tax? You know, should we be charging electric vehicles less road tax than it would be, you know, all this kind of stuff? That’s just politics and short term tax and all that kind of stuff? You don’t put yourself in the long term seat of an investor who says, look, we might be charging a tax on carbon today, but we will. And we’ll either do it directly, or we’ll do it indirectly, because the market will figure out what the implicit costs are. And so as a long term investor looking at assets, forget about the short term politics noise and all that rubbish. Try and look beyond to the ultimate necessary outcome.

 

Fraser Jack 

Yeah. I guess some of my my thoughts around that is, with the with the initial where are we at the Jet on the journey of ESG and emotional decision? Or is it a financial decision? Or is it both? Where are we on that journey? Like isn’t, I know, you’re sort of mentioning the multiples are higher, those sorts of things is the ESG investing space now come to or past any non ESG investment space?

 

Philip Moffitt 

I think in parts of the market it has. So particularly I think about the pools of capital in Europe. So pension funds and sovereign wealth funds, insurance companies. And so if you don’t have a verifiable quality issue filter on attitude you bring to those organizations, you don’t get through the gate, they’re just not even looked at. And increasingly, that’s the case here for the super funds. And because it’s what our members demand, and it will become increasingly the case in other parts of the investable universe too. And it’s not just in the kind of the rich, Western world. It’s also the case, we pulled a capital in, you know, for instance, emerging Asia, which insist on these sorts of measures being put in place. But as a,

 

Fraser Jack 

Philip, thank you for coming on and chatting us about this particular topic, I look forward to catching you in the next episode, where we tackle the 50 shades of green. Welcome back, Elizabeth.

 

Elizabeth Hatton 

Thank you.

 

Fraser Jack 

Thank you for coming back. Now, today, we’re talking about all things to do with ESG? And is there an actual need? And we really wanted to dive into the concept of why is ESG. And I think, and why is it relevant? What are your thoughts on that

 

Elizabeth Hatton 

ESG is a thing, which is used by fund managers and analysts to look at the risk of this investment. So ESG is a matrix that’s looking at how risky this business is going to be, from a financial point of view. And for the long term point of view, is not what investors and clients generally think of as ESG, which is, I’m going to buy this product or invest in it, because it fits my value frame. And so a lot of things that ESG event made two different things to the fund manager and the analyst versus the clients. But ESG is also a convenient sort of set of measures by which one can start to think about what it is that a fund or a company’s doing in terms of taking into account the environmental risk factors that might impact on its business, longer term, and whether it’s going to be a stale in the system.

 

Fraser Jack 

So from a client point of view, if a client if you’re talking to a client, they’ve come in, you mentioned this sort of a different thing that they’re, they’re coming at this from a you know, a passion or emotion point of view, as well. As you know, this is the world that they have to live in, and they’re bringing their kids up in and they want something about, they want to make sure that their investments aren’t creating damage or harm to start with is the starting point.

 

Elizabeth Hatton 

The starting point is I have some money, and I want to do the right thing with this. And I want to make sure that that we can contribute to the planet being green or, you know, a safer planet for our kids or whatever. And I’ve heard about ESG and then I will usually go through the explanation to them about what ESG actually is and to feel You’re out with that client, what the value frame is. and talk to them about ESG is one way of understanding things. And it’s Venus’s. Yep. And then if they’re also more interested in this, then I will sort of go through the metrics behind what is G actually means and how there’s no particular set framework that measures everything except against a certain set of variables. And there’s a whole lot of interpretations and misinterpretations about these things. So it’s setting a framework that says, This is as much as we can know about anything was ESG. reliably. And you need to understand that this is an inexact science.

 

Fraser Jack 

It’s interesting, isn’t it? Because there’s obviously there’s the emotional decision making factors inside a client’s mind. And then there’s the financial logic. And as you said, before, the science logic involves a couple of different logical things involved. Do you think? Do you think clients are making the decisions on emotion? Or are they are they making decisions on the financial and scientific logic?

