ESG: What does ethical investing even mean?

HOSTS Alec Renehan & Bryce Leske|5 October, 2021

Meet your hosts

  • 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 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.

In this episode we’re going to try and answer the million dollar question – what is ethical? Bryce and Alec talk about considering what factors are important to you, examples of weighing these different factors, show you some places to find this information, and call some experts to ask them where we should be looking!

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Bryce: [00:00:30] Welcome to get started investing in this podcast, we cover all the basics you need to start your investing journey. Are you joining us for the very first time or is this the very start of your investing journey? Well, before you dive into this episode, our is designed to go from the very beginning, so we strongly recommend that you scroll up and started episode one. However, if you're feeling brave and just want to dive in, then of course, don't let us stop you here at GSI, we unpack all the jargon and the confusing bits. We hear your investing stories with the goal of making investing less intimidating, and we want to have a good time along the way. My name is Bryce and as always, I'm joined by my equity buddy Ren. How's it going? 

Alec: [00:01:05] Very good, Bryce. Great to be back with you for the second part of our three part series on ESG. Yes, you would think that answering the question What is ethical or what is ESG would be the first episode. But no, it's it's today's last time we covered why and the debate around ethical investing. Now let's get stuck into the meat of the topic. 

Bryce: [00:01:26] That's it. We did have a definition at the start of the last episode, but now we're going to be digging into a little bit more around what is deciding what's important to you and having a look at some of the different factors that can weigh on your decisions and using some real life company examples to illustrate how confusing it can pay.

Alec: [00:01:45] And then later in the episode, we're going to call some expert ESG investors, some professional ESG investors, to get their two cents. So it's not just the two of us blubbering away, yes, but for people who missed the last episode, they can pause and go back. But let's just give a brief recap on what we covered last time and then get into it. Nice.

Bryce: [00:02:06] So we had a definition that ethical investing is the practise of selecting investments based on ethical or moral principles. Ethical investors typically avoid investments from sin stocks, companies involved with stigmatised activities such as gambling, alcohol, smoking, firearms, you name it. I think Ren. You also said sustainable investing is ethical or some throwaway line. 

Alec: [00:02:32] Go back to the last episode and figure out what dumb thing I said. So yeah, but that's the dictionary definition. Yes, ethical investing, sustainable investing. Today, a lot of it is focussed around climate change, getting out of coal, oil, gas and, you know, pressuring companies to do better in that space. So then we chatted about the debate around ethical investing, some of the reasons why people invest ethically. The view that your money can make a difference and it can pressure companies into changing their behaviour. Historically, ethical investing has seen slightly better returns than the overall market, and it's also an opportunity to, I guess, de-risk your portfolio. You know, if you think about what are some of the industries that are most likely to be taxed heavily or regulated out of existence, it's guns, it's smoking, it's coal mining stuff like that. 

Bryce: [00:03:21] Yeah, yeah, yeah. And then some of the reason people don't like it, marketing can be seen as a way of funds and and companies actually greenwashing and just pushing product and trying to attract people when if you look under the hood, they might actually not be as sustainable or as a stay focussed as they say they are. And then products in the air space generally do attract higher fees. So we spoke about that in a bit more detail if you're interested, but let's crack on Ren. The big question is what is ethical? And deciding what is important to you is probably the the biggest way you can answer this. 

Alec: [00:04:00] Yeah. And the reason why deciding what is important to you is the best way to answer it is because there's not an objective way to answer it. 

Bryce: [00:04:08] Yeah, there is no right answer. 

Alec: [00:04:09] There's some commonly accepted ways to answer it, but everyone is different and we're going to unpack unpack why that is the case and I guess how you can approach it. But let's let's start with you know what we're talking about here and why you need to decide what is important to you. So ESG is the acronym that's used a lot and stands for environmental, social and governance. And then these days, there's also like a sustainability thrown in separately, but a lot of that can come under environmental. So let's talk about some of the factors that people are looking at when they're talking about sustainability. 

Bryce: [00:04:43] Pretty straightforward. 

