November 24, 2021

ESG Portfolios Series #5 – Transcript

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ESG Portfolios Series

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Fraser Jack
Welcome back, Nathan.

Nathan Fradley
Thank you.

Fraser Jack
Thank you for joining us. In this final episode of the series, we’re talking about asset classes. Tell tell us tell us all about the asset classes when it comes to ESG. Investing.

Nathan Fradley
I think in Australia, if you look back 10 years ago, and what options we had, we had the perpetual Sri Australian fund. And that was it. That was the only option. And globally, there was so many massive variety of options. And then we saw a couple of international ones we saw a&p move into the space a bit, we saw one or two fixed interest coming up. But really, now you can invest in us in a responsible manner that is a considered manner in different ways across obviously, Australian international equities. So the International Space have far more choice and selection, particularly in the impact side of things. And Australian companies tend to be more laggard global them rather than global companies in making change.

But you know, there are impact funds available in Australia now, the ones that directly drive into sustainability. I think fixed interest has always been a tricky one. I think the the, you know, we had ESG orientated, fixed interest funds, but we are going to see very soon, a number of green bond funds coming in. So you know, where you’ve got fixed interest that is ESG orientated. That’s looking at the the issuer of the debt, and deciding if the issuer of the debt has a positive outcome, we’ve got a couple of hybrids that kind of consider the issuer and the purpose of the particular bond they drive. But what we’re going to start seeing is the purpose of that bond being the main point, and that will say, it’s really interesting things like BNP powerbar, massive investment bank issue, you know, they’re the world leader in both fossil fuel and renewable by or green bonds, like they they do both. So judging the bond base of their issuer, as opposed to the outcome is very hard. But I also say it asset classes are all about diversification. You know, I think in financial planning, we kind of got stuck on this whole. He’s the licensee driven asset allocation, you got this many Australian international equities and fixed interest. And then remember, after the GFC alternatives became the big thing that they just let everyone down. And, and you’ve got massive scale infrastructure projects, fixed assets, and super funds. The reason we do this is the most basic principle of investment. And that’s diversification. So when thinking about asset classes people often look for, okay, where’s a property fund that I can get involved in, which is quite tricky. In this space, the green property is still an emerging area, what that means is hard. And it tends to be put into portfolios with a variety of other things. I don’t think we’ve seen the real emergence of quality grain property funds is a fair bit of greenwashing in that sector as it is. And when I say green, I’m talking about environmentally friendly, but also things like social housing and that kind of thing. I think there’s so much competition in in property, that it’s very difficult to create value in that shift because you can get the money otherwise, you don’t have to worry about whether it’s green or not. But I think infrastructure is a really interesting one. Because when we think infrastructure, we think, power generation, we think airports, and that’s straightaway, but infrastructure is societal tools, they’re things that provide benefit to society as a whole. They tend to have long running flat performance curves, inflation linked, and tend to be less correlated with equity markets tend to I mean, they tend to be on equity markets, but they they’re this volatile. The reason we invest in infrastructure is diversification. It’s consistency of cash flow. It’s inflation, combating characteristics. But what is it? Well, it’s, it could be anything that benefits society, in the eye, I’ve heard this conversation a number of times, if you’re looking down the impact pathway, if you’re looking at the impact portion of your portfolio, you’re looking at water, food, waste control, you’re looking at energy generation, you’re looking at health care, you’re looking, these are all infrastructure based products to move to a more circular regenerative economy, we need to rethink the way we look at the commoditized nature of a lot of these things. If we’ve got completely renewable energy, no one buys and sells energy, you just pay someone for the rights to transmit it to your house. That’s a complete rethink in the operation of that business model. And we need to make sure that these companies have time to adjust because they’re pushing back because they that’s not their business model. But you also think about the diversification aspects. Healthcare and through production aren’t inherently correlated. There might be causative in some menace be a good food production, it’s less health care costs, but that gives you a greater diversity in your portfolio. So when constructing an ethical portfolio for a client, don’t just go back to the classic equity, this percentage of property, but look at what underlying things are, look to the impact investments and say, what are they holding? And is that inherently diversified? And what I found in my own research doing when audit controls on my portfolios, is that if you’re familiar with their risk return chart, the further left in the right hand corner you go, the lower the volatility, the higher the performance and we We, whenever you add impact investments into a portfolio, you always move left because of that uncorrelated approach. So it’s, it’s not saying we need, you know, office buildings and airports, it’s saying, what is infrastructure? Why do we include diverse assets? And what else can we include what opportunities out that we’ve never even considered before that can actually add extreme value to portfolios and reduce volatility and risk?

Fraser Jack
Amazing. Thank you for all of that I’ve been taking note too seriously. Talk to me about the concept of you know, power. And in the airports, you mentioned, infrastructure is a big thing. And I sort of had some more questions on this. Obviously, you know, he puts good people around, but they also, you know, land and take off a lot of planes, which creates a lot of impact on the environment.