 

Elizabeth Hatton 

I think that it’s a bit of both. And I think that people want to feel good about what they’re doing. And what they think that they’re doing with their finances is really, and it’s not fraudulent in any way. And I mean, that people are that fund manager or a company isn’t lying about what it’s doing. But people also, I think that there’s different behaviors that people have about investing money. And then where they have indirect control, in a way of what happens to their money, versus their decisions to spend on something that they have identified themselves to be ethical, like, you know, clothing, or recycling, whatever. And then some people actually want to donate money. And they’ve actually identified, you know, a charity or a good cause, or whatever that they’re willing to support that fits in with the principles. So I think a lot of it is about locus of control. And investing is where they actually have the least amount of control.

 

Fraser Jack 

Yeah, that’s really interesting. So indirect control, or some sort of control around how they feel about the outcomes, feeling good about the investment. Is that is that the is that the main reason why you think there is a need for ESG investing funds?

 

Elizabeth Hatton 

From the clients point of view? I think that the, the need is there, because people want to be doing the real, the right thing for themselves. I don’t think it’s anything that people particularly talk about in the communities or groups, people will feel the private about their money. And the clients that I’ve recently done a client survey on things, and my clients never talked to their friends about money.

 

Fraser Jack 

Yeah, that’s really interesting, too, is it? Would they be more likely to talk to their friends about money if they were feeling good about the ESG? Part of the portfolio?

 

Elizabeth Hatton 

I think if they were feeling confident about us, they march.

 

Fraser Jack 

Okay. It’s always always been in

 

Elizabeth Hatton 

yet. So feeling good, is one thing, but actually feeling confident that, you know, what your funds are actually doing is actually making a difference to whatever. Yep, is is different here. And and I think I think that a lot of the things that people do to make themselves feel good about these things is join sort of various activist groups, or where they can actually visually have some sort of impact. If they go to sort of shareholders meetings or whatever, where they could actually, they know that their effort has made some sort of impact. It’s more demonstrable than investing, which is longer term is longer term outcomes, anyway.

 

Fraser Jack 

Yep. And what about returns is often a big part of the equation obviously, with with the returns on investment.

 

Elizabeth Hatton 

I think that the that people’s returns are an issue, but only if they’re going to be not supporting the sort of future lifestyle that they’re wanting. I don’t think that people necessarily want to be able to make still returns. And I usually tell people that I can’t guarantee any returns that anyone’s going to make anyway. I think that what they want To use that there is some level of comfort with the returns that they can make. And the evidence is in that responsible, whatever that word means. responsible investing is equal is equivalent in terms of its returns or better than the returns of your average international local fund.

 

Fraser Jack 

Do you think that people think that the returns will be less? Because it isn’t ESG?

 

Elizabeth Hatton 

I think that they used to, but I don’t think they do anymore.

 

Fraser Jack 

Yeah. Okay. So times have changed, tides tend,

 

Elizabeth Hatton 

I think time to change time to turn. And I think that one of the influencing factors of this is the governance part of the ESG is really important, and that companies that manage what they’re doing that look after this stuff, and that are actually taking the effects of, you know, climate change, or energy issues into account intuitively, business planning, do better, longer term, so it’s good company practice.

 

Fraser Jack 

Fantastic. Thank you, Elizabeth, for for joining us. In this episode, we look forward to seeing you in the next episode or week, take all the 50 shades of green. welcome back to this episode, Paul gainer.

 

Paul Garner 

Thank you very much.

 

Fraser Jack 

Thank you for coming. Thank you for joining us. Now in this episode, of course, we’re talking about the Is there a need for ESG? You know, why is ESG a thing? What are your thoughts?