Alec: [00:04:44] Tell me that. 

Bryce: [00:04:45] Well, we're talking things, as you mentioned at the top, you know, impact on climate. Net zero, you know, companies that are doing their best or putting their foot forward or actively engaged in contributing towards climate change and reducing carbon emissions. Or, you know, those types of practises. And you can if that's of interest to you, then you can invest along those lines and you'll see a number of products out there at the moment that are starting to be built around this. 

Alec: [00:05:14] So sustainability is, you know that these companies operate in a way that can last long into the future and not borrowing tomorrow's profits for today as a definition that someone gave us at some point. Yeah. Last week's talk with me, I think it was on hospice. So then? More broadly, there's the environmental category, and a lot of sustainability fits under that, but there's a bunch of other stuff as well, you know, waste management, a part of the sustainability ecosystem close to my heart, resource use, you know, impact on land, how much water they're using. Even things, you know, like the the the way they use agriculture or the, you know, the the way they farm land and stuff like that, like all of these environmental concerns are they, you know, logging trees to make their products in a sustainable way. And, you know, stuff like that. Environmental is like that broad. What's their impact on the environment? 

Bryce: [00:06:08] So you've got another another classic line, so you've got sustainability, then you've got the start of the ESG, which is environmental. So then we can turn our focus to social. So then I guess that begs the question, what are you looking for? You know, the importance of having female leaders and leadership from minority positions within society, improved working conditions, equal pay, all those sorts of factors that are really important in society. Companies who are doing good in this area, you can sort of bucket under the social part of history. 

Alec: [00:06:42] And then the final one is governance, probably the least spoken about in 2021. And really, what we're looking at in governance is, you know, what's the corporation's purpose, the role and the make up of the board of directors? What rights are shareholders given? Are they traded a minority? Shareholders are treated fairly. How corporate performance is measured? What are the incentive structures for executives and board members? And then a big one is around transparency and accountability. Is the company disclosing everything that is disclosed and holding people accountable and being held accountable and stuff like that, engaging with regulators properly and all of that stuff. So governance is probably the least discussed. It's definitely the least sexy, but there's a lot of important stuff there. And you know, there's a strong correlation between good governance and good returns. 

Bryce: [00:07:29] Absolutely. So just to kind of recap there some of the factors that fall under ethical investing, the umbrella. We've got sustainability, environmental, social and governance. But Ren that begs the question if you're looking to invest ethically, are you trying to find companies that fit all of these or do you have to decide what is most important? Yeah. 

Alec: [00:07:51] Well, I think you've kind of already answered that question by introducing this whole section where you have to decide what's important. But the reason for that is that it's it's very rare. You find a perfect company. It's very rare. You find a perfect company that is perfectly sustainable. That is, you know, really forward thinking in terms of its resources and environmental impact. It has equal representation of women in leadership positions, and it has good representation from minority communities and leadership positions. It's got no pay gaps. It's it's got perfect working conditions and it's, you know, got all the governance tik-tok like every I'm not going to say every company because I'm sure there are some companies that tick all the boxes, but it's rare that you find that perfect company and then you've got to find it in an industry that you think is growing and you actually think it's a good investment as well. The investing universe becomes quite small, very small, very small. Yeah. 

Bryce: [00:08:47] And so you need to compromise.

Alec: [00:08:50] Yeah, yeah. Yeah. Well, some people probably don't. Yeah, but most ESG funds will. And then there's this whole other debate around as an ethical investor, are you only investing in companies that are already there? Are you investing in companies that are trying to do better or are you investing in companies that aren't? But as an ethical investor, you're using your power as a shareholder to try and force change and make them do better. And so even within, you know, all these different competing factors, there's then different approaches to how you actually try and make change. Do you do divest or do you engage and stuff like that? But let's get on this in some examples because, you know, we can pick some of the most well-known companies around the world and talk about the difficulties in deciding if a company is ethical or unethical. So let's start with Tesla. Yes, and let's not even talk about governance concerns because Elon Musk tweeting stuff and you know, there's a whole bunch of. 

