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Podcast – Sustainable & Environmental Investing - WHEB Asset Management

Stefan Angelini is Joined by George Latham from WHEB Asset Management to discuss Sustainable Investing.


#Investing#shares#ethical#ESG#sustainableinvesting#sharemarket#education#trade#trading#angeladvisory


Stefan Angelini

Good day everyone Stefan Angelini here from Investor Types thanks a lot for joining us again

we're here to talk about sustainable investing it's a big big big topic that's coming around in the investment world with so many different people wanting to adapt their portfolio to start investing but investing making returns but also ensuring the environment is safe and the world we live in is safe I've been talking about a lot of clients so I'm lucky enough to be joined to be joined by George Latham he is the managing partner of Web Asset Management he's been around in this sustainable investing space since the mid 90s and George if I'm right you were one of Citywire's top 100 managers in the UK and you're joining me from the UK today


George Latham

Hi good morning hi good morning Stefan. Hi how are you?


Stefan Angelini

Good. Good.


George Latham

Let's see what top 100 thing that's slightly old


Stefan Angelini

It doesn't matter it's on the rap sheet it doesn't matter mate


George Latham

Yeah fine fine


Stefan Angelini

We're not gonna show your age being starting investing into sustainable environments in the 90s that's showing your age is just there you've obviously been around for a long time over the last 30 years investing into sustainable markets or sustainable companies how has that changed over the last 30 years


George Latham

I think this industry has developed a long way I I think in the sort of 80s and 90s you know the

starting point for many people was was was was ethical screens you know the industry really traces its roots back to church groups and philanthropy and and really it was trying that sort

of starting point was trying to make sure you weren't investing or you weren't profiting from

the the the the profits of companies that were doing harm and so I think that's a starting point was to do no harm and it was a kind of moral approach of saying we think these industries sort of a front ethical criteria and so we'll cut those out.


But but I think what's happened over the last sort of 30 years or so is that and what we try to be at the driving force of is to is to sort of reframe this really from the starting point being purely a moral or an ethical one to one where it's a commercial one thinking about what's changing in the world and and how we see the economy developing in order to meet the needs of the population in a more sustainable way.


And what that what what companies are gonna be successful in that environment and that's not too sort of sort of forget about the moral side of it or the ethical side of it but really I think thinking about investing over the long term how often these two these two these two different dynamics collide and really doing the right thing or doing the the providing a a good providing goods and services which which which create a better future for humanity can often be the route through to finding markets that are durable that are sustainable and that are growing in the longer term


So it's I think it's you know certainly where we've come from and we the way we've built our investment strategy over the years is is is really that it's core is an investment it's an investment philosophy it's how we think over the long term we're best gonna be setting up our clients capital investing our clients capital both in the industries that we think can be successful and avoiding the industries that we think are doomed to some level of failure over the longer term and so so so so you know I think what's happened over the very long term is that the notion of whether or not one can do good with your money.


And also do good for your money whether those are in conflict or or symbiotic with each other has moved more towards the notion that actually this is this is this is commercial you know sensible way of investing for the long term and and that old dichotomy of whether you can whether there's a conflict between the two has started to go away.


Stefan Angelini

And as the world changes and as government policies changes there's definitely a

more move to these sustainable investing themes or these sustainable themes and you could I could imagine more and more companies been popping up over the last 30 years and finally you've I could imagine you've got a whole different array of companies to choose from in different sectors and industries and and you'd see what what used to encompass the top top 20 companies in the US the oil and gas manufacturers have now become tech companies and I could imagine health care providers are gonna start ramping up into those top providers CSL


For example in Australia has finally got up there so that's that's good but when we talk about sustainable themes you've got resource efficiency environmental clean energy safety health well-being education sustainable transport big talk about electric cars, water management what are you seeing some of the main themes when it comes to sustainable investing


George Latham

Well in a way I mean yeah we we organize our universe we organize our investment

strategy by reference to a number of themes both social themes and environmental themes but really the starting point is to is is is beyond the themes if you like it's at a higher level than the themes to really we we're thinking about companies where the product or the service.


So the the source the way that the company the the the goods and services that companies make is that product solving a sustainability challenge so we're looking for a particular dynamic where the growth in that company that every time they sell more product their unit sales growth is has a lock-step relationship with better outcomes for the environmental society so we have this definition of looking for companies where the product or the service is a solution to a sustainability challenge and and really that's looking forward it's looking forward to companies that that are creating a positive impact through the use of their products on on on the world that they see around them from an environmental and a social perspective you mentioned the index and the index is a very backward looking instrument.