 

Paul Garner 

Well, I think people realized that they’ve got this big lump of money sitting in, usually superannuation, that maybe funding things that they don’t really feel good about. And that’s been a gradual realization over time. There’s been advisors doing this a lot longer than me. So there was a nice of people who all generally had this issue. But that is growing over time, as people realize that, how can they influence how, what what’s happening in the world and, and for me, as I have been, and still am a social activist in terms of trying to influence the political process. And then I thought, well, personally, I thought, well, there’s another way to do this. And that’s through the flow of money, money, talks, Bs walks, so if you make the money taught them, that’s a way of influencing outside of the political system, how things are going in our world. So that was a big motivation for me to specialize in that area. When setting up my own practice, I thought if Gee, if I could get enough people together, to start that influence, or spread that influence, then that that could be powerful.

 

Fraser Jack 

And so that was my money. Interesting isn’t? Yeah, it’s really interesting, isn’t it, that everyone sort of got their story, but the two great amazing things that you sort of mentioned on the the fact that your own, you know, the social actor, activism and all that the idea of you, you know, trying to make a better world for yourself and your family and your friends, and you, you know, that those people around you, community, and then also realize the realization that the influence large amounts of money can have on businesses and investment and and shareholdings and, and the difference, the difference between social activism which is, you know, obviously, you spreading the word through media and friends and family and having conversations, and the financial activism, I guess you could say, of letting companies know that if they want to, if they want investment, they need to be looking at, you know, getting on board. So it’s kind of like coming at it from two ends, I sort of feel,

 

Paul Garner 

yes, personally, that was a real issue for me. And I think that’s gradually taking up coming on. I think the majority of people have no idea where their money’s invested. But as as people, you know, as that message gets through, then people start to think, well, gee, or I haven’t got much money, or but then they’ve got this huge lump in superannuation, that needs attention. And it’s wonderful, also, because younger people are now focusing on that lump of money, where otherwise they would think are super, who cares? You know,

 

James Harwood 

that’s, that’s

 

Paul Garner 

something for older agents for future. That’s for my future self to worry about. But now, it’s promoting them to actually take an interest, which is wonderful, because as an advisor, you can make such a huge difference in someone’s life when they’ve got the time to fulfill that, rather than seeing them at 55 going shit, I’m going to retire in five years. I need to do something, but you get given 30 years and Wow, what a difference you can make.

 

Fraser Jack 

Yeah, that’s a really interesting way of looking at it too. I think super funds for many years. We’re trying to be working out how to engage their members. And this is, as you said, a brilliant way of engaging members who have Longer or longer term and obviously can do something better. Now, I also want to touch on the concept, you mentioned this in the first episode around the financial logic, you know, the financial returns of ESG funds now, and not just that, you know, the fund that, you know, never used to return as high anyways, people used to chase them chase the money first. And you think that pendulum swung?

 

Paul Garner 

I do, just from from that notion of, okay, what’s what’s what’s going to be the future industry, and what are industries that are slowly dying or not going to be around or are going to have to, radically changed to cope with what our futures will be? So you’re, you’re not speculating on on the next big thing. But you’re investing in, in companies that are gonna be sustainable, not only in an environmental sense, but also in a financial sense, in that they’re there, they’re tracking on major themes that are going to be much more prevalent in our lives going forward. So that makes sense from a sustainable, both financial and, and environmentally, I think. And that’s showing in endless myriad amount of research, showing that you no longer have to sacrifice returns, it can be a little bit more expensive in terms of the amount of it is the amount of active management in a any type of fund is typically going to be more so they can be more expensive, initially, on each individual fund, but not much is getting better all the time.

 

Fraser Jack 

Thank you, Paul, for being part of this, this episode around. Is there actually a need? Let’s, let’s move on down to the next episode. And we’ll see you then. Okay.

 

Paul Garner 

Thank you.

 

Fraser Jack 

Welcome back to this episode, Alexandra Brown.