Bryce: [00:09:48] Well, I mean, if we talk about governance and you look at how Elon leads it as a company and how I guess Cowboyish, he can be on Twitter and and the impact that that can have on the reputation of the company and all those sort of things that go with it. It's certainly not positioning himself as a strong governance company, but yeah, he's a he's a fighter. He's a firework, 

Alec: [00:10:14] showed it that way. But even if we just move to like the environmental and the sustainability concerns, because you think about Tesla, you think one of the most environmentally conscious companies in the world, Allen literally. Did it because he thinks the world bet on fossil fuels is the most stupid bet in history. They're moving the world towards a net zero economy. They've changed our transport infrastructure to orientate around electric cars. Every other carmaker in the industry is now moving away from internal combustion engines to electric vehicles. Tough to argue with those environmental bona fides. 

Bryce: [00:10:53] Yeah, you can't argue with that. And so on the surface, seems like a really good company if you're looking to invest sustainably and environmentally. 

Alec: [00:11:00] But but if you look in the supply chain, there's a number of questions about how the especially lithium ion batteries are created so that it actually create the batteries themselves. They buy them from a number of suppliers. I think their main one is Panasonic these days. But there's there's a number of questions The Washington Post in a series of articles around this lithium ion battery supply chain and found, you know that the components mined for these batteries is linked to child labour in cobalt mines in the Congo, severe air and water pollution around graphite plants in China. Mistreatment of indigenous communities near lithium deposits in South America. There's environmental and, I guess, social and governance concerns that come in the supply chain. Hmm. And and so, you know, even even on something that you would think is a tick like Tesla's environmental credentials, there are questions, big questions. 

Bryce: [00:11:58] Also social questions around the working conditions at Tesla themselves, where A1 was forcing back large amounts of the workforce in the midst of Covid to keep building cars and the impacts that that had. So yeah, you can see he already is faced with a dilemma. If you're really concerned about sustainability and environmental impacts at surface level, Tesla ticks the box, but then you've got to weigh up. Well, how important are those other parts of ESG down the supply chain that you know, they are still part of the Tesla company, and you can see how it starts to become difficult? Yeah. 

Alec: [00:12:30] To be clear, they're not part of the Tesla company, they're part of the Tesla supply chain. Let's not. Let's avoid the Chinese. Yes. And you know, we've seen the effect of this waning of competing factors. BetaShares runs an ethical ETF here in Australia, and they decided to take Tesla out of the ethical ETF because of some of the concerns around Elon forcing its workers to go back to work during Covid. They did. So this is a this is a dilemma that not just us as retail investors face, this is a dilemma that everyone in the ecosystem faces, but that's just one example. Let's take another example that I'm going to assume you would probably think errs on the unethical side. And that is Facebook. Very much so. And let's focus on the social here. Like social is all about, you know, that question you asked its relationship with its workforce, the society in which it operates and the political environment? Well, Facebook has had a pretty damaging role. I would say on society and the political environment, the spread of fake news, vaccine misinformation. You know, the big lie around the U.S. election. It's pretty tough to argue that there's been a net benefit. I don't know if you have any two cents, so you just want me to keep rolling rolling. But, you know, Facebook is a big company and they are investing a lot in their charitable endeavour, They've through their efforts and some of their partners, but I think it's mainly Facebook. They've rolled out the internet to over 100 million people in developing countries, and the internet is like a critical utility these days in terms of giving people access to opportunity and improving quality of life 

Bryce: [00:14:15] and access to Facebook architecture architecture. Very cynical, cynical view on this. Yeah. 

Alec: [00:14:21] Look, there's a whole the the whole way they've done it. There is a there's close to be cynical, but you know, they've helped a hundred million people get access to the internet compared to the effect that they've had on, you know, political discourse and the news environment. How do you weigh those factors up? 

Bryce: [00:14:39] Yeah, it's it's an interesting one. And again, I think back in 2018, so a number of years ago, but betashares did boot it from its did Facebook from its sustainability leader ETF unsure if it's back in, to be honest, but I know that that was the case. Certainly, I feel like for Facebook, it falls more on the unethical side than it does ethical for a lot of people. 