Nathan Fradley
Yeah, it’s an interesting one. I think if more people who were in private jets flew of our airports, we probably have less of an issue. In the old Leo DiCaprio flying to a climate change conference in his private jet. I think air transportation will transition, we’ve got hydrogen based technology for transportation already. It’s a bit difficult with the high torque electric based engines, there are some great stuff happening and trains in the in the, in the United States is one company that does high freight train networks is developing into completely electrically driven. And once we develop strong torque electric engines, that’d be good. I also think there’s multiple fuel sources. So a few years ago, there was a, a drone being developed in Australia, actually, which had a hydrogen takeoff mechanism, but a solar cruise mechanism, because the amount of energy required once at height and speed was much less. So we’re going to see that kind of thing. I think planes will shift, I think they will, I think we will see that naturally occur, there is a lot of research going in there. And it’s an easy problem to solve. It’s the electric car problem. It’s alternative fuel sources, and then all of a sudden, flights don’t tend to be such an issue. But I also think, you know, if you look at the transition of COVID, the requirement to fly around the world to go to conferences, when you’re a business person is less. So we’re going to see that that shift and change in movement and transportation will inherently be less due to the gift of COVID, which said, Hey, you don’t actually have to be there to be there. So yeah, it’s an it is an interesting one the airports play. I don’t think they’re going away anytime soon. I think it’s up to the airport, how IT managers it’s, it’s flows, because I can make a drastic difference. And then the the airplane companies themselves need to transition. They do have a monopoly in that sense, as an industry. But I think consumer demand hasn’t been there because no one’s been flying. But I do see that being a massive push, and there is research going in the space, there’s plenty, it’s a simple problem to solve. It’s an engineering problem. It’s not there’s not a complex social system, we need to unwind.

Fraser Jack
Yep. And I know there’s a lot of industries that are doing their bit in listen to some of some of the music industry’s doing, for example, a lot of bands now trying to be carbon neutral from you know, traveling around and, you know, travel and air transport one of the biggest, one of the biggest issues that they’re trying to solve for, I want to talk to you a bit more about the green bond funds and the fact that they’re, you know, that’s, that’s a sort of starting point from the from the money that’s being lent to the companies only interested in whether they there they green or not.

Nathan Fradley
Yeah, so a green bond is about purpose. So it’s it, which is great for client interaction to which you can say this bond was lent to this company to do this thing, like I created to lend money to this company to it, it’s enormously impactful thing, because it’s when we talk about impact. And in previous episodes, we talked about the idea that you’ve got implied impact through to actual impact. And a green bond is saying it’s implied impact. I’m buying fixed interest products from a bank that is better than another bank, therefore, my portfolio is better. That’s implied impact. This is real impact. This is saying I mentioned before, we’ve lent money to a halfway home for 55 to 65 year old women to find support and refuge from domestic violence from their own circumstances, wherever they may be, and we want to support them to get back on their feet. And you’re going to get a fixed rate of 3% on that, but you’re also getting a better outcome. And if you look at the interest rate market, at the moment, we talk performance, I find this really interesting. If I said to you, you can get 1% on your bond portfolio, or you can get 1% on your bond portfolio and provide a house for 450 homeless women to get back on their feet. What are you going to choose Shiva? It’s I think, with fixed interest markets, the returns being so low, but we need that diversification in our portfolio. This adds another another reason to continue having it instead of shifting. You know, there’s a lot of conversation around shifting away from the old 6040 instead of shifting out of bonds altogether, which some people are starting to do. I think this adds a layer of benefit that is, you know, that graded beneficiary that also allows the safety net on portfolios. should things go the other way and equity markets,

Fraser Jack
they’ve been thanks so much for coming on and chatting to us during this series. If someone wants to continue the conversation, what’s the best way for them to get holy?

Nathan Fradley
LinkedIn is absolutely the easiest and best way to connect with me on LinkedIn, shoot me a message. And then depending on which channel you want to engage me through, whether that be getting help with ethical investment conversations, whether that be ethos with epic for the bay, whatever that is, more than happy to chat to anyone, but LinkedIn is the way to do it.

Fraser Jack
Thank you, Nathan. And people can tune into your podcast, what’s it called?

Nathan Fradley
It’s good for the Bee podcast. And if you’re interested in this space, where you want to upskill in what’s happening in these worlds, but not specifically about investments, then that’s the intent of the podcast.

Fraser Jack
Wonderful. And what’s good for the Bee is good for the hive.

Nathan Fradley
That’s right other way around Fraser, but you’re getting there.

Fraser Jack
I’ll get there eventually. Karen, thanks so much for joining us. In this final episode, we are talking about all the different asset classes. And as we’ve previously spoken about delivering different ethical investment solutions for clients. Tell us about how the conversations you’re having with your clients about diversifying the portfolio,

Karen McLeod
it’s been a pleasure to be part of the series, thank you so much for inviting me. Yeah, I think that I’ve just really encouraged advisors to, to act, that’s the first thing is to really act and understand that they can deliver an ethical investment solution or responsible investment solution for their client. And it might not be perfect, but it’s a step in the right direction, have that growth mentality, and be honest and open with your client about what you’re delivering. And there will be there will be parts of the portfolio that might not quite suit what they’re after. But just be frank, and disclose that would be my step and say that, you know, the financial sector is moving in the right direction, and we’re getting traction. And you know, as their key trusted advisor, you will do your utmost to ensure that, you know, when a better opportunity or a better fund or a stronger screen is available, you will let them know, just so that that would be my first suggestion is don’t wait for perfection, just get in there and get ready.

