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EM Chat: How We ‘Built’ A Sustainability ETF

HOSTS Alec Renehan & Bryce Leske|21 March, 2021

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Bryce Leske: [00:00:57] Welcome to another episode of Equity Mates, a podcast that follows our journey of investing, whether you're an absolute beginner or approaching Warren Buffett status, our aim is to help break down your barriers from beginning to dividend. My name is Price and as always, I'm joined by my equity buddy. How are you going? [00:01:11][14.9]

Alec Renehan: [00:01:12] I'm good. Bryce, as always, I am very excited for this episode. Yes. Talking about one of the hottest topics in the Equity Mates community, in the broader investing community and in the global community. I would have to say I know it's not cryptocurrency AFO and no, it's not what hedge Elbrus uses. And no, it's not how the Sydney Swans are going to win the flag this year. It's sustainability. [00:01:37][24.9]

Bryce Leske: [00:01:38] Sustainability. That is right. Today we're going to perhaps show how difficult it is to invest sustainably. [00:01:45][7.4]

Alec Renehan: [00:01:46] Well, let's start on the positives. And then, I mean, you've kind of given the game away, but, um, we set out for today's episode to build our own sustainability. [00:01:56][10.0]

Bryce Leske: [00:01:57] ATFP Yes. We set the challenge down. [00:02:00][2.8]

Alec Renehan: [00:02:00] That was the challenge. That was the goal. Because then we did the work. [00:02:05][4.9]

Bryce Leske: [00:02:05] Yeah. And then we tried to actually do it and proved that it is very difficult to do so. And the reason why we wanted to do this was that we've had a lot of members from the Equity Mates community Rodion in and ask many, many different questions about how to invest sustainably. And we always feel like we're directing people towards just your classic sustainability ETFs that are set up. And we thought, well, is there an opportunity for us to try and pull out a few examples of specific companies that are you could deem as RSJ, um, which you can do when you try and look 70 of them? [00:02:48][42.8]

Alec Renehan: [00:02:48] Yeah, let's not get too far down the rabbit hole because we'll unpack these things as we go. Um, but yeah, we've got some insights. Um, yeah. But let's, let's start at the beginning. So I guess like what is, why is sustainability important for investors. [00:03:04][15.7]

Bryce Leske: [00:03:05] Well I mean firstly there's a value alignment and you know, there's you know, you want to be investing ethically because it's important to you, you know, if it's intrinsically, you know, aligned with your motivations and your values and investing is a way that you can continue to do so. Yeah, that would probably be the first overarching reason or motivation for sustainably investing. Yeah, there's another reason, which is that capital makes a difference. Yeah. Obviously, beyond just being able to buy goods and services. But look, investors can change what companies do through the way that they invest. And, you know, if you think about what the future Soopers of the world are doing and the Australian Ezekiel's of the world and how they're utilizing the vast pools of money that they have from investors and using that to create change within companies and get companies to actually think about sustainability in a more active way, then that's also a positive and a reason why people invest sustainably or like sustainable investing. Yeah, um, and also, you can't really go past the returns. [00:04:21][76.4]

Alec Renehan: [00:04:23] Well, if we can't go past them, you better take us through them. [00:04:26][2.5]

Bryce Leske: [00:04:26] But that's the end of their side because you can't go past the sustainable investing has done better than the index. Yeah. Now of course it depends on how you measure this, but BlackRock have given some stats between 2012 and 2018 and on an annualized basis, the US stock market has returned, what, fifteen point eight percent? [00:04:48][22.0]

Alec Renehan: [00:04:49] Yeah. So between 2012 and 2013 annualized the in the US sustainable, the er straight index matched the index in the world. Outside the US, the Astraea index did 60 basis points better, so eleven point one percent compared to ten point five percent for the standard index. And then in the emerging markets, it was 130 basis points, nine point one percent for the index compared to seven point eight percent for the standard index. And let you unpack that. And there's a pretty clear reasons why that is the case. Companies that are more sustainable, well, you know, are in industries that are growing rather than shrinking. So, like, the first reason is a I guess an industry level, what they're in and what that trend is. And then the second thing is like on a on a micro level, like on a company level, companies are more sustainable generally. And this is generally better generally thinking more long term. Thinking about risks and opportunities 10, 20 years down the line, how to mitigate the risks, how to take advantage of the opportunities, and given that sustainability now is front and center of every government and business is long term planning companies that aren't sustainable. It is somewhat an indication that they're not thinking long term. Yeah, so it kind of makes sense. Like when you think about the reasons why that is the case, that sustainable investing goes better. So to recap, there's an intrinsic motivation. You want to invest in a way that aligns with your values. There's an extrinsic or external motivation like capital can and does make a difference. And even as retail investors don't have a lot of capital, it does make a difference. And there are so many examples of that, like the Aaargh! 100, where all of these big companies around the world are committing to 100 percent renewables that was born out of not only shareholder activism, but like shareholder activism and pushing them, pushing companies to make these commitments has been really instrumental. There's heaps of other examples of that. And then thirdly, the actual returns. So that's why it's important. Now, how do we do it? [00:07:04][134.8]