Alec: [00:14:59] Yeah, it's not. It's this is this episode isn't for us to judge. I know, but my personal view would would went in that direction. Yeah, the The Wall Street Journal did some interesting reporting recently around Instagram's effect on people's mental health as well, and I think that that kind of impact is is really only just been discovered. Well, I feel like we've all known it for a while, but the numbers are starting to really tell the story.

Bryce: [00:15:25] that, yeah, Facebook know it internally. Well, yeah,

Alec: [00:15:28] that's that's how the wall the Wall Street Journal got it from internal Facebook. 

Bryce: [00:15:31] Yeah, yeah. Like that? Yeah. So Ren, another mammoth company with Telstra, Facebook, of course, Amazon. Huge global e-commerce business. 

Alec: [00:15:42] So with the first two with Tesla, we try to explain even in an environmental category, there's like competing concerns in with Facebook, in the social category, those competing concerns with Amazon. This example is to show how between these different categories, companies can be really strong on one category and quite weak on another. And then the question is how do you balance that? So Amazon strong in the environment, which we can get into, but quite weak on social? 

Bryce: [00:16:11] Yeah, well, environmental. So they co-founded the climate pledge, which is a pledge by them to hit net zero by 2040, 

Alec: [00:16:20] 10 years ahead of the Paris accord, 

Bryce: [00:16:21] 10 years ahead. Nice. I wouldn't say, you know, there's other companies who have come out and said that they're going to hit that even sooner, but good on them 10 years before the Paris. 

Alec: [00:16:30] I think the fair thing for Amazon is that they operate in one of the most electricity intensive businesses in the world, which is Amazon Web Services. And that's tough. You know, like some solar panels 

Bryce: [00:16:42] on the roof 

Alec: [00:16:44] like Atlassian has really pushed ahead with their net zero pledge. But one of the ways they've done it is to outsource a lot of their data datacentres to Amazon Web Services. 

Bryce: [00:16:54] Yeah, right. Interesting. 

Alec: [00:16:56] You say a lot of businesses do that, you know, get it off the books, get it off the books to help them get there. Find a way to outsource it. AGL splitting their company in half. But yeah, so you know, they're doing a lot there. They've also signed up to R100, which is a pledge that a number of companies around the world have made. Actually, speaking of Atlassian, Mike Cannon-Brookes has really led the charge here in Australia to get companies to sign up to that, where they pledge to source 100 percent of their power from renewable energy by a certain date. Yeah, right. And, you know, to sort of fulfil that pledge, Amazon is doing a bunch of stuff then trialling like electric delivery vehicles to remember those videos of Jeff Bezos driving around them in India, like electric, like little tik-tok things. So like the they're giving it a crack. I was only giving it a red hot crack environmental space. 

Bryce: [00:17:47] But on the social space, on the social side and they really fall down. The National Council on Occupational Safety and Health included Amazon in its Dirty Dozen list of the most dangerous employers in the US. And earlier this year, New York Attorney General Letitia James filed a lawsuit against Amazon for inadequately protecting workers amid the coronavirus pandemic. I mean, there's stories everywhere. The conditions that they put people through in their warehouses. You know, for minute toilet breaks and 

Alec: [00:18:20] also having tons and having to just piss 

Bryce: [00:18:22] in a bottle, piss in a bottle, no air conditioning. It's just, yeah, there's a lot out there that would point towards pretty unfavourable working conditions.

Alec: [00:18:31] We saw the attempt of that Amazon warehouse in Alabama to unionise getting shut down by the company. It eventually got voted down by the workers, but the company really put the effort in to break up that unionisation attempt. Like you cannot say that Amazon's relationship with their workers in warehouses is the gold standard. You don't even get close to that. So the question then becomes, you know, they're really strong and their environmental stuff. They're not strong on social. As an investor who wants to invest ethically, yeah. Where does Amazon sit? 