Fraser Jack
It sounds like a bit of a part of an art part of a science and shifting sands. So prepare your clients for a few shifts along the way.

Karen McLeod
Exactly. And remember that, you know, investments come in all shapes and sizes. And, you know, you might find that, you know, you can blend an active international equities manager with a passive ETF that’s focused on Australian shares, you might build a direct share portfolio for them that’s really, you know, focused on some really innovative medical, healthcare, climate change solutions, or, you know, you will, you might find a wonderful social bond fund, you might buy direct bonds, you can build a portfolio that’s as unique as your clients. If you do the due diligence, you know, firstly, you know, find a fund to research, get some ideas, perhaps from your you know, the Responsible Investment Association or from the ethical advisors, cooperative website, or even from lonsec, or your dealer group, get the full holdings list, you know, ask them some really good questions. Ask them about their philosophy and their process, you know, are they a signatory to the Responsible Investment Association or the United Nations principles for Responsible Investment? Do they even produce a sustainability report? Like how long have they been doing this, like, I will always find it interesting and somewhat concerning when a fund puts out an ethical fund, and that’s the only one they do have the 15 that they run. So like, what’s their philosophy and culture around responsible investment? Is this the only fund they do? Or is this all that they do? Why do they have that investment process? You know, how long has their team been doing this? What’s their expertise? What’s their background? You know, are they engineers? Are they medical specialists? How will they know what they’re looking for? So that’s you’re looking for an edge for your clients. And you also want to make sure you’re protecting your client from greenwash and there there is a lot of that, but by asking really good questions, you can uncover whether or not the fund is as authentic as the marketing flyers say. And I would encourage you to also have a look at the research that the Responsible Investment Association for Australasia does, which is on responsible returns.org and also the ethical advisors cooperative does some leaf writings or do your own research. And this this is a really powerful way that you can demonstrate to your clients that you are really close to these funds and you understand what they’re invested in. Yeah,

Fraser Jack
incredible and, and what I feel like when advisors into this space, the the easy go to is just to to look at equities, or like obviously you know, you’re well diversified. Tell us about that and about how you then move from have conversations with clients around not just having equities in their portfolio

Karen McLeod
Churi. And the equities are exciting and wonderful to explain to clients because clients will understand them. But I think you could build on that to say that, because of the transition that is occurring, there is a great innovation in other asset classes. So you could give examples about, you know, environmental and social impacts, they can deliver through social and green bonds, for example, in the fixed income space. And you could also talk in the property space, of course, you know, you only have to look around to see that there’s a massive amount of transformation needed in the built environment space, when you’re thinking about retrofitting buildings, like who pays for that, like LendLease, did a green bond a couple of years ago now. And that was capital raised purely designed to retrofit their building portfolio. So clients can be a part of that was paying around 4%, you know, so clients may, you know, if you ask them want to be part of those investment solutions that are really transforming our real infrastructure, so beyond equities,

Fraser Jack
and you mentioned in one of the earlier episodes around property, and to talk to us about some of the different property options, when it comes to what’s, you know, what they’re investing in?

Karen McLeod
Sure. I think, you know, property can be, you know, really what your clients are after, so do ask them, but we noticed with our clients that they really are interested in, these are the areas we’ve gone into. So specialist disability accommodation for NDIS recipients, it might be aged care, or high care, live living, student accommodation, TAFEs. So education type precincts, childcare centers, for example, as well as other social infrastructure, whether it might be law courts, for example, bus depots, as well as other sorts of investments like social housing, Australia’s Got a massive social housing crisis. So there’s a government authority that’s just issued us Australia’s biggest social housing bond, as well as lots of other things that are transforming the way that we live in Australia, like light rail and solar farms and bikeways. So yeah, there’s many ways clients can get involved. And importantly, with really good quality credit, and good quality property managers as well, these are not niche or fad type investments. They’re with household names that you would know. Yeah,

Fraser Jack
certainly add so many different aspects to the portfolio and in conversation pieces again, that they can they can chat to their friends about. How do you see this, this conversation going with regards to different asset classes with the client over the long term? Because obviously, things will change with regards to portfolios? And how do you have these conversations with clients and reviews and moving their portfolio around?

Karen McLeod
I think it’s just about making sure you know, you’re really, you know, you listen to what they’re after? And if they’re not sure, you know, it’s an invitation to treat, like you’re just saying this exists, would this be something that you’re after, you know, and you could compare, for example, a regular bond fund with a grain bond fund and show past performance, and you could show the different outcomes, and see what resonates with them best. So you’re really providing them with options. That’s, that’s what our job is. And by providing them with those options, then they can make an informed decision, because they don’t know what they don’t know. So if they don’t know these products exist, and you haven’t told them about them, and then they find out after, you know, and they end up outperforming the mainstream ones that you know, that’s probably a position you don’t want to be in if I’ve previously asked for exposure to this. Secondly, I think it’s also something really nice to talk about as well, because clients are seeing the impacts of climate change day to day like you only have to think about your own electricity bill, your own water bill, you know, your own food bill, we know that with scarcity comes higher prices. So if you can set your portfolio up to be better across these future impacts, why wouldn’t you?