Now the big companies in in the index that defines the companies that have been successful over the past couple of decades it often misses out on looking at the companies that will be successful in the coming decades and so our strategy is very much focused on mid cap companies.


Stefan Angelini

Yeap


George Latham

Companies that are mid-sized companies and we we tend not to be involved very much in the companies that are the mega cap companies the companies that really dominate the index and the more mature companies we tend to be companies with a level of establishment so we tend to look at companies that are profitable that are established that have a a as a trading track record not not a new whiz-bang company we we tend to avoid sort of new tech ideas that are still stuck on the lab bench not yet


Stefan Angelini

Lab bench so important.


George Latham

Yeah


Stefan Angelini

Yeah


George Latham

But we find the mid cap kind of area is something of a sweet spot for finding companies that have a good balance of risk and reward i.e companies where there's that they are established and we can see good governance and good new establishment and we can we can analyze that track record but but at the same time they're still at an interesting and a good part point in their their growth trajectory that that that they can still see superior growth to the to the to the rest of the market


Stefan Angelini

Yeah


George Latham

But it's that top definition of companies which are whether where the product has a positive impact that is really important and then we come to the themes as a way of kind of

organizing our thinking around that and you know you're right that over the years that the the the available opportunity set has certainly grown.

And I think when we went when we first launched this strategy was in 2004 2005 and this strategy focused entirely on global developed markets companies providing a solution we had an original a universe an investable universe about 300 350 stocks that we found now we've made the criteria for being in that universe increasingly tough so we we we tighten the criteria we make it more difficult


Stefan Angelini

Yeah


George Latham

We have a higher bar for inclusion just in the universe as of possible invested companies but

it's still even despite that over the last 15 years it's grown it's more than doubled it's over it's it's near 800 companies now in the universe so so so so so certainly the opportunity set has

grown and but below those themes is we really look at the dynamics within the theme so so you mentioned we have social themes we have environmental themes.


So range from resource efficiency to health safety education, environmental services, cleaner energy and so on but it's below those themes that really we we're looking for the end markets the sources of growth the dynamics within them so within resource efficiency we might be looking at manufacturing efficiency or materials efficiency or or energy efficiency they're all different and markets different types of solutions.


Stefan Angelini

One locking point is that sustainable transport


George Latham

Yeah sustainable transport you have both alternatives to road transport so it's you know we want to get you know it's it's we can create efficiency and a lower environmental impact by

getting goods and people and goods and services off off roads and onto rail and onto other other forms of transport but also cleaner forms of road transport as well so you know we're obviously seeing a lot of a lot of interest in the the sort of electric car revolution or the

electrification of an electronification of the power track of vehicles and and so there's a

lot of a lot of a lot of rapid change in that space that is that is driving both risks and new investment opportunities as well similarly on the healthcare side I mean a lot of people assume.


When we talk about health that we're talking about pharma and biotech but but the important thing is that we're applying that definition of of companies that are solving a challenge a sustainability challenge and often we we find that pharma and biotech firms don't necessarily fit into that that definition if the if companies are abusing the patent system or they're selling their drugs it's gonna be quite difficult to apply that definition of solving the great challenges that we face to those companies so we're more interested often in preventative care in prevention rather than necessarily cure in dealing with the challenges of an aging population, dealing with the challenges of obesity looking at genuine R and D at research and diagnostics and so new development of new drugs and new therapies and obviously that's particularly pertinent at the moment with everything that's going on.


Stefan Angelini

Yeah and going after the hot topics in the world and trying to trying to fix some of the issues that the world faces which is great we spoke about you spoke about healthcare just there and fixing some of the issues that the world does face where would we be if we didn't talk about the global pandemic and investing in the company might benefit from it how does that apply to if you are a sustainable investor trying to benefit from Coronavirus or Covid-19 how do people go about it.


George Latham

well I think it's difficult to talk about benefiting from it in a way it feels it feels a little bit but but I think no we think our strategy I mean that there's a lot to say about Covid-19 you know it's it's a it's it's it's influencing and affecting in in in different ways and in many terrible ways all sorts of people in different ways around the economy and around the world the the point you know we see ourselves as setting up our strategies so that our investors capital is is invested structurally over the long term to be to be invested in the best way that we can given the world that we see that is gonna be more prone to shocks more prone to volatility more prone to upset.