Bryce Leske: [00:07:05] Great question. Great question. I think firstly, you need to understand, you know, sustainability covers a lot of different sort of subsectors. Yeah. And you can think about sustainability to you might be completely different to me, to, you know, our friends, to anyone in the Equity Mates community. So first of all, you need to, I think, consider what is. Yeah. What is sustainable investing and what is important to you, because it captures a lot. [00:07:36][31.1]

Alec Renehan: [00:07:36] It's relative for each person, but it's also relative over time, you know, like what you care about and what you think is most sustainable. Changes like climate change is definitely number one at the moment. But I don't remember when we started investing. And you read about RSJ governance, what's really important, like, you know, like the board transparency and, you know, independence and all that stuff. No one talks about governance. When you talk about RSJ anymore, it's really been pushed to the bottom of the heap. And so, like, these things change over time. You know, like right now, climate change is a big one. But it wouldn't surprise me if in 15 years water and like resources was number one. Yeah. [00:08:17][40.1]

Bryce Leske: [00:08:17] So to start framing how we would attempt to build this ETF, we've reached out to you guys in the Equity Mates community and asked for feedback on what you considered to be your most important concepts or sectors when it comes to sustainability or themes [00:08:35][17.4]

Alec Renehan: [00:08:36] or things to avoid both positive and negative, like in this poll that we put out. [00:08:42][5.6]

Bryce Leske: [00:08:42] Yeah, and it's no surprise that the number one theme to emerge was climate change and renewables. So if we just go through the top 10 here in order of importance to the Equity Mates community, No. One was climate change and renewables, then ethical supply chains, which I quite like labor rights, including things like fair pay. No for was waste management and recycling. Then gender balance came in at number five, not involved in sin. So gambling, alcohol, tobacco [00:09:17][35.2]

Alec Renehan: [00:09:18] is definitely not an ETF for you then. [00:09:20][1.8]

Bryce Leske: [00:09:21] Not true. Number seven was no animal testing. Number eight, Circular Economy nine, natural environment impact, which is another good one. And number 10, resource use, including water. So just purely from those ten, they're a pretty wide array of thematic, [00:09:39][18.2]

Alec Renehan: [00:09:40] pretty wide array. Uh, you know, there's environmental there are people there's, uh, like, I guess community as well. But then and it feels pretty comprehensive until you start to think about what isn't. So just the next five on the list, eleven through fifteen that we've sort of left out. But, you know, like anyway, the next five, no firearms sales or support for the military data privacy. Yeah. Animal agriculture, corporate governance, as we said, governance, not getting much of a look in those days. And then fifteen, which I was surprised it was so low diversity and inclusion. So I think obviously all of those are important and the list was long and like there are other important things like on that list as well. So it's just it's a real indication that there's so sustainability is such a big word. And yeah, it is really hard to start to break down. And the difficulty of breaking it down comes because I don't think you could find a company that takes even if we just take that top ten. All of those boxes, not like Tesla, climate change definitely gets a tick, but has got a questionable labor rights record. So then like, you know, how do you balance those three things? Woolworths are doing actually a fair bit in terms of climate change, right? 400 million in green bonds doing some things not as much as I was doing when I was at Coles. Calls were better, but Woolworths is doing some things. But then it's involved in all the sin stuff, you know, like biggest gambling operator in Australia and trying to get an operator in Australia because liquor stores in Australia probably sells the most tobacco in Australia. So it's like, how do you balance those things? Amazon same committed to R.E. 100, committed to the procuring a hundred percent renewable energy, but supply chain questions, Laborites rights questions, you know, union busting, all that stuff. So does that. Even Fortescue mines iron ore, but is also doing a lot now with hydrogen. Twiggy Forrest has come out pretty strongly about that. So maybe that's a tick in terms of climate change, like hydrogen is going to be incredibly important and we actually keep saying we should do it. Industry deep dove on hydrogen. So let's not forget about we haven't [00:12:08][148.5]

Bryce Leske: [00:12:09] forgot about [00:12:09][0.2]

Alec Renehan: [00:12:09] that, but. Fortescue's a minor, yeah, and, you know, the environment, the impact that mining has on the natural environment is, you know, devastating in some cases. And, you know, we've seen what happened with Rio Tinto recently in destroying indigenous cultural sites and stuff like that. So, yeah, it's a tough one. And I mean, then when you get into the whole mining conversation, it's like lithium critical for batteries that are critical for electric cars, but also mining. Yeah. Anyway, so the point the complexity is the point is, [00:12:45][35.7]