Fraser Jack
It seems, it seems to me from from that conversation that it’s really about the conversation around giving the client the choice the buy in to have the conversation to make those decisions, rather than just coming in saying here that you should be invested in this these are our these are our funds, etc, etc.

Karen McLeod
Definitely, and treat them with respect because clients are intelligent, and they will have views on these issues. And so don’t presume anything. I think that’s probably, you know, you might have an idea which you think is wonderful, but if it doesn’t resonate with them, that’s okay. You know, it can just be a starting point for a conversation. There’s no right or wrong answers in this. It’s just, it’s just a means to you know, a conversation to get to that next point. And you know, you might revisit that topic at the Next review. And you might find that their views on something have completely changed because of what’s been happening in the world. And I think the bushfires certainly, were a point where people suddenly became much more. They could completely resonate, you know, with how they wanted to set their portfolios up. And they saw that happened, clients are calling really frightened, new clients, were saying, Take my money now, you know, like, I want to be completely protected by what’s happening. And I want to be across all of these issues, because climate change is here. It’s like on our doorstep, what are we doing? And you know, you have to remember this is what a point where none of our children could go play sport for those weeks, like you couldn’t you couldn’t even get out the door, the smoke was so thick. So like, what future do we have on this planet when we can’t leave the building? So I think that really, yeah, that really struck home with a lot of people. They don’t want to be contributing to that. Yeah, absolutely.

Fraser Jack
Kevin, thanks so much for coming on the series and talking to us. If someone wants to continue the conversation with you, what’s the best way they can reach out?

Karen McLeod
Certainly look, I would really encourage any advisors that want to get involved in this space to please consider becoming a Responsible Investment Advisor with our association, Ria. And then follow on from that, you know, there are many financial advisor forums, we run and there’s a certification process you can go through and many mentors that will assist you. And one of those mentor groups is the ethical advisors cooperative. And we began that because we wanted to, you know, reach out to new members and your advisors and give them support, we run a peer group session. And we also have a leaf ratings research section on our website. And we’re building a toolkit at the moment for new advisors as well. So we’re really trying to provide you with all of the, you know, the tools to really get out there and start delivering ethical investment solutions for your clients.

Fraser Jack
Thank you so much. And just just confirming the really isn’t, the association is Australasian, it’s not just in Australia, and the ethical, legal adviser cop is that Australian based,

Karen McLeod
we also have extended our constitution to include New Zealand. So yes, we can now do both.

Fraser Jack
Wonderful. Thank you so much. We look forward to Well, thank you so much for being part of this, this series. And I really appreciate it.

Karen McLeod
Thank you for your interest in thanks to everyone that’s listened to the series, I hope it really does inspire you to get out there and just get started. Don’t be overwhelmed, just get get started.

Fraser Jack
David Graham, welcome back to this conversation. We’re talking about different different asset classes within within portfolios, obviously, equities, is the easy one to talk about. It’s the popular one. But tell us about your conversation that you have with clients about other asset classes.

David Graham
Thanks for it. Yeah, this has been growing quite rapidly, as you would know, over the past few years. You know, we’ve always had, I don’t want to use the term fringe dweller as derogatory, but there’s people been out there like Australian ethical funds. And these sort of people have been doing this for a very long time. And for very specific reasons. From about 2017, we started to see an emergence of other fund managers across various asset classes, who were starting to get interested in this subject. Clearly, there was some some demand from maybe the institutional side, I assume, but now certainly having conversations with advisors and researchers about some, how would you feel about an ESG version of a bond fund or anything, another asset class, so that that’s central grown exponentially since since 2017. And, again, supply and demand, who knows where we’ve started, it may well start in the institutional land where, you know, some of the bigger super funds have had a specific approach they want to and you know, that that’s filtered into into retail world now. So it’s really just come to the point. And one of the reasons we adopted these portfolios, a year or so ago, when we had our reset, was we could finally put hand on hand and say, we can build a properly diversified portfolio across most asset classes with sufficient management, diversification and style to replace what we’re using up to that point.

Fraser Jack
Yeah. So it’s only been recently that a lot of these products you know, opportunities, I guess you could call them for the for the portfolio have been available.

David Graham
Yeah, yeah. And even now that there’s probably a couple of little gaps we’d still like to see filled but I’ve known that they’ll be filled fairly shortly. And I guess the other the other part of that as well is that we do have the capacity now to have to pick from a range of managers but it’s still dwarfed by that the the broader you know, nondenominational you know, fund manager space if you like,

Fraser Jack
yeah, fair enough. And and But you’re expecting that space to change over time, obviously, with the supply and demand equation?