 

Alexandra Brown 

Thank you so much, Fraser, for having me

 

Fraser Jack 

now. Thank you for being here. Now, of course, we’re talking about the hot topic of ESG. And is it actually a thing? And should it actually be a thing? So I’m sure you have plenty to say on this topic?

 

Alexandra Brown 

I sure do. I still do. I absolutely think it’s a sense. I think it’s a thing. So you know, why ESG should be part of financial advice. Why is it needed? You know, I think that this answer has got it’s definitely got many facets. If it’s okay with you, though, the first one I’d like to discuss is this that global need about you know, and why we should have this, because this also happens to be a big why, for why I do this myself. So it’s really important to me as well, this is my wife, or helping financial advisors get into this space, my wife and I understand ESG and also to confidently provide ethical investment advice. And it all started probably a couple of years ago, I was reading some research on the Sustainable Development Goals. And if you’re not listening are not really familiar with the SDGs. You know, basically, it’s just 17 global goals that most countries in the world have agreed to try and meet by 2030. And the Sustainable Development Goals around things like climate action, and an education for all and reducing poverty and, and life on land and water and things like that. So it’s about these environmental and social challenges that we need to to meet as a global population as a planet. So anyway, I don’t know what the most recent figures are. But back in 2019, it was estimated that we need about 7.5 us trillion dollars a year to meet these goals by 2030. And we will about 2.5 trillion US dollars a year short. Okay, so that’s actually that was a huge financing gap. And that was those figures as they were back in 2019. So we’re not going to meet these goals and targets by 2030. And I was reading this report, and it had this really great diagram on it, of the investment chain. So showing how money flows from people to the Sustainable Development Goals. And if as you probably have seen it, the SDGs are depicted depicted as like this circular rainbow. So this rainbow ring was on the right. And the people in the image of the people was on the left. And in the diagram between the SDGs and the people it had all that the institutional investors and governments and corporations and foundations and what have you. And basically it had errors directing money from where the people were to the institutional investors and then to the Sustainable Development Goals. And this was how we were going to hopefully meet these targets by mobilizing capital towards sustainability. But there was no mention of financial advisors. And you know, you’re normally you would see them in the middle. Even if it says intermediaries or something you will see something that mentions something between the people and the kids. situational investors. So, you know, in my mind, a lot of people’s money is going through financial advisors before we even reach the reaches these institutions. So I’ve really felt like financial advisors was such an integral link in this investment chain and in getting money from the people to the SDGs. So, you know, my point is, you know, why is ESG a thing? Because globally, you know, we need it, we just need it.

 

Fraser Jack 

Amazing. Yeah, I love that. And I love a good infographic too, by the way, we should try and source that and make that available in the show notes. So we just redesign it and put a financial potential advisor in there and put somebody like yourself that teaches financial advisors and just just, you know, get their get a conversation out there. Because it really does tell them a picture tells 1000 words, a good infographic like that, can you sort of explain it all and a great reason why you’re doing what you’re doing, by the way, thank you. Let’s talk about let’s talk about the consumer behaviors. And what’s driving and I guess, I guess, let’s start, we sort of talked to this about this last episode around, you know, consumer stats around consumer wants needs and hopes and dreams aspirations around this, that drives then that drives this conversation with advisors. Let’s let’s look at how consumers a big part of this.

 

Alexandra Brown 

Yeah, absolutely. I honestly, I think that’s, you know, the other biggest driver is client and consumer demand for ethical investments and advice. And, you know, the advice that takes into account ESG considerations, I do have a couple of stats for those that love their statistics like myself. So these two figures, they’re taken from a 2020 consumer survey from Ria. And the first one states that 86% of Australians believe that it’s important that their financial advisor asks them about their interests and values in relation to their investments. So 86% believe that their advisor should ask them. And the other one is that 88% so nearly nine in 10 of Australians surveyed, believe it’s important that their financial advisor provides responsible and ethical options. So that’s the those figures are just huge.