Bryce Leske: [00:12:45] yeah, it's it feels like it's really difficult to actually get a pure-play, sustainable investment when you're looking at these sorts of companies because there's always a trade off. [00:12:57][11.9]

Alec Renehan: [00:12:57] And if people are thinking, well, what about like an electric battery maker or like a solar panel maker, like surely they just get a tick. Well, even the resource used to put in the way that the supply chain, the way they get their resources are some questions. But then waste management, a lot of them don't get ticks because there's not a lot of good recycling options for a lot of this stuff. So, like, even if you would like to forget every other company, I only do like pure-play renewable companies. You still there are still always questions. It's always a balancing act. [00:13:32][34.7]

Bryce Leske: [00:13:32] So there is no doubt that it is a complex space. [00:13:35][3.2]

Alec Renehan: [00:13:36] So let's keep unpacking that in a second. But before we do that, let's take a quick break and hear from our sponsors. [00:13:42][5.6]

Bryce Leske: [00:13:43] When you are all about getting fit, you've bought the Garmin, you bought the golf membership, you bought the gym membership, and you're on the mind MasterChef. And even in lockdown last year, you bought those resistance bands of Instagram that from memory didn't even come. [00:13:57][14.0]

Alec Renehan: [00:13:58] No, look, they didn't come. But all of that effort really was canceled out by the numerous menu log orders that were a real staple of my lockdown experience. [00:14:08][9.5]

Bryce Leske: [00:14:09] Well, we've just headed into a new financial year, so I think it's time you get money fit with Virgin Money, our latest sponsor. [00:14:16][7.0]

Alec Renehan: [00:14:17] That's right, Bryce, with a high interest savings account bundled with a seriously rewarding everyday transaction account, you can manage your money easily on the go smash your savings goals, and be rewarded for it. [00:14:29][11.9]

Bryce Leske: [00:14:29] And with the Virgin Money Go transaction account, you can earn rewards on your everyday spending with zero monthly fees. Sounds like just what you need, RAM. [00:14:38][9.3]

Alec Renehan: [00:14:39] Yeah, the FBI. Twenty one get ran. It didn't quite work, but if my twenty to get reward money it might be to go [00:14:47][8.4]

Bryce Leske: [00:14:48] back to your own bait. Virgin money terms and conditions and monthly criteria apply. Now let's get back to the show. So in putting this all into action, what we're going to be doing is taking the five top five communities, I guess, interests or themes and trying to build out a bit of an ETF around it. But firstly, I guess we need to agree on an approach. [00:15:18][29.5]

Alec Renehan: [00:15:18] Yeah, yeah. So I guess there's two lenses that you have to put over this. The first is like the sustainability lens and then the second is the investment lens. So if we start with the sustainability lens, the first question I guess is do we want to approach it with a negative screen or a positive screen or a combination of the two? And in answering the question, can you define the terms? [00:15:45][26.9]

Bryce Leske: [00:15:46] It's incredibly difficult to. Well, firstly, the process of doing this is hard because finding information on all of these companies is difficult. But let's start from the start. So negative screen is essentially saying that you are going to exclude all companies that fall under certain, I guess, activities or characteristics. For example, anyone who's in tobacco, anyone who's in gaming, anyone who's in firearms, we're going to exclude all of those companies and take the rest. Yeah, that's a negative screening process. And it's probably more common than a positive one at the moment, given that it is a lot easier just to say we're not going to include those guys and will take everyone else. On the flip side, you can take a positive screening approach, which is where you say we will only take companies that match these certain criteria. So we only take companies that have 50 50 gender split when it comes to the board will only take companies that are actively investing profits in sustainable projects, whatever it may be. And then you go out and build your portfolio around companies that meet your screen in a positive sense. So you can see how one certainly requires a lot more work than the other. And that is certainly what we found when we tried to do this. [00:17:14][88.2]

Alec Renehan: [00:17:15] Yeah, yeah. I mean, there are other approaches like you could take best in class and industry, which is all like a twist on the positive screen. But so negative screen is simple. Like conceptually it's simple. It's like it's black and white. It's binary. Are you involved in tobacco, yes or no? You know, you're out. Are you involved in gambling? Yes or no. You know, you're out. A positive screen is where it's all those shades of gray come in and the weightings of different factors come in. You know, as we were talking about before the break, I mean, one example of that, let's like waste management. Number four, in terms of most important factors for the Equity Mates community. Let's talk about a company like Cleanaway, biggest Australian waste company probably in Australia, is investing the most money in recycling infrastructure. Maybe some of the other guys are like the sewers or the valuers. But Cleanaway would be like they are instrumental in the shift towards a circular economy, like we're not going to get there without the infrastructure that the waste providers are building. And yet at the same time, they own the biggest landfill in Australia. They own heaps of landfill capacity. It's still their most productive asset, like the margins on landfills are great. So they rely on landfills, but they're also instrumental in the transition to a circular economy, big trade off. Do they fit in the screen or do they fall out of this great [00:18:37][82.9]

