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HOW WE CAN HELP YOU

A trusted source enabling better sustainability related investment choices, and more positive and focused engagement

Simple fact - better informed asset owners and investors can make better and more meaningful sustainability related investment decisions.

 

 The sustainability challenges are massive, but on the other hand the technologies seem to promise much. Companies, lobbyists, and politicians make it all sound so easy. Our solutions are pain free, just pay this subsidy or tweak this regulation. We can change slowly, there is plenty of time,  no one needs to adjust their behaviour & the cost will be "affordable". And the ESG data providers all tell you that their data set gives you all the information you need to make the right choices.

We all know that the reality is very different. Not all environmental technologies will succeed, many incumbent industries will lobby for systems that actually prevent or delay change, the transition alternatives will all involve costs, compromises, and difficult trade offs. And not all of the environmental challenges are easy to fix. Some of the potential social changes have direct benefits, but not all. And governance is tough to measure as an outsider. And that's before you start to think about engagement. 

Perhaps most importantly, its hard to know in advance which solutions will be financially viable. Yes, as investors, we deal with uncertainty all the time. But this time the choices we make will end up changing whole industries, often very dramatically. This change could be rapid, and there is no guarantee that its going to be positive. Plus, we have kicked the can down the road for so long now that the choices are getting tougher.  In technical investing speak, this could mean that future beta/market returns could be much lower than we have got used to - as a dis-orderly transition potentially destroys large parts of our economy, causes material social dislocation, and imposes massive remedial costs.  

The reality is that society will likely only progress gradually. The resistance to change is inbuilt into us all, and there will always be reasons to fix other problems first. How many times have you heard politicians and companies say, lets just get the economy back on track, inflation under control, and then we can worry about sustainability.  

The closest modern parallel we have is the impact of the internet. Think back to before Google, Amazon and Facebook. Since then whole swathes of media and retail have been changed forever. The impact of climate change will be similar, but bigger and potentially more permanent. Its not just renewable electricity, its transport, agriculture, how we build and heat/cool our cities, and how we use energy to power our industries. The science tells us that we also need to worry about natural capital, water supplies, our oceans and bio diversity. 

At this point it starts to become overwhelming, and so we can often revert to simplification. If I just invest in this ESG fund the problem will be fixed, but we know its a lot more complicated than that.

 

How then can we make sense of the complexity? We start with what transitions we need, and which ones are for investors to solve, rather than governments. Then we examine how the necessary transitions will actually progress. Not at a high level, not in some sort of catchy phrase that politicians and the media can latch on to,  but down in the practical detail. What social, political & regulatory factors will actually create the momentum. After all its about people, as consumers, voters and investors. What technologies could work, what trade-offs and compromises do we need to make. How long will it take, and we mean really take, not some advanced form of optimistic green wishing  And don't forget the finance. One lesson I learnt very early on is "if a business doesn't have a pathway to profitability, its probably going to eventually fail". 

We call this process setting out the transition pathways - how do we get from where we are now to where we need to be. What technological, social and financial changes do we need to occur ? What societal problem or want are we hoping to solve, who will pay and who will benefit. What might it mean to industry structures (the winners and the losers), costs, and supply chains. Where will future competitive advantage come from. Together, these identify what, as investors, we can influence, and how. 

 

This is your context, and the key factors you really need to watch and think about. Then and only then can you work out where you want to invest. Which of these opportunities are for you, do you want to focus on the most disadvantaged, or invest locally. Are you looking for solutions that fix the really big problems, or are you after niches. How much risk do you want to take, and how extended is your return horizon. Think of this as your long term investing strategy. The longer your investing time horizon is, the more important this strategy becomes. 

Once you have your strategy, overlay it with your filters, watching for the news flow that matters, that really tells you something about the future. Your filter must be discriminating and ignore the "noise", and believe me there will be a lot of noise. 

But that's not all. Right at the beginning we talked about engagement. This is really important to any sustainable investing strategy. Communicating with companies to create change, and working with governments, civil society and regulators to create the right environment.  So why have we waited so long to bring it up. Because without your long term investing strategy, engagement is pretty meaningless. Your strategy identifies what change your actually want and why, where you think companies should invest, what positioning they should adopt, what risks you want them to prepare for, and what you need to track to monitor progress. And this doesn't just apply to listed equities, the approach is equally appropriate for private companies, for infrastructure/real estate, and for debt and fixed income.

By now it should be clear that ESG scoring alone cannot get you to where you need to be. Yes, its really useful for making sure your portfolio is aligned with your values, that you are not invested in companies, products and solutions that you don't believe are right. And, it can give you data that helps track progress and identifies best practice. But investing in the sustainability transitions is about the future, not the past or the present. The aim is to support the goods and services of the future, that will replace the old economy.

Similarly, it should be clear that you need independent advice. Companies, their advisors, lobby groups and politicians all have an angle. they want to sell you something. That isn't a bad thing, its what makes a market, but its doesn't make them a good source of advice. And you probably want it from someone who has seen a few bubbles, economic cycles and collapses. Someone who understands that its better to get the direction of travel right than it is to have false precision and erroneous certainty. And you need that advice to be tailored to your needs, not some generic solution, that they sell to everyone.

Finally, you also need advice that takes a different perspective, that looks beyond short term market expectations. That thinks about what might cause people to actually support actions that hurt in the short term but give benefits in the long run, the psychology of climate change action. And in the supply chains, that thinks more broadly about issues such as human rights and sustainable raw materials, both are something we think will become more important over time.  And finally, that has a perspective that doesn't start with what we would like to happen but what looks realistic. 

Yes, this process is complicated, we would love it if it was simple, but its not. If you think we can help you, then get in touch. You will not be surprised to know that we don't offer packaged answers or investment solutions. Your requirements drive what we can do to help you meet your sustainable investing requirements.