Because of the dynamic of the number of people we have in the world aspiring to higher lifestyles consuming more the sort of crowded world that we face you know leads to higher risk of of different forms of market shock and so one level equate sustainability to resilience

and what we're looking for is companies that are run providing products and services that do

do good for the world but also that are run in a resilient way.


So one level that we're looking for companies that are run in a more resilient way and and in some cases in many cases that's been proven out across a broader aspect of the economy in this last during 2020 as more resilient companies have tended to to to face the pandemic in a better way but clearly you know in the sort of in the the direct impact of of Coronavirus and the pandemic then companies they concentrated in the healthcare sector focused on R and D.

Focused on diagnostic tools focused on new research for new therapies then we have a number number of companies in the portfolio that are that are involved in the chase to find a vaccine and and are developing sort of candidates to to can vaccine candidates and the like to be part of the solution.


So it's it's really I mean the pandemic sort of exposes the whole spectrum of why we invest in the way that we do you know we want to be in a portfolio that's not necessarily anticipating the direct nature of every shock but is but is set up to be it's better structured when there are shocks you know the the social as well as the environmental themes give a balance in the portfolio between those that have more exposure to cyclicality and and have more economic exposure which tends to be more in the environmental themes and those that are more defensive which tends to be more in the social themes like health so health in a broader sense is has been more defensive in the pandemic because clearly it's not it's the last area of spending that we're gonna be cutting at the moment.


Stefan Angelini

Yeah


George Latham

And then in the sort of minutiae of what we know of companies that are looking to address the problems address the challenges then yes you know as we're focused on R and D companies that are that that are looking for solutions then we do have companies in the portfolio that are actively involved in the in the in the chase to find a vaccine


Stefan Angelini

And when you look at companies you're looking for looking for companies that are involved

in the in vaccine vaccine or the world around it but even before that all those environmental factors that are changing the world and that there are now I guess the United Nations has sustainable development goals


George Latham

Yeap.


Stefan Angelini

They have specific areas they're encouraging countries within the United Nations to focus on


George Latham

Yeap


Stefan Angelini

How are these guidelines almost impacting the way companies are changing to become more sustainable


George Latham

I think the sustain sustainable development goals have been have been a great tool for for for I think coalescing activity across the scale really of the economy and society and and the

political spectrum as well so at that at their you know the genesis of the Sustainable Development Goals they are UN goals their societal goals, their goals for governments, and and so then I mean I think some people sometimes forget they're not an investment framework.


They're not they're not set up to be an investment framework in fact you know we don't directly set ourselves up to be an SDG fund but but the SDGs are clearly everywhere around

everything that we do 'cause we're focused around sustainability we we use nine investment themes which we set out with in in the early 2000s 10 to 15 years before the sustainable

development goals came in in 2015 and there are 17 sustainable development goals some of them match and relate to our investment themes.


So we we we we show to our investors when we show on on our impact microsite we show how our our investments directly contribute towards 7 of these 17 SDGs but another but a number of the others relate more less to investable markets but more to how companies are run and so they can be right so the sustainable development goals have been something of a rallying tool in investment markets


Stefan Angelini

Yeah


George Latham

I think sometimes in in in not a totally aligned way because I think they are somewhat open to being you know to interpretation and sometimes misinterpretation


Stefan Angelini

Are there companies trying to adapt these sustainable goals 'cause I know even in Australia there's a lot of the mining companies are trying to implement some of these goals within their company but they produce iron ore


George Latham

Yeah yeah


Stefan Angelini

Yeah


George Latham

I think they can be used in a multitude of different ways


Stefan Angelini

Yeah


George Latham

That's what I mean really is they can they're kind of open to interpretation they're they're open to use that they're open to well I I want to say they're open to misuse I think they can be open to misuse in marketing sometimes but.


Stefan Angelini

Yeah that's right


George Latham

Yeah but I to the extent to which they can be used as a sort of framework and a tool

for people to organize their thinking and organize activity then then that's great that's no they are they can be very useful so even yeah I we know clearly we only invest in companies where the products and services is a is a solution so so so so mining companies are really you know tend to be outside our our investable universe they're not they're not the kind of thing that we're interested in but still across the the the sort of spectrum of corporate activity if companies you know adjust the way that they behave using the SDGs as a framework then that's no bad thing and sometimes that can be a defensive kind of approach


Stefan Angelini

Yeap


George Latham

In terms of sort of trying to make sure that their their business is still fit for purpose even if their product and service isn't actually directly contributing towards the solution there are tool for policy makers and governments to sort of set policies set regulation and set frameworks within in within which markets and companies operate so they're used at a range in a range of different ways and I think the great thing is having you know something that is very visible and very easily recognized and and the sort of and and the more that people you know that they use is a great thing because it you know it's it's developing recognition and that can be on its own a sort of call to arms and a call to action


Stefan Angelini

Yeah yeah definitely so when we talk about you know how people are just adapting to these goals and they're trying to implement things I want I want to take it back to a macro level

rather than just focusing on a company level when I look at macro themes or we look at revolutions revolutions throughout the past we've got you know started with the industrial revolution back in the 1700s.