Bryce Leske: [00:18:38] positive or negative? Well, yeah, well, I mean, like, depends if you say, well, the negative screen, we're not going to take anyone who's involved in landfill, they'd be out. Yeah, but if you had a positive screen and said, we're going to take people who are we're going to take companies that are instrumental in trying to change recycling within Australia, then they'd fall within. So so it's a sort of a tough one. Yeah, yeah. Yeah. It goes to show that. And as you said, that's a classic example of [00:19:05][26.5]

Alec Renehan: [00:19:05] I was hoping you would give me your answer on yes or no. [00:19:09][3.2]

Bryce Leske: [00:19:10] Oh, if it's to do with it, if it's to do with what, recycling and waste management. [00:19:15][5.2]

Alec Renehan: [00:19:17] Yeah, yeah, yeah. I mean, [00:19:18][1.9]

Bryce Leske: [00:19:20] I'd say they do fit in the screen. Yeah, yeah, I think [00:19:22][2.8]

Alec Renehan: [00:19:24] and it's like this then becomes controversial because I actually don't think landfill is that unethical if it's done right. I think it's necessary. [00:19:30][6.3]

Bryce Leske: [00:19:31] Yeah, well, what's the alternative? [00:19:32][1.0]

Alec Renehan: [00:19:33] Yeah. And like. Yeah. And I mean, do you want to go down a rabbit hole like you can burn waste and turn it into energy. And that's what's being built in Australia at the moment. But landfills are waste to energy. The best landfills actually capture a lot of that methane emission anyway and turn it into energy. And so landfills themselves could be classed as a waste of energy. Well, they're [00:19:54][20.9]

Bryce Leske: [00:19:54] is, [00:19:54][0.0]

Alec Renehan: [00:19:55] but they're still not great and you still lose the resource anyway. That's so that's the difficulty. So I think if we were going to do it, we would just say negative phase of. [00:20:07][11.4]

Bryce Leske: [00:20:08] I guess so. Yeah. Yeah. I mean, I'm actually going to go both OK. Yeah. I don't think there's a reason why you have to have one or the other. It's a good [00:20:16][8.5]

Alec Renehan: [00:20:16] answer. Yeah. So then the next question is, are we talking about investing in companies that are working to directly address these problems? Or companies that are good in those areas, or maybe companies that are not bad in those areas but do something else. So like let me make that more clear with an example. Like if we're talking about climate change, are we talking about just companies that make renewable energy, or are we talking about companies that are just doing their thing? But a low carbon footprint, a low carbon footprint like. Yeah. [00:20:49][32.8]

Bryce Leske: [00:20:50] Again, I think I think it would be a combination of the two. [00:20:54][4.1]

Alec Renehan: [00:20:57] OK, so yeah, but yeah. Yeah. So yeah, I mean, the example of that is, you know, better shares now have their climate action. Yeah. ETF, I haven't looked under the hood of that, but I assume that that's companies that are directly involved in renewables and stuff like that compared to some of the sustainability funds, which I think are just more. Well, I know more just like any company that isn't. [00:21:17][20.4]

Bryce Leske: [00:21:19] It's a tricky one, though, because I would let's say, for example, and I think gender balance is the fifth. Yeah. So let's say gender balance. You're comparing two companies, both of them have 50 50 gender split on the board. One of them, though, has it sort of written in there in their constitution or whatever it may be that they are. Have to be you have to be 50 50 or that they're working towards majority women or whatever it may be, the other one, just by pure fluke of the way they've hired have landed on a 50 50 with no real public indication that that is what they're trying to say. [00:21:57][38.9]

Alec Renehan: [00:21:58] Which one's better [00:21:58][0.4]

Bryce Leske: [00:21:58] off? Yeah. Which one do you invest in? Well, I think you're going gender balance. [00:22:02][3.3]

Alec Renehan: [00:22:02] I think the answer is a bicycle. Like, you don't have to choose. Yeah, that's just pathetic, but I know what you're saying, but let me ask another question back to you. OK, let's say there's one company with 20 percent female in executive roles and the other company has 50 percent females on executive roles. So on the face of it, you say 50 percent is better than 20 percent. But what if the company with 20 percent is an industry that just has like next to no women in it, like, I don't know, maybe the waste industry or something, although there are plenty of women there. I don't know. But you know what I mean? Like, the average is like five percent and they're at 20 percent. And the company with 50 percent is in an industry where the average is a lot higher and they're actually below the average. Like you look at it on a absolute basis on just what the company is doing. Or do you say how they are in relation to their industry? And are they like improving the industry and are they improving or they you know what? [00:23:06][63.6]