David Graham
I would think so. And there’s potentially a bit of a race on there. Anyway, I think we said earlier podcast that, you know, there’s a bit of rebranding by a lot of funds going on and a lot of funds, looking at things saying, Well, let’s start excluding tobacco, for example. 10 years too late, perhaps, but it’s moving people in the right direction. So you can say, well, that’s tick one box, and these boxes are slowly, slowly moving in the right direction. A little while back, I don’t know if you know, Giles is going to Sekera he works in the impact investing space. In a conversation with him at a conference, he basically said he didn’t think ESG investing would invest in it would exist in 10 years time, because it would just be the norm. So this is kind of dynamic at the moment where it’s all moving in that direction. To some point, you might get the stage where we talked earlier about having a just a unique class of people investing uniquely in in ethical fund, you might have it might end up being 10 years time, you have a unique class of person investing in a unique fossil fuels Fund, which is out there on the fringe,

Fraser Jack
an interesting space, your specialism. Things have happened lately? Absolutely. And so obviously huge, you know, demand in that space. Talk to us about the the different asset classes. So because I mean, obviously, if we take away equities, how are you finding the rest of the the asset classes, baby property or debt?

David Graham
Yeah, it’s so clear. So the, as we said, the evolution started with the equities, and that’s got the broadest range of products available. With some of the bigger players that have to go into the fixed income, asset class, for example, I think that’s dragging a lot of their competitors with him as well. So it’s creating its own momentum, it’s still a little bit narrow, certainly compared to equities. But as I said, before, it’s just enough that we can get, you know, 90% of the portfolio in their properties kind of interesting, because it’s difficult to say, hey, you define what boxes you’re taking in, in a sustainable space with property, you drill down to the property owner, the tenants, you know, what’s built out of all these kinds of things, doesn’t have solar solar panels on all this sort of stuff. So, you know, we’re just advisors, we really need to rely on credible researchers to filter through that, and really put to us what the limitations are, and the potential benefits. So I think you can’t necessarily expect a portfolio to tick every box that everybody has, because everybody will go, you know, fairly idiosyncratic. If you draw down and say, Well, I like this, and I don’t like that. And, you know, there’s all sorts of preferences. You can’t really build a portfolio, the there has to be trade offs in everything. I mean, you have a trade off when you put some of your portfolio into bonds, not on to equities, right, so it’s about the risk management side. So you still have to work those trade offs in and if you can’t find a sustainable alternative, or you still have to invest in that part of portfolio to get your asset allocation, right for your clients. So it sounds like I’m prefabricating here a little bit about sustainability. But there are practicalities involved in making sure that the portfolio is properly managed from a risk perspective.

Fraser Jack
Yeah, exactly. Right. Now the I’m just trying to work in my head around green property as well. Is this something like that might become more prevalent now that there is, you know, there is a real carbon zero type target is a green property, a tree farm or, or solar farm or those sorts of things? What, you know, what, what are they? Well,

David Graham
that’s exactly right, you can certainly expand the definition of property, I think it could, theoretically, I guess, expand into the area of carbon sequestration and those kinds of things. We don’t really see that yet at the moment. But to your point earlier about technology and innovation, if the incentive is there to build those kinds of things. You know, in the infrastructure space, maybe we’re talking about solar farms, wind farms, and those kind of things which already existed in infrastructure funds. So in that space in that property space, we tend to backup infrastructure and property in the same space because it has some similar attributes, often, or more often than not refers back to a physical asset, and quite often a regular rainfall type income stream as well. So if we looked at that asset class a little bit more broadly, we can kind of find a few more boxes to take.

Fraser Jack
Yeah, yeah. Amazing. David, thanks so much for coming on and sharing your wisdom with us. Tell us if somebody wants to continue the conversation with you what would be the best way for them to get holy?

David Graham
That’s good question. You can catch me on LinkedIn on there. I’m not on Facebook, because that just upsets me. Or, if you go to our web page story wealth.com, that I you, you’ll find my contact details there.

Fraser Jack
Wonderful. Thank you, David, really appreciate it.

David Graham
Thank you,

Fraser Jack
Claudia. And Michelle, welcome back to this episode. Thank you for joining us. We are talking about asset classes and and, you know, we sort of think about and we’ve always sort of thought about this whole I certainly have any way when it comes to portfolios around ESG, that equities were the main actions happening. But of course, we mentioned diversification in previous episodes, tell us tell us about how we diversify using or now in the ESG space?

Michelle Brisbane
Well, we are we’re always looking for full portfolio solutions. So we want to have such a solution for all our clients across the asset classes. And, you know, let’s say 10 years ago that it was difficult to find ethical solutions that suited our clients in a fixed interest and property. That equities was available. But what we’ve seen over the last, let’s say 10 years is solutions or ethically screened solutions across all the asset classes really, would you say?

Claudia Mah
Yeah, yeah. And I think that’s why, you know, our clients that years ago, were more active in the equity space, because that’s where they knew they could champion their values. And then, but now, with, we were able to provide a ethical portfolio covering the main four asset classes, just like any, you know, just like any,

Michelle Brisbane
any other financial advice, yeah, and what we did, originally, early days, we put together our own direct equity portfolios, which, you know, very transparent, obviously, and clients knew exactly the sort of investments that were invested in. And then out of that, and that was 20 years ago, we had, we developed our own sort of platform, let’s say, we now the platforms are hugely more powerful. And that’s fantastic, because we can utilize the technology, but out of developing our own portfolios, and having a great analyst, like Claudia with us now. And, yeah, we’ve put together our managed accounts, which clients can very transparently see exactly where their money is, it’s a full portfolio solution, and it has a mixture of all the asset classes in there.

Claudia Mah
Yeah, yeah.