 

Fraser Jack 

Isn’t it incredible? And one of the episodes we didn’t talk about supply demand, but like this is this is the supply and demand equation, as we mentioned, in the previous episode, date, where you mentioned the previous episode, just there, the sheer short odds are that Oh, the lack of people that are actually even specializing in this space, or putting it out there and getting the message out there that they specialized in the space compared to the demand. Yeah, absolutely. It’s incredible. Now, tell us what what sort of driving that consumer behavior? Is it? Are we looking at, you know, activism, passions, like human emotion, people really just taking more notice the world around them and the human rights is that media, and how is the financial logic of financial return sort of come into this? Where we are that space?

 

Alexandra Brown 

Yeah, absolutely. I feel that it’s all of the above what you’ve been saying, you know, because we have so much information at our fingertips, that this sharing of information has really enabled us to see the difference between, you know, what our money can do, and and how we can invest better. And consumers are, obviously part of that and seeing all that.

 

Fraser Jack 

So have you seen where do you think we are in the way in the area of the financial returns from ethical investing, stacking up with, you know, if there is a thing in the past and maybe in the in the deep now thinking that ethical investment funds never would return as good of returns, as you know, say those with a pet didn’t take that into account?

 

Alexandra Brown 

Honestly, the performance myths have been busted so many times that I can’t even believe that this is still a conversation. But you know, people do want to see facts and figures and and what have you, and go to the rear website and go to the latest benchmark report. It’s got a great table. They’re showing, you know, if responsible funds versus mainstream funds over 135 and I think 10 year periods and you’ll see that the outperformance there of responsible and funds across pretty much all time periods. But I also think that it is a huge barrier in as far as for advisors and even clients, you know, understanding that you can achieve outperformance by investing more ethically. And I do actually have some more statistics because, you know, I just love a good statistic. It’s good. Yeah, yeah. But so I was reading the the Schroeder’s global investor study, which is from 2020, and they surveyed over 23,000 people across the globe, okay, so it’s huge global study, and it’s That people around the world are increasingly becoming engaged with sustainable investing, they’re increasingly willing to learn about the topic, they can become conscious investors. So it shows that, you know, people across the globe, they’re just not only attracted to these sustainable investing approaches, but they also believe that this approach can lead to favorable investment outcomes, which I thought was was great. So 42% expressed that the prospect of higher returns was their reason for favoring sustainable investments. So 42%, it doesn’t sound you know, like a huge amount, you know, it’s under 50%. But it is evidence to show that there are still many that many people do believe that you can get higher returns with sustainable investing. But of course, there are still a lot of people that think that you have to sacrifice higher returns when choosing to invest sustainably. And I think I’ll just quickly contrast that with the study in Australia, which was conducted by Ria as well, it showed that 67% of Australians believe ethical or responsible banks better perform better in the long term. And 62% of Australians believe ethical or responsible superfunds perform better in the long term. And these results, which was from 2019, were up 29% from 2017. So nearly a 30% jump in two years in how Australians are viewing the the outperformance I guess of ethical investing?

 

Fraser Jack 

Yeah, wonderful. They just hit the performance myths have been busted. And and there’s a couple of great resources there too, for advisors to be able to go and find that information. I do. I do. You know, personally, I think they get the concept of past performance versus future performance. We’re talking about, we’re talking about the, you know, skating to was it skating to where the puck is gonna be. So, you know, it’s not about it’s not necessarily about past, but you’re absolutely right. Hey, Alexandra, thank you so much for being on this episode. I really appreciate it. I look forward to catching up with you again, when we start chatting about the 50 shades of green.

 

Alexandra Brown 

Fantastic. Thank you so much, Fraser.

 

Fraser Jack 

James Howard, welcome back to this episode, where we’re talking about the actual need for ESG.

 

James Harwood 

Thanks, Fraser. Good to be back. fantastic to have you back on now.