Bryce Leske: [00:23:06] Yeah, I know what you mean. And there are arguments for both sides, I think. Yeah, it's [00:23:09][2.9]

Alec Renehan: [00:23:09] and then you can apply that to like every single one. Like when I was at Cull's, one of our biggest numbers was waste diverted from landfill. Like that was a key sustainability metric for us. And it's like, do you look at that in isolation and compare us to like a like a bottle like I saw who is far ahead of us at a rate or like a property manager like DEXA. So we're far ahead of us. Or do you only compare us to other supermarkets because we were better than Woolies, but we weren't as good as Texas? [00:23:39][29.5]

Bryce Leske: [00:23:39] Yeah, it's a tricky one. And then you have all these companies who say they're going to be doing things by 2025 or 2030. Obviously, it takes a long time to get there are you know, if they're talking about ethical supply chains or those sorts of things, like, you know, at what point do you get on the journey with them? Yeah, obviously a lot to consider here when it comes to the cost of building this. [00:24:02][23.0]

Alec Renehan: [00:24:02] So so we actually we've asked a lot of questions. We haven't answered a lot of questions [00:24:06][3.4]

Bryce Leske: [00:24:07] or I think it's pretty obvious that it's difficult to answer a lot of questions when it comes to because [00:24:12][4.8]

Alec Renehan: [00:24:12] then the next set of questions, let's assume that we had some solid answers on those, um, is then the investment ones. So, yes, then you actually have to put your investing hat on company-specific, country specific or international or like region. Do we want to be taking the whole index of companies that pass the screen or do we want to be then only investing in companies that we think are like good value or have good growth potential? And I guess that goes into is it like actively managed or passive, equal weighted market cap weighted, some other weighting methodology. How often do you rebalance? How often do you make assessments about sustainability? Do you have any other screens like, you know, debt to equity ratios, you know, stuff like that. You're looking at me, but not just writing, trailing off and letting you. I was [00:25:11][58.3]

Bryce Leske: [00:25:11] just waiting for your turn to answer all of those [00:25:14][2.9]

Alec Renehan: [00:25:14] questions. No, I want you to show. [00:25:16][2.1]

Bryce Leske: [00:25:16] Sure. That's what I said. Do you want me to? Yeah. So country-specific or international? I think we're just going to take a global approach. I think in terms of whole index or specific companies for this exercise, we just choose specific companies. I think if we take the whole index and kind of lose out on doing the exercise a bit active management or passive, we're obviously going to have to actively manage this one. And I and I say that because one thing that hasn't been addressed here is you've got to keep tabs on all of these companies because, you know, if you speak to a lot of the fund managers who run these sorts of funds, it's very easy for a company to change tact. And then all of a sudden, your original thesis for thinking they're sustainable company changes and you're writing letters to them and saying, you know, X, Y and Z reasons, you're no longer going to be in a fund if you don't address these, which a lot of them do do. [00:26:08][51.6]

Alec Renehan: [00:26:09] Well, yeah, you're thinking there of future supah. And we've like we've had Adamsville way on from future a couple of times and that's what they do. But I doubt that's what like a beta shares does with free or fair. I think they would just have an indexing methodology and then maybe even get the sustainability index from someone else. [00:26:26][17.3]

Bryce Leske: [00:26:27] I think in that situation, you're right, they'd be following index [00:26:29][2.0]

Alec Renehan: [00:26:30] writing to company boards. [00:26:31][1.0]

Bryce Leske: [00:26:32] No, no, no. But they're probably also not compiling it from scratch. They're following. Yeah. Some other index that's put together by someone else. [00:26:39][7.2]

Alec Renehan: [00:26:40] We have been called out by beta shares before for getting something wrong around here. So if we haven't done that right, send us a letter you sent to a board and we'll say that we were on the show [00:26:51][11.2]

Bryce Leske: [00:26:53] in terms of waiting. I like an equal weighted. [00:26:55][2.5]

Alec Renehan: [00:26:56] I love an equalizer. Yeah. Oh, I can I would like more equal weighted indexes in Australia. [00:27:01][4.6]

Bryce Leske: [00:27:01] Yeah, I think we'll go with that. And in terms of rebalancing. We'll figure out figure that out later. Yeah, so we've put it all together, we've as we said, we're going to be taking the top sort of five fanatics that have come from the Equity Mates community. And we've scoured the Internet to try and find a number of companies that fall underneath our top five somatics. And look, this is not an exhaustive list. You may disagree with some of the companies that we put forward here. But for the point of this exercise, this is sort of what we've come up with and we're not going to go out and actually get 100 companies for an 85. [00:27:45][44.1]