We had steam and railways we had steel electricity and heavy manufacturing went on to oil automation and mass production and these big fast became some of the the biggest markets in the world and then obviously information and telecommunications with the IT boom and now the top largest five companies in the world RIT companies and we look at all right what's the next revolution there's been a big talk around well this sustainability is going to be the next the next revolution what's your view on that


George Latham

Well that's firmly our belief is that the the next the next the coming decades will be characterized by a transition to a zero carbon and more sustainable economy and that will change the shape of of of of of every market across the economy it'll shame change the operating environment for every company that we look at and every company that anyone looks at across across the investable spectrum and that's why we see our role and this this is coming for for for a range of different reasons.


Now clearly the way that the economy works today is not sustainable to create good livelihoods for 8 billion people on this planet let alone 10 billion in by mid-century or 12 billion by the end of the century we need to de-link and disconnect the growth in in in better livelihoods and better lifestyles with the the growth in resource consumption because we live in a world where resources are finite and and we're already beyond well beyond the carrying capacity of the planet and so in order to be able to continue to provide for a growing population who have higher demands of higher standards of living then we need to fundamentally change the shape of the global economy and that will change change change for everything.


And it'll it'll change everything and for everybody and and from for some industries that will create an existential threat to their long-term future there will be stranded assets there'll be industries which become regulated out of existence they're the industries that consumers step away from we've already seen a number of coal companies go bust we've seen talk of stranded assets across the fossil fuel spectrum and we've seen huge write downs this year from many of the large oil and gas companies and we think that'll continue and parts of the market see the risk of a permanent loss of capital from that dynamic there are many industries where you still need computing you'll still need food and clothing you'll still need technology transportation financial services you'll still need many of those things but they'll need to be sourced and manufactured and distributed in an entirely different way and that

will create a growth a threat to long-term profitability it'll create a threat to growth in many of those industries and so those industries will adopt ESG practices it's not necessarily an

opportunity for them and and our job our role our structural positioning for our fund is

only to focus on those companies for whom this transition is an opportunity.


So many people talk about a company like Unilever being the most sustainable company in the world 'cause they win all the prizes for how they run their business how they source their product how they manufacture how they treat their staff and that's great we hugely admire

Unilever for the way that they're run but but frankly by buying more ice cream and shampoo we're not going to solve the world's problems so so we can't classify Unilever's product as a solution to a sustainability challenge.


Stefan Angelini

Yeap


George Latham

You know Apple is a great business and we all love Apple products and I use Apple products but essentially Apple's motivation is to encourage my 16 year old daughter to upgrade her

mobile phone again and that's just creating all right new new e-waste and not companies like that that are solving the world's challenges we're looking at companies which are where the product is actively a solution we talk about this lock-step relationship between higher unit sales growth selling more product and a better outcome so we're looking at companies which are selling wind turbine blades, which are selling healthcare solutions, which are selling educational tools and so on and so forth where every time they sell another product then that's a good thing we want to see them selling more product we want to see those companies being successful because that is what is gonna help us fix our future.


Stefan Angelini

Yeah really really important sustainable thing


George Latham

Yeah


Stefan Angelini

Creating another environment.


George Latham

The basic proposition that we're doing is to tap into that what we call the sixth industrial

revolution and and and to and to position ourselves in the companies which are

enabling and benefiting that industrial revolution and that major transition in the shape

of the economy and for whom that transition is is is that their great opportunity is their friend is there opportunity.


Stefan Angelini

Yeap well I see it as I drive around the countryside throughout Australia look around and there's solar farms going up everywhere there's there's a lot of there's a lot of wind farms especially in country Victoria and these are sustainable investments what people don't realize is that you can get involved in the investment into these into these products into these farms that create an ongoing revenue stream through publicly listed assets and that's essentially what you buy these assets that might might sell these turbines all these assets that might perhaps implement them or or hold the assets is that right.


George Latham

Yeah that's the plan.


