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AIM High: ESG terms, trends and appetite · Two in Twenty

• 0:02
  SPEAKER_01: Hello and welcome to another episode of AIM High.
• 0:05
  SPEAKER_01: My name is Twink Field.
• 0:07
  SPEAKER_01: I'm the CEO of White Marble Marketing, and the AIM High podcast is from the Association of Investment Marketers and is dedicated to marketers in financial services.
• 0:19
  SPEAKER_01: So we are having conversations with a range of experts talking about industry, product, practical, and professional tips for careers and career development.
• 0:29
  SPEAKER_01: Today specifically, we are talking about ESG, the terms, the trends, the product appetite.
• 0:37
  SPEAKER_01: And we've got two brilliant speakers.
• 0:39
  SPEAKER_01: We've got Lloyd McAllister, who is in the responsible investment team at Newton Investment Management, coming from quite an institutional positioning, and then Holly Mackay, who is the founder and MD of Boring Money, a business that helps investors navigate the investment world and frankly also helps asset managers communicate better with their end investors.
• 1:04
  SPEAKER_01: So over to them.
• 1:08
  SPEAKER_01: So good morning, Lloyd and Holly.
• 1:10
  SPEAKER_01: Thank you for joining me this morning, despite the cold weather.
• 1:17
  SPEAKER_01: A vast and very topical area in investment management.
• 1:23
  SPEAKER_01: It would be great if you guys could just kick off with introducing yourselves and then maybe just set the scene for us a bit as to sort of where this impetus has come from and how it's evolving.
• 1:34
  SPEAKER_00: So my name's Lloyd McAllister.
• 1:35
  SPEAKER_00: I'm an ESG analyst at Newton Investment Management.
• 1:38
  SPEAKER_00: I joined Newton about two years ago before that.
• 1:41
  SPEAKER_00: I spent 10 years at KPMG, where I worked in the management consulting team on sustainability consulting.
• 1:48
  SPEAKER_00: So that was all about telling and working with companies on what does sustainability mean and how do you do it.
• 1:55
  SPEAKER_00: And so today at Newton it's it's uh our team's role to firstly set the investment philosophy around ESG and sustainable investing, doing the investment due diligence before we invest in companies and then engaging with companies and voting our client shares at the AGMs.
• 2:13
  SPEAKER_02: My name's Holly Mackay, and I set up a company called Boring Money.
• 2:17
  SPEAKER_02: It's about four years old now.
• 2:19
  SPEAKER_02: I can't believe that.
• 2:20
  SPEAKER_02: Uh, what do we do?
• 2:21
  SPEAKER_02: We help customers make better choices when it comes to savings and investments.
• 2:27
  SPEAKER_02: And we also work with the industry and try and get them to offer better choices to their customers when it comes to investments and pensions.
• 2:35
  SPEAKER_02: And I'm really interested in the sustainable investment landscape, perhaps more than ESG.
• 2:41
  SPEAKER_02: We'll come on to that later.
• 2:43
  SPEAKER_02: Um, why?
• 2:44
  SPEAKER_02: Because people are writing to us, Twink.
• 2:46
  SPEAKER_02: You know, people are asking for it.
• 2:47
  SPEAKER_02: And when you spent as long as I have trying to make investment interesting, and suddenly there's a topic that gets people enthusiastic, you know, you don't turn your back on that opportunity.
• 2:58
  SPEAKER_02: So, you know, we're really seeing demand from the ground up.
• 3:02
  SPEAKER_01: Brilliant.
• 3:03
  SPEAKER_01: And actually, let's just jump straight in there then, in terms of the terminology, shall we, in terms of how it all breaks down right across the spectrum where where you use sustainability, where you use ESG, ethical impact, etc.
• 3:16
  SPEAKER_01: So give us a bit of a steer on that, could you, Lloyd?
• 3:18
  SPEAKER_00: Yeah, so it's a bit of a sort of a soup of alphabets and and letters, but basically you have a spectrum uh within investing called responsible investment.
• 3:30
  SPEAKER_00: And within that, you then have a set of different ways of using ESG as an information set to get different outcomes.
• 3:38
  SPEAKER_00: So for a while, a lot of investment managers have used ESG as a data set purely to improve risk-adjusted returns.
• 3:46
  SPEAKER_00: And so that is called ESG integration.
• 3:48
  SPEAKER_00: You're not trying to improve environmental or societal outcomes, you're just using that information set to improve your own clients' returns.