Alec Renehan: [00:27:46] Well, no, this is really where the exercise started to fall apart. So this is where the rubber hits the road and this is where it gets tough. So let's start. No one was clearly climate change and renewables. And so we started looking for I mean, we just didn't have the information flow to make these assessments ourselves. So we started looking for other people to who have made these assessments about companies doing the most to fight climate change. Some of the most listed companies were companies like Alphabeat or Simons, [00:28:20][34.3]

Bryce Leske: [00:28:21] Simon, Siemens. [00:28:22][0.5]

Alec Renehan: [00:28:23] Yeah, all we found ranked is that look at things like scope one and scope to emissions, which are basically companies have to report three different scopes of emissions. And companies like Microsoft and Apple were coming out on top. So I was surprised that the companies listed there weren't like, you know, first solar, Tesla, like that kind of companies. And it was just a big tech classic. Yeah. Yeah. [00:28:51][27.8]

Bryce Leske: [00:28:52] That is the issue with relying on these rankers, I guess, and how are you going to get into the nuts and bolts of what AlphaBeta really doing behind the scenes? You're going to have to go in and find their annual reports. You're going to have to. I'm sure they will. [00:29:08][15.6]

Alec Renehan: [00:29:08] Climate policy. No, no. Most companies will write a sustainability report, but that isn't enough to then do an apples to apples comparison. Yeah, exactly. Like, again, and I don't want to just keep talking about my time, but like, this is what we did. Like, we would take we would write our sustainability report and then we would read the Woolley's one when it came out and try and compare. But like different stats or like incomplete data sets more from Woolies and Coles. And so it's like you try and you try and do a comparison. But even just comparing a company that you work in and your closest competitor is difficult, it can be done, but it's difficult. But like just relying on public information to make a comparison of every company. Well, that's the thing. [00:29:52][43.5]

Bryce Leske: [00:29:52] It's all well and good to read one. And you like sweet. Well, they're doing something in this space because they've released a sustainability report. You're going to go and read 100 to then actually find where Alphabeat sits on the scale. Yeah. [00:30:06][14.0]

Alec Renehan: [00:30:06] And it's like, um, how do you compare someone building a massive solar farm in WALGA and doing a power purchase agreement with someone else, putting solar panels on, you know, a hundred of their stores? Is it just like most Mango's game? [00:30:26][19.9]

Bryce Leske: [00:30:27] Yeah. [00:30:27][0.0]

Alec Renehan: [00:30:27] Or is it like most how many people are employed? Is it. And so it's like it's all these questions and become a how do you weigh up different things. So anyway, like, that's climate change. [00:30:38][11.3]

Bryce Leske: [00:30:39] Yeah, that's climate change. [00:30:40][1.0]

Alec Renehan: [00:30:40] As the people will be hearing that this is why we really felt like that. [00:30:40][0.0]

Bryce Leske: [00:30:46] And so we then moved on to ethical supply chains and the two that have kind of popped up on a number of the rankings is Keurig. Dr Pepper. Yeah, interesting. And Starbucks now I'm not. Yeah, Starbucks is one that kind of keeps popping up in a lot of charts and lists when it comes to S.G.. Um, but yeah, those are the two main ones that popped up for ethical supply chain. Um, then we moved on to labor rights, [00:31:21][34.9]

Alec Renehan: [00:31:21] including sorry, just unethical supply chain. No, like again it's like I, I don't believe it. Like a company with a domestic supply chain would have better supply chains than these companies. [00:31:31][10.0]

Bryce Leske: [00:31:33] Well, I mean, [00:31:33][0.4]

Alec Renehan: [00:31:34] anyway, let's yeah, who knows, Laborites, we had and this confused me, so Invidia, the chipmaker, and then Apple and Apple has had a history of being criticized for labor rights. Yeah, it was sitting at the top of a lot of these lists. [00:31:52][18.0]

Bryce Leske: [00:31:53] And remember, they've made drastic improvements. [00:31:54][1.2]

Alec Renehan: [00:31:55] But like some of the stories back in the day weren't Gorai. [00:31:58][2.7]

Bryce Leske: [00:32:00] But do you exclude someone from the list, from what it was to what it is now? [00:32:05][4.8]

Alec Renehan: [00:32:06] No, of course not. But look, if they've improved, that's kudos to them. [00:32:10][3.9]

Bryce Leske: [00:32:10] Sure. They haven't just gone. Yeah, we'll take this feedback on board. [00:32:13][2.5]

Alec Renehan: [00:32:13] And I look, I when I read that, I remain very skeptical. But anyway, so, um, invidia. Yeah, anyway, as you can see, my. Dissatisfaction with the exercise was growing by this point. [00:32:30][17.4]

Bryce Leske: [00:32:32] Then we had waste management and recycling and you know, Asahi is a big player in this space. They're allowing themselves in the recycling space, [00:32:43][10.3]