Fraser Jack
Yeah. Yeah. One of the one of the things that, you know, obviously drives change was the, you know, the, the investment managers of those equities, for example, you know, shareholder meetings and driving those outcomes. But I guess the other side of that is also lending in debt, you know, these companies wanting to borrow and then, and then having those Linnaean, debt style of products available?

Claudia Mah
Yes. And I think there are a lot of these green bonds. And now we’re hearing about impact bonds as well. So the green bonds, we definitely listened in to some of the issuers talking about what the purpose of the green bonds were, most of it is related to property we found, but internationally, I think there are there are quite a few opportunities where the green bonds is actually dedicated to companies trying to transition to the net zero. And, and so I believe that trend is going to to come, you know, start to spread. Again,

Fraser Jack
it seems like that trend is going to start to spread as the as the world makes commitments to get to that net zero.

Michelle Brisbane
Yes, we might be inundated with green bonds.

Fraser Jack
That might be one of those scenarios where it becomes the new normal, which will be interesting.

Michelle Brisbane
Yes. Well, I mean, we could say that, you know, this is what we’re aiming for, for green bonds and technologies and that sort of thing to become the new normal, which is what we’re driving driving here.

Fraser Jack
Yep. And and how do you? Is the technology part of those portfolios, mostly in equities? Are you able to get textbook technology in other areas as well?

Claudia Mah
I think if you’re not, if you look at it, what is the purpose of these, if you’re talking about bonds, is looking at the technology that’s invested in it, but the purpose of the technology is to drive both cleaner air, higher efficiency, to invest in machinery, for example, that can that can that operates differently to traditional old style factories, for example. So these, so in that sense, it’s that’s where the technology piece comes in, but more the issuers of those bonds don’t necessarily have to be technology manufacturers. They could be just, it could be vendors, let you know could be just any companies that that are trying to that are in that space.

Fraser Jack
Yep. Now Cory, you’re obviously you’re an analyst, obviously in your your full time role is to go in and investigate and find the find the answers to a lot of these issues and solutions and things that the advisors can talk about. For advisors listening to this, though, where can they go to sort of find out some of this information? I know, there’s, and you know, we’re trying to avoid the, you know, avoid the marketing companies or around the greenwashing side of it, but we can advisors go to find out some deeper information.

Claudia Mah
So on a on a managed fund site, the fund managers and the, you know, business development managers who come out to meet with advisors, they are a great source of information. And, and, you know, a good way, it’s not just about the conversation that happens in a meeting room, it also, you want to see that comes through in the report, the updates, a lot of funds nowadays, are also issuing out their impact report, they’re ready, we’ll discuss what are the activities they’ve been working on, they’ll talk about some of the companies they’re having a little, which which present gray areas for them, have that conversation, you know, sometimes. So I guess what I’m trying to say is, half of it is what’s written in the report. And the other half is in your communication, and conversations with the fund managers.

Michelle Brisbane
And those conversations that you that you have with the fund managers, sometimes they’re out doing amazing things in, in communities and in running, looking for investments, and they explain what they’re doing and the sort of issues that they’re trying to target. They’re great conversations to have with your clients know, as an advisor, you can say, look, I spoke to the fund manager from this particular fund that they’re doing this in, in South Africa, or whatever it might be, or they’re trying to solve this problem of pollution. And they’re trying not to have too much plastic waste, because and they’re investing in this type of company to try and have that solution. And that’s a really powerful conversation to have with the clients and the others is, so the other spot is the Responsible Investment Association, the Ria, and there’s a lot of resources, as well.

Fraser Jack
Wonderful, thank you that that’s the Responsible Investment Association of Australasia, I believe, correct. So that’s, that’s incredible. Thank you. So then again, that then comes back down to the understanding where they are on the spectrum of dark versus light, are they leaning of leaning towards or pushing towards things becoming deeper green, but I guess that influence doesn’t happen overnight, they might need to start from a light, light position and then move towards the overtime.

Michelle Brisbane
That’s our main part of Claudia’s role was as our analyst and researcher she, she looks, it looks at the various different fund managers looks at who complements the other investments that might be in the portfolio. And like we said earlier in a previous session, our clients want to know where their money’s invested. So we as transparent as we possibly can be in terms of finding out where the investments are actually placed.

Fraser Jack
Yeah. Wonderful. Thank you so much, Claudia, Michelle, for joining us. Now, Michelle, if somebody wants to continue that conversation a bit more about ethical investment services, how can they get hold of you?

Michelle Brisbane
Well, where you can Google me or ethical investment services? We’re based in Q in Melbourne? So that’s where we are. We’ve got a website, Ethical Investments with an S. And you can find us there but the old Google later as they say, that’ll that’ll find us.

Fraser Jack
That’s a new term that we’re bringing on Google. Excellent. You heard it here. First time on that one. Thank you so much, really appreciate you your time energy had been part of the series.

Michelle Brisbane
That’s been great, Fraser. Thanks, Fraser.

Fraser Jack
Welcome back to the conversation. Grover.

Grover Burthey
Excellent. Happy to be back here again.

Fraser Jack
And now we are talking about asset classes and all the different asset classes. Looking at the the generally the go to has always been sort of equities in this space. However, to create a balanced portfolio, we need to consider everything else.