• 3:57
  SPEAKER_00: And that's defined by the UN and it's pretty well understood.
• 4:00
  SPEAKER_00: I think it's quite unusual from a marketing perspective that even has the term ESG in it.
• 4:04
  SPEAKER_00: For us, it's just kind of finance 101.
• 4:07
  SPEAKER_00: It's just about making sure you understand the risks and opportunities the company faces from ESG issues, but you're not trying to actively go out and improve the state of the environment or society.
• 4:18
  SPEAKER_00: So then, and all of all of our funds do that, and I think most assets, most asset managers around the world do that, because you'd be a bit, you'd be a bit bonkers if you were going to invest money to like ignore the fact that a mining company might not have access to water or the quality of the board.
• 4:35
  SPEAKER_00: You'd be a bit bonkers to ignore that.
• 4:37
  SPEAKER_00: So then you move on to, and pretty much all clients expect us to do that.
• 4:42
  SPEAKER_00: Um for some clients that's not enough though.
• 4:45
  SPEAKER_00: And so some clients, particularly charities or endowments, will say, we want some kind of exclusion.
• 4:50
  SPEAKER_00: We're a cancer charity, so we can't be seen to invest in tobacco.
• 4:56
  SPEAKER_00: Um, and so that's just the exclusions, very traditional.
• 5:00
  SPEAKER_00: You just exclude stuff, you treat things as black or white, as kind of good or bad.
• 5:05
  SPEAKER_00: Um, and and that's a relatively easy.
• 5:07
  SPEAKER_00: You miss out on the returns when those sectors do well, but you miss out on the losses when they do badly.
• 5:12
  SPEAKER_00: So it's kind of a pretty black and white approach.
• 5:15
  SPEAKER_00: Now, what's evolved since then is that people are recognizing that the traditional way of investing has worked pretty well, but there's some big market failures out there, things around climate change, inequality, things like automation of jobs, things like biodiversity, decline.
• 5:34
  SPEAKER_00: And so all of those things are not being dealt with by mainstream investment approaches.
• 5:39
  SPEAKER_00: And this is what has kind of driven the demand for a slightly different approach to economics and investing, and that's kind of the sustainable investing space, where you're basically one, trying to avoid the big structural problems in the economy, but you're also investing in the areas that are solutions to those problems.
• 5:56
  SPEAKER_00: So rather than investing, an obvious example would be in oil and gas, you put your money into renewables.
• 6:02
  SPEAKER_00: And so that kind of where you're shifting it, it's part purely financial, but you're also recognizing that you want to be part of this sort of economic transition.
• 6:10
  SPEAKER_00: So that's the kind of the more sustained, and by the way, that area there is no definition for.
• 6:16
  SPEAKER_00: That's kind of our interpretation of it, but there are multiple definitions that you will find people use when they say sustainable investing.
• 6:23
  SPEAKER_00: And then kind of the fourth one is impact investing, and that's much more around where you're actually trying to have a specific measurable impact on some specific issue, often at the uh expense of returns.
• 6:37
  SPEAKER_00: So you will say, I'm going to massively constrict my investment universe.
• 6:41
  SPEAKER_00: Um, and because I'm constricting my investment universe on non-financial issues, I might get lower returns, but I'm happy with that because I'm having this really big positive societal impact.
• 6:52
  SPEAKER_00: And so you you there are other flavours and there's other other areas of the spectrum that you can look at, but broadly we see those are the four four main areas.
• 7:00
  SPEAKER_01: Great.
• 7:00
  SPEAKER_01: Holly, to what degree is that sort of well understood from the investors?
• 7:04
  SPEAKER_01: Oh god, not at all.
• 7:05
  SPEAKER_02: I mean, I mean, people don't even know.
• 7:07
  SPEAKER_02: Most people don't know, and they shouldn't know really what ESG is.
• 7:10
  SPEAKER_02: And I just wonder, I just think I wonder if this is a classic example of the industry being a bit self-indulgent.
• 7:18
  SPEAKER_02: And and my question is in a way is ESG just business as usual?
• 7:23
  SPEAKER_02: Is it just modern due diligence?
• 7:25
  SPEAKER_02: Is it due diligence fit for the 2020s, not for the 1980s, right?
• 7:30
  SPEAKER_02: So, in the same way we don't bang on about modern portfolio theory when we're trying to sell funds or market funds to people, why are we talking about ESG and spending all this time earnestly trying to educate the sort of ball-that is sort of end investor at the end of the day?