Alec Renehan: [00:32:43] a building like a 45 million dollar payout, which is like the plastic plastic bottles are recycling plant in Albury Wodonga with Pat's group and Cleanaway nice. And they're so they're doing something good. [00:33:01][17.1]

Bryce Leske: [00:33:02] Obviously, we've had the discussion around Cleanaway, Accenture and Intel. Obviously, both also appeared on some lists. [00:33:09][7.2]

Alec Renehan: [00:33:10] But we're about to get to my big takeaway from all of this. But let's let's hit the last one quickly. [00:33:15][5.7]

Bryce Leske: [00:33:16] And then the last the fifth one was gender balance. Look, frankly speaking, the ASX 300 is not great in this area. Shocking. Yeah, really, really bad when it comes to gender equality, particularly for management roles and boards. I think that's an average of 30 per cent women on ASX boards. So we have to take a closer look overseas. And some of the the companies that are doing very well in this area are obviously Bumbo. You would expect 70 per cent of the board are female, 50 50 split for the C suite. Pinterest have an almost 50 50 split of total employees. Salesforce is obviously well known for the work that it's doing in this space. So a bit easier to find information on some of these companies. But Australia, get your act together. [00:34:05][49.2]

Alec Renehan: [00:34:06] Yeah, I remember we interviewed so Susan Oliver, who sits on a couple of boards in Australia, I reckon probably three years ago. Yeah. And even then she was lamenting the state of it. And I think looking at the numbers, it's got [00:34:21][15.6]

Bryce Leske: [00:34:21] worse since it has 2020 got worse. Yeah, yeah, yeah. There were few board hires than the last previous five years or something like that. And it's. Yeah, it's gone backwards. Yeah. Anyway, so look, the key message to all of this is [00:34:38][16.7]

Alec Renehan: [00:34:39] well no effort. Yeah. Yeah. No email notes at this point. We wrote effort like f yeah. Yeah. Not effort. The exact effort. This is getting too hard and so-called the experts to put to put together our because we said we're going to put together an ETF. So this is these are our two options at this point. No. One, um, an ASX 200 ETF that excludes tobacco, gambling and mining, massive call or option two behind door number two, a fund of funds where we start an ETF that holds a couple of ethical ETFs. And those guys do the work. [00:35:28][49.2]

Bryce Leske: [00:35:29] But I think we take positive screen fund of funds. Oh. [00:35:35][5.9]

Alec Renehan: [00:35:35] So we screen out some of the environmental ETFs that we don't like. [00:35:38][3.1]

Bryce Leske: [00:35:39] Yeah, yeah, yeah. [00:35:39][0.5]

Alec Renehan: [00:35:40] OK, OK. Yeah. Now, just to give Equity Mates listeners some value from this episode, um, I've got a list of all the actual funds that they can invest in Australia. Shatara Yeah. Uh so I am p q a invest future impact small caps which is managed fair beta shares, Australian sustainability leaders ATFP G and V van X, Sustainable Equity ETF I and S Intelligent Investors Ethical Shares that's managed RJR I Russell Australia Responsible Investments ESG I then X International Sustainability Equity ETF Effy High Beta Shares International Sustainability Leaders ETF they ESG Vanguard's International Sustainability ETF. And then there's a couple of bond ones. But we don't care about bonds [00:36:41][61.1]

Bryce Leske: [00:36:41] so we don't care. The cheapest of all of them is the Vanguard ethically conscious international shares ETF, VAMC No surprises there. Um, so look, there's plenty to choose from on the ASX when it comes to wanting to invest sustainably and ethically. [00:36:56][15.0]

Alec Renehan: [00:36:57] And I'm going to say sorry to interrupt, but I'm going to say our fund of fund holds the three international ones. Vanguard Beta shares Vannak their international sustainability funds call it a day done. [00:37:09][12.2]

Bryce Leske: [00:37:12] So that's how you do it. That is how you create an ETF. No, but look around. It was an incredibly interesting process for us to go through and there is no doubt that it is. It is still difficult, I think, for the rate the average retail investor to make. Decisions when it comes to wanting to invest ethically in direct companies and not have to go through ETFs, which at the end of the day probably go through the same challenges that we just went through, [00:37:38][26.3]

Alec Renehan: [00:37:39] and they just follow an index or [00:37:40][1.4]

Bryce Leske: [00:37:41] they. Or. Exactly. Or they just follow an index. So there's plenty of work to be done in this space. And we've got a few ideas that we're not going to mention on the show from a business point of view. [00:37:50][9.2]