Bryce: [00:19:05] Yeah, that's the question that you've got to answer. I can't answer that for you.

Alec: [00:19:10] And I know. And I think, you know, ESG is really a thoroughly unsatisfying topic. You talk about in investing because there's no easy answers and because ultimately, if you want to do it right, you either have to find a product issuer like a fund manager or an ETF provider that you trust to make that decision for you, or you have to make that decision yourself. And you can find all the information in the world. But at the end of the day, it's going to come down to you looking in internally and balancing how you personally view these things like Bryce. On one hand, hey, here we go. It's easier than 

Bryce: [00:19:51] sorry, Ren. Speaking of information that begs the question How do I find information on all of this? How do I better get an understanding of where, you know, companies sit when it comes to ESG? And how can I feel more confident with the investments that I'm making? Before we answer those questions and hear from some experts in ESG to give their view on finding the best resources, we're going to take a quick break. Nice, so Ren. How can we find information on that? That's the big question. You know, you can do some Googling, but it's evident that on the surface level, you can tick the box with Tesla. But but how do you then understand what's going on behind closed doors? 

Alec: [00:20:31] There's a reason. When we spoke about three companies to give examples, those companies were Tesla, Facebook and Amazon. Some of the most Covid companies in the press around the world. And that is because if making the decision about what is ethical is difficult, finding information to make that decision is also difficult. There's a lot of difficulty in this space, 

Bryce: [00:20:54] but we don't want to put anyone off here as well. Well, no,

Alec: [00:20:57] no, we don't want to put anyone off. It's important like the the things that ethical investors, the big fund managers, some of the people are about to speak to, are doing makes the difference. And your money as an individual investor, if you put it in the right, you know, fund or products like it can make a difference. It's important, but it's hard. Absolutely. Yeah. So I think the way the way we split this are the first port of call in finding information is from the companies themselves. Companies are feeling the trend of we need to get more sustainable information sustainability information into the market. The market wants it to make decisions. And so companies are responding. This is numbers from the US. In 2011, 20 percent of S&P 500 companies published sustainability reports. By 2017, that number was up to 85 percent. So those that dot is still a couple of years old, I imagine it's gone up from there. But sustainability reports are kind of. Standard these days, you would expect to see an annual report and a sustainability report from most big companies. 

Bryce: [00:22:05] I wonder what the 15 percent who aren't doing this? What are they got to hide? 

Alec: [00:22:10] I put it 

Bryce: [00:22:10] out. Don't put it out.

Alec: [00:22:12] And you know, I was. It calls when we released our first sustainability report. Obviously, we were previously at Wesfarmers and Wesfarmers was producing one. But I remember, you know, it was a it was a big deal. You know, we we were finally being able to sort of tell our own story and it was exciting. The one thing to keep in mind with any time you're reading company information is it's it's not neutral. 

Bryce: [00:22:38] No. Yeah, they're trying to they're trying to sell you the dream that they're putting their best foot forward when it comes to ESG and sustainability, that they're doing all the right things and they're not going to tell you what they're not doing or where they are failing within the business when it comes to ESG and sustainability. So just make sure that you go in with that lens that it's all going to be the good and not the bad. And I think 

Alec: [00:22:58] it's things like there are it's not like that lie like these are audited documents. And that was the worst time of the year for me every year when the auditors came through and we had to prove every statement in the sustainability report and we would pore over reams and reams of data and get right into the detail, go down to a site level and check like individual water metres on individual sites. And it sucked, but it was thorough. But, you know, so companies aren't lying in the sustainability reports. It's just about the way it's about the way they present information, what you give weighting to, what's left out. You know, you're telling the story. 

Bryce: [00:23:35] Yeah. So other company resources, if there's nothing in this, if they don't provide a sustainability report, you might find some information in the annual reports. But also companies are often making statements through the ASX through their own websites, through the media about what they're doing in the sustainability ESG space, trying to keep front of mind for investors in the community. So keep an eye out. I mean, yeah, it's not uncommon that some of the big companies, particularly here in the ASX or S&P 500 making announcements when it comes to this stuff. 