• 7:49
  SPEAKER_02: And what I'd sort of say is we've got to stop fixating on the inputs.
• 7:54
  SPEAKER_02: An ESG is just a whole series of inputs along with more traditional metrics, right?
• 7:59
  SPEAKER_02: And we've got to think about the outputs because what really is driving the conversation now, a more thematic-based thing.
• 8:07
  SPEAKER_02: So, for example, fossil fuel, that's whether we like it or not, as a sort of subcomponent of an overall ESG strategy, you know, that is something that's animating the sort of customer dialogue and the discussions.
• 8:20
  SPEAKER_02: And so I think what we'll do quite quickly is work out after about a year or so that it's impossible to try and tell people what ESG is.
• 8:28
  SPEAKER_02: We'll probably work out in a way we don't have to, because they should just assume that that's just called us doing our job properly.
• 8:35
  SPEAKER_02: And I think we'll sort of leapfrog to the main area of interest, which will be sustainable investing.
• 8:41
  SPEAKER_02: And then when we're grown up enough and good enough at it, we'll then move to impact investing, because that's what ultimately people care about.
• 8:50
  SPEAKER_02: They've always cared much more about the outputs rather than us endlessly.
• 8:55
  SPEAKER_02: It's like going to dinner with a man.
• 8:57
  SPEAKER_02: Sorry, Lloyd, but this has happened to me on a few times, you know, and you sit down and they start the conversation, they turn around and they go, Now, let me tell you a few things about myself, and your heart sort of sinks.
• 9:08
  SPEAKER_02: I want to know about I don't so it's very much, I think, focusing on the output.
• 9:13
  SPEAKER_02: That's what we've got to do much better rather than talk endlessly about the inputs.
• 9:20
  SPEAKER_01: And do you do you think uh the sort of recent letter from Larry Fink will actually help us leapfrog quicker that will sort of get to uh those outputs and and sort of focus the mind of the industry?
• 9:33
  SPEAKER_01: Yeah, I do.
• 9:34
  SPEAKER_02: And you can, you know, Lloyd will have a more technical view on this, but I think in a way we've got to suspend skepticism, cynicism, the urge to finger point and mumble about greenwashing.
• 9:45
  SPEAKER_02: And we've just got to say the guy that runs the biggest investment firm in the world has stood up and put this very firmly on the agenda.
• 9:54
  SPEAKER_02: You know, that is a good thing.
• 9:57
  SPEAKER_02: And and you know, he's not alone.
• 10:00
  SPEAKER_02: My God, you just have to look around.
• 10:01
  SPEAKER_02: Even like people in our sort of like marketing vegan shoes and trainers for God's sakes.
• 10:07
  SPEAKER_02: Microsoft have come out and said we're going to be carbon negative by 2030.
• 10:11
  SPEAKER_02: Um, you look in the retail investing space, you've got an interactive investor out this week with an they call it ethical um portfolio.
• 10:19
  SPEAKER_02: You had Charles Stanley last week with their list of responsible investments.
• 10:23
  SPEAKER_02: I mean, so this is really gathering pace in a way which I've not seen it in previous years.
• 10:32
  SPEAKER_00: Yeah, I mean, we see uh all of you know, we we don't exist without our clients.
• 10:38
  SPEAKER_00: So so everything has to be client-driven.
• 10:41
  SPEAKER_00: And the the interesting thing is at the moment, when you go to the US, you'll find a lot of asset owners who won't even want ESG integration.
• 10:54
  SPEAKER_00: So so globally, there is not consensus, even the ESG integration actually works as an investment using that type of extra, what we call pre-financial information.
• 11:07
  SPEAKER_00: They they don't accept that that's helpful for returns.
• 11:10
  SPEAKER_00: Now that that sort of drives the need to have these different types of criteria because it's not considered of the 80 trillion assets that are under management in the world, only 30 trillion use those types of investment approach that I mentioned previously.
• 11:28
  SPEAKER_00: The rest don't use them.
• 11:30
  SPEAKER_00: They just they're either passive and don't do anything, or they're active and they actively ignore that information.
• 11:37
  SPEAKER_00: So that's why it's there is kind of a huge movement, I think, into this sustainable directing area, sustainable investing area, but it is it is still relatively new and it is still quite a uh developed country, urban-centric mindset.