 

Fraser Jack 

Tell us a list. Let’s get straight into it. Tell us about the the actual need, why is there a need for ESG funds in the first place?

 

James Harwood 

Yeah, I think it’s worth stepping back, you know, a couple of years. And you know, back to the bushfires, I think that that was really what we saw as a defining moment for this trend in ESG, or the the huge flows of money that we’ve seen going into ESG strategies. And, you know, the bushfires really was a wake up call for a lot of a lot of Australians to, to understand that climate change is an issue, we’re seeing the same thing. I think, in Greece this year, we’ve had some, some major fires over there. And, you know, California has has, has had some issues for a number of years now. So I think that’s, that’s really woke up a lot of people that they want, you know, the world to be, you know, a good place for their kids, their grandkids. And, you know, I think this is why, you know, ESG, and particularly the environmental side of ESG has has been such a kind of key requirement for for investors. So in terms of, why is it a thing, I think that that’s that was really the, the defining moment in terms of, you know, resetting, you know, what, what investors want from their investment products. So, that’s, that’s, that’s men, you know, focusing, focusing on carbon exposure, and really how companies are addressing that their impact on the environment through their activities. So I think that’s, that’s, that’s, that’s a key thing that I would highlight.

 

Fraser Jack 

Yeah, it’s interesting is that this is the world we we all live in, and the kids are gonna grow up in. So it’s something that one that we want to leave in a bit of in decent place. Anyway. So you sort of mentioned the last episode that the governance has been around a long time, but this is really bringing the E LL. D is and G intuited that the environmental, you know, how do we want this boat to live? Is this been a so is this been a client, you know, consumer client push, then? Or is it is it coming from both ends?

 

James Harwood 

I think he’s coming from from both sides. Either. There’s also the regulatory side as well. So you know, the superfunds have have requirements for mapro now to consider climate change in the way they invest. were some of the the other industry bodies like the the UN principles of responsible investing that’s been around for over a decade. But you know, the the focus on climate changes has really ramped up and, you know, as part of our submissions now, we we need to really look at The the sensitivity and analysis of different climate scenarios and how that will affect our investments. So, you know, it’s it’s evolving all the time. As I say, that’s, that’s one of the great things about ESG. That makes it so, so interesting. But it does remain hugely challenging as well. I read Bill Gates book, I don’t know whether anybody on the line has, but that’s certainly worth a read just in terms of how we need to, you know, what we need to change, to get to net zero by 2050, there’s a enormous amount of change that will be needed to, to get there. And really, then that that comes back to your your question around governance, the that, you know, we need to influence companies to change because, you know, there’s probably not a immediate financial benefit from doing so I think that, you know, there will be a cost to, to invest in new technologies. Great to see companies like Fortescue making those investments, and really, you know, having that longer term forward perspective on, you know, on the world’s, you know, 10 years down the line. But, yeah, definitely some of the industry bodies, like investors groups on climate change, that can that can really influence behaviors as well. So, you know, governance is an important part of the solution. Yeah, it’s,

 

Fraser Jack 

it seems to me that there’s a lot of, there’s a lot involved for a company to make this, this decision to do that. And obviously, you know, that early adopters are going to be able to will probably have to go through a little bit of pain, but also get the, I guess, the good get the coverage for it, you know, for doing so and being that being named as the ones that are leading the way leading the pathway. With consumer behavior, there’s, you know, obviously with I think, with, you know, social media and ways that, you know, social, the word can get around around activism and passionate emotion, can get pushed out pretty quickly, and then spread pretty quickly.