Stefan Angelini

Yeah


George Latham

And then and and across that values value value chain so you know clearly there's a lot behind you know you can have a wind turbine behind that there's there's blades there's gear boxes there's you know installers there's maintenance there's all sorts of parts of the value chain there's there's computer-aided design that's designing the the things in the first place and and so so across that value chain there are investment opportunities sometimes not always in the sort of you know the the thing that you see the product you see very visibly at the end at the end of the spectrum that's deployed because sometimes it's further down the value chain and deep in the spectrum but it's all part of how we get those those products to market and how we develop more sustainable forms of energy more sustainable sort of solutions to to hold the whole manner of challenges we face across the spectrum


Stefan Angelini

The old question is when the mining revolution began would you rather buy a mine that Michael Brussel would rather buy the the shovel manufacturer


George Latham

Yeah


Stefan Angelini

Yeah


George Latham

The people who sold the picks and travels who did the best yeah


Stefan Angelini

Oh so let's let's let's finish it up here we're focused on the macro focus on a bit of the micro and the company perspective let's look at the end investor and the investor type of people that get into this kind of investment so based on your your experience what what is the personality type of the investor that typically invests into a sustainable Investment


George Latham

Well it's a it's a good question but there is not a there's no sink there's not a sort of succinct answer to this in a way we we look at our own investor base and we have investors that are institutions that are pension funds


Stefan Angelini

Yeap


George Latham

We have investors that are individuals with their with that with their their individual savings parts we have philanthropic institutions we have family offices we we we we have a lot of our

investments come through financial intermediaries and wealth managers and financial advisors and so we have the whole spectrum of investors we I remembered 15 years ago or so when when we first started out with a strategy we did a we did a survey of our investor base


And we asked our investors to put themselves into one of three buckets and and they and they and we asked them to define themselves as to whether they invested with us because

they wanted to avoid companies that did harm and they didn't want to retire on the profits of businesses that were doing harmful things it was the first choice the second choice was whether they wanted to use their money they were using their money to to to create change to change the way that businesses operated for the better to be more responsible to to to make a better contribution or because they could see a huge opportunity to make money from this industrial revolution and the change in in the in in society that was going on and to position according to attractive investment themes and so those are the three the three choices and we thought this would be really enlightening to to see what our investors which which choice our investors make and and and very unhelpfully they divided themselves a third a third a third between the three the three the three different choices.


We had no succinct answer but I think in a way it's it's a false dichotomy to to to separate those things out because really it's all three things together and so our investors are are you know this is a sensible me know we we think we think of ourselves as sensible investors as commercial investors we're here because we think this is a sensible way to invest over the long term this is our


Stefan Angelini

Yeap yeap


George Latham

Our philosophy our proposition but we do we we think that that is is inextricably

linked up in that is is is the the the opportunity to see the financial system serve society

better and put money towards a a better a better use and to and to and to be part of re-oriented re-orientating economic activity towards a a more sustainable basis and that both means that that that has that's a there's an ethical dimension to that as well as a commercial dimension and as well as a dimension of greater responsibility.


So you know I mentioned at the very beginning that we're long-term investors we we tend to buy and hold our stocks for a very long time that makes stewardship and and engagement a natural part of our investment process and we don't do that so that we're just can call ourselves responsible investors we do that because we think it makes us better investors to to see that relationship between us ourselves and our whole the companies we hold in our portfolio over a long period of time over many years as being a two-way one, where we push for better we push for better governance we push for better management processes within the business from a self-interested way because we think that that's gonna make them better in better investments but also because our investors want us you know are interested in our ability to to agitate for positive change so it's it appears a complete holistic approach sustainability is a holistic concept and so


Stefan Angelini

But could agree it's all it's all about if you are one of these kinds of investors you want your money to to be making money but also changing the world and if you're a believer that the world is changing and there are there are people out there changing the world and companies changing the world this is definitely a valid investment choice for anyone out there and I'm a believer with you George.


But I want to just I want to wrap it up there I want to say thank you for your time I really appreciate you coming on I'm a believer that sustainability is changing the world there are companies changing the world and the world is changing as a place as you can see with what companies are implementing before we sign off I just want to let everyone know that this is just general information from our chat today there is no personal advice if you are seeking any sort of personal advice or believe this is a space for you maybe go seek out advice from a licensed professional.


But other than that I want to leave it there thank you all for listening very much George thank you so much for giving up your time your early morning on a early morning over in the UK I really appreciate it thank you very much


George Latham

You're standing behind me it's all right


Stefan Angelini

Oh good okay thanks a lot mate take care everyone


George Latham

Good to see you thanks very much



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