• 11:56
  SPEAKER_00: And I think at the moment, you know, we want it to become mainstream and it is moving that way.
• 12:01
  SPEAKER_00: You see a lot of data about the growth of sustainable and ESG investing, which is from an extremely low base, it's essentially from zero, and it is growing fast, but but it's it there is still a large proportion of the investment world who doesn't want any of this.
• 12:15
  SPEAKER_02: But look, correct me if I'm wrong, but isn't there enough evidence out there?
• 12:18
  SPEAKER_02: I don't really understand why the US, I mean, both at the political level and at investment management level, are such laggards here because from from what I see, and maybe I'm just reading things I want to see, but I mean, even sort of Morningstar have come out recently and and compared sustainable returns to sort of not.
• 12:37
  SPEAKER_02: And and to me, SJ, it's just such a bleedingly obvious case to make.
• 12:43
  SPEAKER_02: So, what's going on in America?
• 12:44
  SPEAKER_02: You know, why in North America, let's be broader.
• 12:48
  SPEAKER_02: I don't understand it.
• 12:50
  SPEAKER_00: I I'm in the same boat as you.
• 12:53
  SPEAKER_00: For everything from the academic literature to just common sense to people with business experience tells you that ESG issues are not kind of separate business issues, they're just core parts of the business.
• 13:07
  SPEAKER_00: Your workforce is important, understanding if your environmental impacts are going to get taxed and hurt your profits, those are clearly important issues, like the quality of your auditor.
• 13:17
  SPEAKER_00: These are important business issues.
• 13:18
  SPEAKER_00: But for some people, for whatever reason, and I think part of it is that a lot of these topics are quite political sometimes.
• 13:26
  SPEAKER_00: They can be quite emotionally driven topics, and people that people just have different political views on some of these topics, and there is this interlinkage between politics and economics that you get with a lot of ESG topics, particularly in something like climate change or inequality or diversity.
• 13:43
  SPEAKER_01: And do you see Lloyd having sort of sort of practically looked to embed ESG sort of within your processes?
• 13:52
  SPEAKER_01: Do you uh have some sympathy with some of the groups really um embedding it deeply in what they do versus allowing investment managers to sort of do their own, you know, make their own decisions, their own selections and and filtering?
• 14:07
  SPEAKER_00: Well, I think it's it's kind of a two-way street.
• 14:10
  SPEAKER_00: Like we have to we have to do what our clients want us to do.
• 14:14
  SPEAKER_00: So if our clients, but but we are sort of closer to the investing process and we need to be forecasting demand as well.
• 14:21
  SPEAKER_00: There's no point in us just responding to demand because then you're too late to the party.
• 14:25
  SPEAKER_00: So we need we need to have a level of forecasting where demand is going to be, um, as well as sort of hearing in the here and now what the clients want.
• 14:34
  SPEAKER_00: And all we only do ESG integration because our clients want us to do it.
• 14:40
  SPEAKER_00: Like that, that is just that's just we wouldn't do something ever that our clients didn't want us to do.
• 14:46
  SPEAKER_00: So we would we will say, like, if you look at the evidence around ESG integration, we believe that it's helped us avoid some terrible investments and helped us pick some good ones, and we'll have very specific case studies around that in our client decks.
• 14:59
  SPEAKER_00: We then say that you know we we we have a series of market failures going on in in capitalism and they need to be dealt with, and people are asking investors to take more responsibility.
• 15:10
  SPEAKER_00: In the papers, you see investors, you need your your powerful investment houses, you take responsibility for this.
• 15:16
  SPEAKER_00: How are you helping solve these problems?
• 15:19
  SPEAKER_00: And so that there's that other angle coming that there's sort of civil society asking business to do more and take responsibility for these problems, and that's kind of another stakeholder that we've got to manage.
• 15:30
  SPEAKER_00: You've got your clients, but there's others as well.
• 15:32
  SPEAKER_00: Then you've got regulators coming saying, uh, business, you need to step up, you need to do more, you need to be actively doing stuff on this.
• 15:39
  SPEAKER_00: And so you've got we've got like a number of people revolving around us, and customers are obviously our one of the most important stakeholders.
• 15:46
  SPEAKER_00: But um, yeah, we we have to integrate this stuff for a number of reasons, one being investment performance, but all of those other things as well.
• 15:55
  SPEAKER_01: When I ask the question, only because Holly, maybe you see this in the work that you do, there seems to be such a spectrum of fund managers and how well they're doing this.