 

James Harwood 

Yeah, look, I’m probably the wrong demographic in terms of, you know, the the younger generation and what they’re, you know, how they use different social media platforms to influence behavior. But yeah, I think, well, maybe things like, you know, the Rio Tinto junk and gorge, controversy last year, around the Aboriginal heritage sites, you know, that there’s this, if companies get involved in those kinds of activities, they’re going to going to be blasted by, you know, not just investors, but by individual and consumers as well. And, you know, that had a massive impact in a lot of the board ended up losing their jobs due to the governance from that as well. So I think there’s, you know, there’s a lot of a lot of aspects to this, without a doubt, I think, you know, younger investors are looking for, you know, typically more growth, the types of assets as well, you know, that they naturally tend to, to, to investment, say, like, lithium batteries, and, and then that part of the investment landscape. But, yeah, it’s definitely something that, you know, I think we see from from all angles, basically.

 

Fraser Jack 

Yep. In our, I guess, in the past, I used to used to feel like there was the, you know, those people who are passionate and active in within those companies. And then on the other end of the spectrum, there was people who just chasing financial returns or the logic behind, you know, getting better returns, are we seeing these two ends of the spectrum coming sort of closer together?

 

James Harwood 

Yeah, look, I think that’s a great question. And, you know, when I started really focusing on ESG, maybe six, seven years ago, I think there was back then there was a belief that, you know, you went down the ESG routes, you know, at the expense of returns. I think that, that that whole aspect is turned on its head now that investors expects, you know, ESG investing to, to match or, or deliver better returns than, you know, non ESG based investments. That’s, I think that, you know, clearly the jury’s still out. And, you know, a lot of this, you know, a lot of the quantitative work that looks at these strategies and how they perform through time, it’s obviously looking backwards. But I think if we look forward, you know, increasingly now that the expectation is for companies to do the right thing. I think I mentioned in the previous session that, you know, we’re starting to see companies D merge. So, you know, we’re, we’re SteamOS their alcohol business to, to, to allow investors to access, you know, what was the supermarket’s as a security not having the alcohol business is that you know, has allowed other investors to do that, and clearly the flow of money into those stocks is going to be beneficial as well. So I think the sin areas of the market are going to be harder and harder for more and more more and more people to invest in. And, you know, that’s why ajl is probably another example that’s going through HCl is our biggest emitter, from from all of its coal fired power generation, but the company is looking to separate into a renewable focus company, and then the kind of legacy old coal fired power generating business as well. So I think, you know, there is this natural trend to, you know, for companies to position their businesses, you know, for a sustainable future. And I think, naturally, that’s, that’s where money will go. And you would expect, you know, as a result, the, you know, those parts of the market to do well, and, you know, non ESG, focused areas to increasingly struggle.

 

Fraser Jack 

Yeah, I feel like consumers are making a bit more of a statement with their, with their purchasing power, which is bringing the ESG fund or the companies that are focusing on, you know, showing how they how well they do in this space, especially with environmental and social issues, to then have more custom, I guess, people are spending more money with those companies, and therefore, that’s that’ll help with the return for the for the investors.

 

James Harwood 

Yeah, yeah. Look, I think it really touches everything we do. From a purchasing perspective, you know, if you, if you buy a chocolate bar, you know, where does that cocoa come from? You know, has it been modern slavery involved in there has been some deforestation, I think, increasingly, you’re going to find all consumer products have more and more disclosure on, you know, where, where that supply is coming from we’ve, we’ve got some we’ve had some new regulation come into Australia this year on modern slavery. So, you know, we have a modern slavery statement, and it’s, it’s an area that’s, you know, quite complex in terms of supply chains. And, you know, also the fact that we’re based in the Asia region, that’s where the biggest area of modern slavery occurs in the world. So, you know, again, investors don’t want exposure to that clearly. But, you know, trying to get that information is is is not always easy, but I think you will start to see more and more information disclosed on consumer products to to allow, you know, individuals when they’re making purchases to have them aligned with their values, basically.

 

Fraser Jack 

Yep. Fantastic, James. Thanks for coming on this episode and talking about the actual need for ESG. I will look forward to catching you in the next episode, we will dive a bit deeper into the 50 shades of green.

 

James Harwood 

Thanks, Fraser.

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