Grover Burthey
Yeah, absolutely. And it’s a question that we have Pimco, naturally as a as an active fixed income manager often receives what’s happening in the fixed income space, what’s happening in areas outside of public equities, where there’s more familiarity and goes we have a very Pimco, we have a very active alternatives platform, which real estate platform as well. And one area where i i, in particular like to emphasize really is the growth and the progress of the green bond market. We spoke in one of our previous sessions about labelled bonds broadly but but with a particular focus there on I think social bonds. But you know, green bonds are a tool that they become established in the utility space, they become established and REITs They become quite commonplace in a few parts of the market. But what’s been really exciting this year so far is their increased utilization. And other parts of the market areas where there hadn’t been as much issuance before. And that extends beyond corporate bonds that extends into its mortgages that extends into into municipal bonds here in the States extends to multilateral development bank’s in different parts of the marketplace, many issuers who have increasingly made this part of their primary market activity. And that’s a great tool for the fixed income market. Because just with the regular market access with the roadshows and investor conversations that accompany those, with the need to build those books, it provides a natural point of engagement provides an opportunity for an active manager like Pemko, to really speak with management to speak so at a time which which, where they have their freshest and most recent information at hand, as they’ve produced a framework agreed by framework to accompany that issue as they’ve studied and, and hopefully try to maximize utilization of green bond principles. And then it gives us an opportunity to give feedback, right to tell them, what we will be like about the structure will be like about their business plan, give give an assessment on how we view the materiality of what they’re doing. And then to also, you know, just emphasize the fact that we look forward to feeding into their overall sustainability strategy and more information. And so it’s a great, it’s a great evolution for the ESG space in the fixed income market specifically. And we look forward to hopefully continuing to promote and sponsor growth in that marketplace, speaking with issuers about it, and then being active participants in those bonds on behalf of our investors. Yeah, so

Fraser Jack
it’s not as simple as that it’s not just a green bond is upon an investment. I mean, that’s that’s for the environment, there’s a lot more to

Grover Burthey
know. That’s right. And at Pimco, we have an entire framework by which we analyze a green bond structure itself, because they can be distinct from the overall ESG profile, the company or the issuer of the of the structure of the security, we look at at what a structure has included in terms of eligible categories where the proceeds can be allocated, we look to the extent that the structures are mapped or connected to specific sustainable development goals or SDGs. We look at at the overlap of those eligible categories with the primary business activity of the company. And we look at you know, will this be used for new investments, new projects, new endeavors on a go forward basis, as opposed to being allocated to to investments that have already taken place? And there are other factors we consider as well. But the point is, is that these structures can be can be complex enough, whether it’s not overwhelming. It needs to be these need to be accessible tools for the marketplace, but they do the with the green bond principles at Pimco, we also have best practices available on our own website that we regularly distribute. There is enough information, these frameworks to really be able to judge compare, and hopefully encourage best practices across the board.

Fraser Jack
Yep. They mentioned social bonds as well. They completely different sector, or is it pretty much, you know, like fall, they fall under green bonds, or are they a separate segment?

Grover Burthey
Well, we look at ESG labeled bonds overall as the sector heading. And then within within that there are green bonds, which are focused on environmental related projects for utility company that can be investing in the construction of a solar farm for a REIT, that can be in the development of a new office building, and that’s going to be LEED Platinum. In contrast, a social bond will have use of proceeds that are really it’s more social related endeavors that can be for financial institution, lending to certain certain borrower types borrower classifications that have had less access to credit in the past, it can be to, to hopefully financing or supporting the movement of a workforce or a part of a workforce into areas that are more in line with a more stable business strategy, staffing reallocating staff and resources. And then we have sustainability bonds, which which are being you know, increasingly used even just this year, which are combination of social angry, it may be 80%, green, 20%, social, it can be 5050. But thereby, by you being used by issuers, you will want to do a little bit of both, and that’s a good development as well and to have that additional flexibility in line, you know, across those three green social sustainability, we call those Use of Proceeds bonds, because they all right, have the issuer specify where they intend to where they are allocating the proceeds, in contrast to sustainability link bonds, where the proceeds are not specifically allocated to projects or eligible project categories, but instead they’re linked to sustainability, goals and targets and objectives and specific milestones that accompany those and those are being standability linked bonds are being used by a range of issuers as well.

Fraser Jack
And I chunk this back down to the client Like that use of proceeds bonds is a great way for them to be able to tell their friends at a barbecue about what they’re investing and why.

Grover Burthey
Yeah, exactly. Yeah, it’s great because you have line of sight to your proceeds are going and naturally, you know, this is just one part of the initial risk capital structure. But as as, as the market continues to grow and expand, and these become increasingly utilized, and they represent more more of the liability side of the balance sheet, and this has this does have positive domino effects, they represent more and more of the marketplace more and more of the capital structure. And obviously, the clear goal of all this is that it hopefully drives more activity in some of these some of these areas.