• 16:03
  SPEAKER_01: And um, it seems that there is a real charge amongst many to really embrace sustainability at a brand level.
• 16:10
  SPEAKER_01: And to our earlier comments, that must be really difficult when you've got the US sort of behind on this versus sort of across in Holland where they're much more advanced.
• 16:19
  SPEAKER_01: But equally, um, you know, for other players where they're very much just playing at a product level still.
• 16:25
  SPEAKER_01: And how hard is that for the investor to really understand how deeply it runs?
• 16:29
  SPEAKER_02: It's impossible.
• 16:30
  SPEAKER_02: It really is impossible.
• 16:31
  SPEAKER_02: And it got quite cross the other week because I was reading a paragraph from AN Asset Manager, you know, on ESG.
• 16:40
  SPEAKER_02: And if I read one more that says it's integrated in our DNA, I will be sick.
• 16:47
  SPEAKER_02: Um, you know, we've been doing this since 1729, and you know, we've got bees on the roof and no plastic cups, and it's in our DNA.
• 16:55
  SPEAKER_02: We need to see proof points.
• 16:58
  SPEAKER_02: Um, and I read so much, and it is fluff, I'm sorry to be a bit critical here, but saying the same thing, and I could take that paragraph and put it on the website of any big fund manager, and you'd be none the wiser.
• 17:12
  SPEAKER_02: There's nothing specific in there.
• 17:14
  SPEAKER_02: So I think you know what we really have to do is give examples, and this can be hard, and I've seen marketing teams really struggle internally because, of course, investment managers are quite discreet creatures by nature.
• 17:28
  SPEAKER_02: That's why I never was one of things.
• 17:30
  SPEAKER_02: Um they don't like to sort of stand up and call out bad things, and so they're actually quite reluctant, if we're talking about exclusions, for example, to stand up and say, we looked at this company, um, we think, and I paraphrase here, the CEO is a megalomaniac, da-da-da-da-da-da and we've divested.
• 17:49
  SPEAKER_02: And you see many more examples if the marketing team really push people, and you see these examples that come back about stewardship, and the the paragraph will end, and my heart as a marketer always sinks when you read, um, we've told them we don't like them very much, they didn't listen to us, we continue to engage.
• 18:08
  SPEAKER_02: And that doesn't satisfy the end investor.
• 18:13
  SPEAKER_02: So I think there's a sort of real hard tension internally.
• 18:16
  SPEAKER_02: Um, but what we need to see are bullet points, we need brevity, and we need proof points.
• 18:23
  SPEAKER_01: Yeah.
• 18:24
  SPEAKER_01: And it maybe talks to marketers, and this is to your earlier comments around how we leapfrog, you know, really challenging the business to be storytellers within this, to the good and the bad, you know, all the action that's been taken where you are challenging um, you know, the your the companies you're investing in, engaging with them versus the ones that you know you are leaving alone for good reason.
• 18:49
  SPEAKER_01: Do you do you find in what in your relationship with the marketing team, Lloyd, is is that a sort of ongoing discussion as to sort of how you continue to point to your engagement?
• 19:00
  SPEAKER_00: Yeah, so um on that proof points thing, that is like that term proof points is like something that comes up in client meetings and our internal meetings constantly.
• 19:11
  SPEAKER_00: And so we are constantly trying to find specific what we basically have here's the portfolio, and here's the reasons why we invest in it, and here's our views on the ESG.
• 19:23
  SPEAKER_00: So that you can take any company you want and ask about it, and then have engagement case studies as well.
• 19:29
  SPEAKER_00: Um, I think the proof points, it the proof points is interesting because a lot of people want data proof points.
• 19:35
  SPEAKER_00: And at the moment, the only data that is consistently available around the world in terms of ESG impacts is greenhouse gases and female board members.
• 19:45
  SPEAKER_00: Those are the only two that we've been able to find.
• 19:48
  SPEAKER_00: And that is two extremely important data points, but it's two out of a hundred, and the consistency of the reporting of them is not very good.
• 19:58
  SPEAKER_00: And so we're really trying to develop metrics that we can use to prove the ESG-ness or the sustainability-ness of the funds.
• 20:08
  SPEAKER_00: But it's kind of we're quite sort of we need the companies to improve their reporting on this stuff as well, and then it needs to go through the audit process and it needs to be better integrated into annual reports rather than being in a separate report.