Alec Renehan: [00:37:51] So I've got a couple of takeaways before we wrap it, though. My first takeaway is don't don't forget your super when you're thinking about ethical investing, because, you know, as Bryce was talking about earlier, you know, we spoke we spoke in the future super a couple of times. And Adam from Future has spoken about how they are actually active in trying to make companies do something. So you'll cut your capital can make a difference. Investor capital is making a difference in this push for a more sustainable world. I guess you can say a lot of the big institutions like BlackRock who have close to 10 trillion dollars in assets under management, throwing their weight behind sustainability and moving the needle the best way that you can have your capital play a part in that is super. So I think that that's my first take away. My second somewhat less serious takeaway is it's really easy to be good on a lot of these metrics when you have 70 percent free cash flow margins and you're a software business with massive scale, like the amount of these lists where big technology companies usually US based that just enjoy super profits and somewhat of a monopoly in whatever the area they operate in was startling. Yeah, Microsoft seems to top a lot of lists. Apple did some, but Alphabeat was on the top of a lot. Amazon, when you have free cash flow coming out your ears, it's, uh, it's a bit easier to be sustainable, I think. [00:39:24][92.7]

Bryce Leske: [00:39:24] Yeah. And it's nice. Well, as you said, it's no surprise a lot of them feature on many of the screeners and lists that come up in this space. [00:39:32][8.0]

Alec Renehan: [00:39:32] And so I think a question that I have and that we obviously don't have to unpack in this episode, as I say, you're looking at me frustrated because you want to just write is as the world gets tighter on a lot of these sustainability standards, like how do we start holding companies that aren't in that superprofits position accountable? And how do we have like a relative standard or do we have a relative standard where we say, you know, it's easy for Alphabeat to do some of these things or Apple with 200 billion dollars on their balance sheet. But how do you how do you get other companies [00:40:07][34.7]

Bryce Leske: [00:40:08] to incentivize [00:40:08][0.1]

Alec Renehan: [00:40:09] don't have that capital to invest, to do at least their bit? Or how do you create structures that. You know, the big tech companies with the resources are incentivized and rewarded different for doing more than their fair share. So, yeah, I think that it's an interesting space to watch. Obviously, it's as we said at the start, it's done better from the last few years compared to the index. The trends in that space are only going to accelerate. We did an episode on it last week where we talked about investing in sustainability and what's changed under Joe Biden. And so there's a lot of momentum going into twenty twenty. So, yeah, I think it's a really interesting space to invest in. We're not going to be replacing a sustainable ETF anytime soon, but I'm definitely investing and watching in the space. [00:40:58][49.8]

Bryce Leske: [00:40:59] Yeah, nice. Well, that brings us to the end of Equity Mates for this week. Big news, though. We are launching. You're in good company tomorrow. If you do happen to be listening to this on Monday, the 22nd when this episode was launched. If you have listened to it after that date, then you're in good company will have already launched. But make sure you head over and subscribe to the latest podcast in the Equity Mates media stable of podcasts hosted by Sophi and Maddie, two amazing women down in Melbourne who are trying to improve the conversation among their friends and also women more broadly when it comes to investing. They were sick of hearing about stocks and investing through forwarded WhatsApp messages from their partners and boys in that group. So I had to head over and give them a follow. They're going to be doing some amazing work. But then that's it for this week. Next week, we have Krypto Week, which, look, we've taken your feedback on board. There's a lot of you in the community who want to do some crypto here, some stuff about crypto. So we're doing one week and one week only, and then we'll be back into equities. But look, it's probably worth touching on, which is why we've got a few episodes planned for next week with. [00:42:16][76.8]

Alec Renehan: [00:42:16] Yeah, and that was probably the biggest feedback. Well, not the biggest feedback, but one of the biggest requests in the listener survey was to do a crypto. We got to do some crypto content. So we're doing a week. That survey is still open for another week or so and we're obviously writing the feedback. Obviously listening. We're going to do a week on something that was requested. So if you have any requests, if you have any thoughts, if you want to, you know, give us some personal feedback, then jump onto the survey. [00:42:47][31.4]

Bryce Leske: [00:42:48] Nice. All right. Well, we'll leave it there and we'll chat next week. Sounds good. [00:42:48][0.0]

[2418.2]

More About

Meet your hosts

  • Alec Renehan

    Alec Renehan

    Alec developed an interest in investing after realising he was spending all that he was earning. Investing became his form of 'forced saving'. While his first investment, Slater and Gordon (SGH), was a resounding failure, he learnt a lot from that experience. He hopes to share those lessons amongst others through the podcast and help people realise that if he can make money investing, anyone can.
  • Bryce Leske

    Bryce Leske

    Bryce has had an interest in the stock market since his parents encouraged him to save 50c a fortnight from the age of 5. Once he had saved $500 he bought his first stock - BKI - a Listed Investment Company (LIC), and since then hasn't stopped. He hopes that Equity Mates can help make investing understandable and accessible. He loves the Essendon Football Club, and lives in Sydney.

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