Fraser Jack
Yeah, absolutely. Now, you mentioned alternatives before, what sort of things are you looking at with a with alternatives in

Grover Burthey
the space? Yes. So when it comes to alternatives, and you know that there’s far less availability, of course of third party data of data sources, such as an MSCI or Sustainalytics, you’re dealing with with much less information from the direct counterparties right, most private investments that the markets pursuing, they don’t, they’re unlikely to have a 50 page sustainability report. So So there, it becomes more more of a diligence effort, much more of an internal assessment effort. And that’s critically important as well, right to ensure that we’re still using many of the tools that we use on the public side, public investing side of our business here at Pimco, extending that to identify material themes. relevancies, when it comes to alternatives, and then increasingly, you know, pursuing opportunities for our broad alternatives platform in areas of sustainability and doing so not because we’re focusing on some specific impact oriented outcome for the fun, but because these are just very significant capital investment opportunities. There’s a lot of disruption going on in the space. And much of that has been done in private debt, private equity parts of the marketplace, and those are great opportunities.

Fraser Jack
Yep. Now, we’re probably right around the South with those REITs. And property that you mentioned earlier. Tell us about some of the projects you’re seeing in that space that that you like,

Grover Burthey
Sure, so So I noted REITs. And, you know, really there it comes down to the the energy efficiency of the property of the asset, whether that be office space, whether that be data center, whether that be an industrial building, is it being if it’s new construction, is it being developed to a standard, right, that has maximum energy efficiency? That’s it’s utilizing water and electricity from sustainable, sustainable sources? And to the extent that it’s a seasoned asset or an existing asset? Is there any sort of Capital Revitalization Plan or refurbishment being being done? And that can be that can be judged on an absolute basis? Or can we compare it across various pathways such as such as Krim, and others that are aligned with with specific targets over time. So that’s one of the space that’s exciting, you know, that more and more has to be done in real estate, because just the construction itself of a real estate asset can be very carbon intense. And so we do have to think about the full lifecycle of these assets. But with regards to degree bonds and proceeds, that’s been the market standard. That’s in contrast to something like like utilities, where you know, it’s not, it’s not business as usual, in the sense of, you know, trying to make a natural gas fired power plant, more energy efficient, but just outright moving to clean energy. All right, we need alternatives. And there, you certainly want to see on lines of okay, well, if if fossil fuel generation has made up X percent of your of your generation mixture capacity over the last 510 20 years, what’s that going to be in the future? You know, to some extent, utilities are going to grow either way, you can develop new green assets by still keeping all the old capacity online. But are you? Are you converting some of the old capacity? Are you are you decommissioning sort of that old capacity? Are you phasing out coal, there’s much conversation at COP 26, about phase out versus phase down? We certainly want to see the phasing out of some of these particularly dirty assets over time. And so what are the green precedes doing? And not only in terms of the new projects, but how does that fit into the overall mix of assets? And then, you know, isn’t it what’s particularly exciting is that, yes, these are sectors that are that are very difficult, but we’re seeing more happen in other areas, right? We’ve seen green bonds. And I’ll come out just even in recent days and weeks in areas like shipping, the shipping space, very carbon attacks using very, very dirty fuels. But either by using different types of ships and using different types of fuels, what can be done there in terms of putting those on a on a cleaner and cleaner environmental path in the future. And then also, what’s been really exciting is seeing a lot of ESG legal bond issuance from sovereigns, and that’s another unique aspect of the fixed income space. You have equity in a sovereign you have equity in a government but many different Governments and sovereigns, issuing these types of structures. And that’s not exclusive to develop markets, that’s emerging markets as well. Countries such as Colombia, and others, coming with these structures utilizing them, in order to change how their country operates change, access to me these power tools and utilities buy their communities and populations. And again, hopefully doing so in a way that that’s that’s accompanied with various policy initiatives and other changes at the national level.

Fraser Jack
Well, absolutely so much happening in this space. And as you mentioned before, a lot of moving towards a lot of influencing, you know, phasing down phasing out conversations. And it’s really incredible that, you know, the journey, I think it’s pretty exciting, the journey that you’re on from where you’re sitting,

Grover Burthey
we’re excited about it again, you know, like I said, we judge, we compare, we evaluate all these opportunities, all these structures, these issuers, but but what’s most important, is that right, this is an inclusive space, that that we’re bringing more into the fold, we’re not scaring issuers away, because they view it as intimidating or they view it as, as an area where they’re going to put themselves at reputational risk, we want to make sure that we’re being prudent and diligent in our evaluation efforts. But then also, you know, that the overarching goal here is to bring more and to grow this space to grow these efforts. And that and that, of course, means, you know, impacts on our portfolios and great outcomes across across regions and populations and markets globally.

Fraser Jack
Yeah. Wonderful. Greta, thank you so much for joining us on this series, all the way from California. Really appreciate your time. It’s an energy. If somebody wants to continue the conversation with you or someone from from PIMCO. What’s the best way for them to reach out?

Grover Burthey
Sure. Well, first of all, I’ve certainly enjoyed our conversations, Roger, and look forward to, hopefully continuing these efforts, both the United States and Australia and across across regions. I am on LinkedIn, and it says please feel free to look me up there. And then we have a team on the ground in Australia, that we’re happy to put anyone in contact with regards to our fun products. Our ESG Global Bond Fund is available in the region, and a number of other capabilities

Fraser Jack
across the platform for them. Thank you so much, Grover, thank you so much, Fraser. Appreciate it.

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