• 20:22
  SPEAKER_00: And so there's all of this kind of process that needs to happen to enable us to prove stuff.
• 20:29
  SPEAKER_00: But the the gender and the greenhouse gases we we can do.
• 20:32
  SPEAKER_00: And then you there's other metrics you can use.
• 20:35
  SPEAKER_00: So research providers will give a rating of your so companies get rated by companies like Sustainalytics and MSCR.
• 20:42
  SPEAKER_00: It's like a credit rating, and your fund will be given a rating.
• 20:47
  SPEAKER_00: But there's often problems with their methodologies and things like that.
• 20:50
  SPEAKER_00: So you've got to take it all with a bit of a pinch of salt.
• 20:52
  SPEAKER_00: Really, there's no substitute for sitting down and having a conversation with your asset manager because uh it's very difficult to uh to I think understand what's going on just through just through the data at the moment.
• 21:06
  SPEAKER_00: The data's just not good enough.
• 21:07
  SPEAKER_02: I think on that point, it comes back to what you said, Twink, and it's telling stories.
• 21:14
  SPEAKER_02: And I think an observation I have is that asset management as an industry thinks very clinically and it is very data-led, and it is all about numbers and proof points, but we're all in on a journey here, you know, and this is a work in progress.
• 21:34
  SPEAKER_02: And I think it's okay, although it's not in an asset manager's nature, to come out and say, This is what we're doing today.
• 21:42
  SPEAKER_02: We're trying to be a little bit less rubbish.
• 21:44
  SPEAKER_02: We might not be perfect, but you see, until they feel perfect and that everything lines up, there's a reluctance to go out and tell the story.
• 21:53
  SPEAKER_02: But I think people accept that you know things are changing apace, our personal behaviors are changing.
• 22:00
  SPEAKER_02: A pace.
• 22:00
  SPEAKER_02: So I think a little bit more sort of humility, really, and just going out and saying, you know, we this is how we've invested in this particular portfolio.
• 22:08
  SPEAKER_02: Here's an example of a stock, and this is why we bought it.
• 22:11
  SPEAKER_02: And you might not have all those proof points and those data points, but you can tell a story if you're consistent and authentic about your aim and your direction.
• 22:22
  SPEAKER_02: And the other thing that comes back to, I think, is leadership internally.
• 22:26
  SPEAKER_02: And I do my observation from going in at asset management firms is they're much better on the G, and you can kind of find consensus on the S.
• 22:38
  SPEAKER_02: But the E trips people up.
• 22:40
  SPEAKER_02: That's probably a really dog, don't take that out of context.
• 22:44
  SPEAKER_02: The E trips people up.
• 22:47
  SPEAKER_02: Because people, some people have different personal aspirations.
• 22:50
  SPEAKER_02: And actually, if you're talking to a fixed income desk, they're much more likely to be grumpy about it and say, oh, we'll just think about the G.
• 22:57
  SPEAKER_02: You have some people at a stewardship level who are deeply aspirational about what this company should do at an environment level.
• 23:05
  SPEAKER_02: And you'll have others who are going, oh, this is just about ESG integration and it's purely financial.
• 23:11
  SPEAKER_02: So I think the big thing actually tripping groups up internally is they can't agree, and there's no single person actually saying, This is the strategy and this is how we think about this.
• 23:24
  SPEAKER_02: And everyone has to sort of toe the line on that.
• 23:27
  SPEAKER_01: Would it be fair to say that the G they should be good at because you should expect that as a very basic level?
• 23:35
  SPEAKER_01: Yeah.
• 23:36
  SPEAKER_01: Um and if you assume that, am I right in thinking that the S particularly is what investors are looking for?
• 23:45
  SPEAKER_02: At the moment it's the EBIT, actually.
• 23:47
  SPEAKER_02: So if I think about what people write to us about or what people search for on our site, um there is still a school of thought amongst investors.
• 23:57
  SPEAKER_02: You know, there are still some investors who want the exclusions.
• 24:00
  SPEAKER_02: So they don't like typically it's it's armed weapons, it's tobacco, those are the two main sort of baddies.
• 24:07
  SPEAKER_02: And then you sort of get pornography and gambling, but again, there's different opinions on that.
• 24:11
  SPEAKER_02: So there's a big group of people that want the exclusions.
• 24:14
  SPEAKER_02: There's another group of people that increasingly it is all about climate change, it is fossil fuels.
• 24:20
  SPEAKER_02: Um, their way of asking for that is what some in the industry might say is a blunt tool.
• 24:25
  SPEAKER_02: They talk about exclusions, um, but they certainly want something that is acknowledging climate change.
• 24:33
  SPEAKER_02: And the whole thematic purpose of that fund is to invest in companies which are helping the world kind of uh diminish the rate of climate change.
• 24:44
  SPEAKER_01: Is that the same that you hear from your investors, Lloyd?
• 24:46
  SPEAKER_01: It's very albeit there may not be such a direct line.
• 24:50
  SPEAKER_00: Yeah, well, so the majority of our clients, uh, if and if we put them into a few buckets, there's kind of the charities and endowments people, you will normally have a very specific view on some ethical or moral type issues, and that they will just have a very clear mandate for the portfolio, which will basically be you can invest in what you like, except these two things.
• 25:12
  SPEAKER_00: So, like you said, um there's then the kind of the pension pension boards and trustees, and they they often they have sort of a lot of legal requirements to make sure that they're meeting their pension liabilities.
• 25:29
  SPEAKER_00: Um, and and so they they can't be seen in any way to be potentially risking their returns by, for instance, excluding fossil fuels or something like that.
• 25:41
  SPEAKER_00: So they need to be very, very careful because even though oil and gas companies are going to face structural demand issues over the next 30 years, um, you can still make positive returns on those companies.
• 25:56
  SPEAKER_00: There's still a huge demand for that going forward.
• 25:58
  SPEAKER_00: And so pension trustees are being really careful and they're unsure how to think about sustainable investing because there's this there's this one side that's saying, what's the point as a end beneficiary of a pension scheme?
• 26:10
  SPEAKER_00: What's the point in me investing in a company today that's going to mess up the world when I retire?
• 26:14
  SPEAKER_00: And so there's this kind of long-term mindset that's inherent in pension boards, and I think they're really struggling with that at the moment.
• 26:20
  SPEAKER_00: But a lot of them are getting over that hurdle now and are realizing that sustainable investing is kind of just a bit of a growth fund that's avoiding industries that are in structural decline.
• 26:30
  SPEAKER_00: And that I think really makes a lot of sense.
• 26:32
  SPEAKER_00: So, but it's it's very much there's different types of clients who want different things and have very different views on the world, different time horizons, and that was that's really what drives what they want.
• 26:42
  SPEAKER_02: Every single time we've ever researched this, um the results have told us that women are collectively more interested in this than men.
• 26:50
  SPEAKER_02: Um, I think the other thing is that you know, advisors are aware, and we'll spend a lot of time talking about intergenerational wealth transfer, which is sort of coming up.
• 26:58
  SPEAKER_02: And so, from a retention point of view, uh again, if you don't have your strategy in place for this, it's very likely that this is going to sort of come up on the card.
• 27:09
  SPEAKER_02: So I think probably three things.
• 27:12
  SPEAKER_02: I think one, more women will start to drive that conversation.
• 27:15
  SPEAKER_02: I think two, intergenerational wealth transfer.
• 27:17
  SPEAKER_02: But I think three, the good old governance, you know, as more and more um hard kind of stories and evidence are placed in front of former sceptics, you know, who are asked questions like, you know, what do you think Volkswagen are going to do after 2040 when they can't make cars like they do today anymore?
• 27:38
  SPEAKER_02: Don't you think that kind of has some sort of impact on their future returns?
• 27:42
  SPEAKER_02: So I think even the former refusniks are going to have to think about ESG more.
• 27:47
  SPEAKER_02: So I think all of those roads for whatever, you know, personal motivation do lead to the advisor needing to have answers to those questions.
• 27:58
  SPEAKER_02: But what I really love about this at the end of the day is that it is, you know, there's there's a couple of messages you can play on, and it is a sort of you can have your cake and eat it.
• 28:10
  SPEAKER_02: So even if you, you know, you you look down your nose at extinction rebellion and blah blah blah, and you're grumpy old whatever, um, this makes financial sense to you.
• 28:20
  SPEAKER_02: Um, but on the other hand, if you are someone who's more aspirational about your views on society and the planet, etc., then this also works for you.
• 28:30
  SPEAKER_02: So I think it's a sort of and and message.
• 28:33
  SPEAKER_02: And that's quite unusual.
• 28:35
  SPEAKER_02: And it's it's it's a nice message to be able to say, you know, this is common sense and it's also doing some good.
• 28:42
  SPEAKER_01: Yeah.
• 28:43
  SPEAKER_01: And so I guess just to wrap this up and to get some final thoughts from you guys on uh any final guidance for marketers, obviously being our core audience, but but also maybe just with our predictive hats on, you know, sort of where do we see things evolving from here with sort of sustainable investing in mind?
• 29:06
  SPEAKER_00: So I I think that sustainable investing over the next 10 years will just become pretty mainstream.
• 29:12
  SPEAKER_00: I think it's just going to be increasingly difficult to argue that ESG integration doesn't help returns because it's just such common sense and as performance, as these things get more defined, people will be able to track it academically, and that will provide the evidence that they need.
• 29:28
  SPEAKER_00: And some people need evidence, some people want evidence, some people want a story.
• 29:32
  SPEAKER_00: So for I guess I'm hoping as time goes on that that question will just be put to bed through through evidence and we won't need it anymore.
• 29:39
  SPEAKER_00: And then hopefully, over time, you know, that the politics around this stuff will stop becoming politics and will instead just be sensible ways to deal with big problems and it will and it won't be so politicized.
• 29:51
  SPEAKER_00: And so to me, those that will help that sustainable investing become mainstream.
• 29:55
  SPEAKER_00: And to me, the the main thing which I try to get away from when talking about this sort of stuff is boiling things down to good and bad because there's just so many people have so many different views, it's perfectly fine for someone could have a very reasonable view that's different to yours, and it's not a big issue, they're not a bad person.
• 30:14
  SPEAKER_00: And I think having those sort of face-to-face conversations, debating issues out, to me what will hopefully stop this being such a contentious issue.
• 30:23
  SPEAKER_02: So I think it for me it's where's where's the brand story?
• 30:26
  SPEAKER_02: Where's the brand personality?
• 30:28
  SPEAKER_02: There's there's a land grab up for play here.
• 30:31
  SPEAKER_02: No one owns this space, not in the consumer mind, not in the press mind yet.
• 30:36
  SPEAKER_02: And I think for that, people you know need to be clear, and in a way, sometimes you might need to upset some people.
• 30:42
  SPEAKER_02: I think the tobacco issue, we haven't sort of covered that off.
• 30:45
  SPEAKER_02: You know, that's very divisive, I know, but there's no brand in the UK, no big brand that's really made a stand on that.
• 30:52
  SPEAKER_02: So there's sort of opportunities there.
• 30:54
  SPEAKER_02: I think a really interesting example is the Iceland ad that went viral last year, that was Rangtang in the jungle.
• 31:02
  SPEAKER_02: And uh it basically what Iceland was talking about was sort of palm oil and how they didn't have palm oil shampoo on the shelves.
• 31:10
  SPEAKER_02: Now, if Iceland had been an asset manager, they would have spent the whole advert trying to tell everybody about every single thing they had on their shelves, right?
• 31:18
  SPEAKER_02: You know, Iceland is selling a shop, they're selling everything they've got on it, but they picked one little thing to tell a story and to make a point and to get into the consumer psyche.
• 31:29
  SPEAKER_02: Asset managers are terribly bad at distilling something down and sort of making a point and trying to build a brand around being known for something, there's a desire to sort of try and use your one minute to tell everybody about absolutely everything you do.
• 31:46
  SPEAKER_02: So for me, it's sort of saying if groups are aiming to make a splash in the sustainable space and they have the creds behind them to back it up, we need to see some boldness, don't we?
• 32:00
  SPEAKER_02: We need to see somebody who's really focused on that message and isn't sweating the small stuff and the detail in every message, yeah, but is saying to people with a few proof points, sorry, back to the dreaded proof points again.
• 32:12
  SPEAKER_02: Here's what we do, this is what we stand for, come and find out more.
• 32:16
  SPEAKER_02: Brilliant.
• 32:17
  SPEAKER_01: Thank you for that, Holly.
• 32:19
  SPEAKER_01: And uh, I guess that just leaves me to thank you both for your time today.
• 32:23
  SPEAKER_01: I've really enjoyed navigating the ESG world with you both.
• 32:28
  SPEAKER_01: So thank you, Lloyd, thank you, Holly, for joining me today.
• 32:31
  SPEAKER_01: Thank you.
• 32:31
  SPEAKER_01: Thanks for having us.