Alec: [00:24:09] Yeah, and we should only expect more of that as ethical investors than just, you know, keep putting on the pressure and keep passing to say that. So first port of call is the companies themselves. Well, actually. And with companies themselves, I came across this aggregator that tries to aggregate, you know, thousands of company reports from around the world. Global reporting dot org will include a link in the show notes database dot global reporting, dot org. You can search for companies, and they try and aggregate as many sustainability reports as possible. It's not perfect, but there's some missing that. When I was having a play, but it's a good, good place to start. If the first thing is company sources, the next is third party information. And, you know, obviously the media have a big role to play here. And we we mentioned, you know, we spoke about Tesla, Facebook and Amazon earlier because there's heaps of reporting on those companies. That obviously gets harder as you go down the list and you get to smaller and smaller companies, there's just less media attention. But the media can be great if you're looking at the big companies in an index or, you know, in a country. There's also a number of, I guess, like third party rankings or analysis. So Corporate Knights is a company that do like global 100 rankings. Yeah, the Dow Jones Sustainability Index is another one that you can look at. There's a few indexes and stuff out there which give you a ranking, and a ranking is about two issues with that. First of all, they don't really give you a lot of the backing data, like the underlying data. They just like give them like a percentage score or something, you know, like, no, I think global nights this year, no one company was Schneider like an electrical company, and they had like, I'm pulling this number out from memory, but I thought it was like 87 percent. But you don't really see like the detail behind. 

Bryce: [00:25:55] They just give you, I think it's like six scorecards that they put it against. But then they don't tell you really how it ranks against all of those scorecards and what the metrics are behind all that. 

Alec: [00:26:04] Yeah, yeah. So that's the challenge. The second challenge with a lot of these sustainability rankings is it's either self-reported information from the company or its public information from the company. And so, you know, these businesses or rankings are trying to do the best they can, but they're they don't have the ability to go deep, you know, they're not uncovering new things.

Bryce: [00:26:26] It's made the SGA cops in there. 

Alec: [00:26:28] Yeah. Well, I mean, this is where the media plays such an important role. Yeah. So but but they can be useful to sort of give you an idea of who's doing well. And you know what third parties think of different things that they're doing and how companies rank against each other. So there's no about their number out there. To just mention two issues with them. My biggest gripe with them is that so many of them are behind paywalls, so many data aggregators, and that's fine for the institutional and investor community and big fund manager community. But it's not fine for someone like you and I that just want to learn. 

Bryce: [00:27:08] Yeah, it's pretty annoying, actually. 

Alec: [00:27:10] It's very. Yeah.

Bryce: [00:27:12] Just on third party analysis and rankings as well. Ren, I'm noticing more and more brokers. Last night, at the time of recording, anyway, I noticed that self wealth now putting an air score against a lot of the companies on their I don't know where they're getting that from or how they're ranking that, but I just found that was interesting, that that that that bringing that in and 

Alec: [00:27:32] when when you sign ESG score isn't like details or is it just like a B-minus? 

Bryce: [00:27:38] Yeah, they give a combined ESG score either like good with a B-plus or good with a B, whatever it may be now. Yeah. To do your own research on where that comes from, but I just find it interesting now that those and and also people like BlackRock, who we know one of the biggest fund managers in the world, they have all their iShares ETFs. They also provide a bunch of rankings when it comes to all the ETFs that they have and where they stand and perform sustainably. So yeah, if if you're not looking at these direct sort of ranking lists, these providers are now starting to rank internally as well. 

Alec: [00:28:18] And then the final source of information, there's like a bunch of anecdotal sources where you can find stuff not so much around environment, but more around the social aspect of, you know, what's a company culture like? What's their pay like? Is the good, you know, female and minority representation in leaderships and boards and stuff like that. You can look at sources like LinkedIn or Glassdoor and stuff like that. But but really, I think my takeaway from where we can find information is there's rankers that will give you an idea of how companies compare against each other, but not a lot of great detail, or there's company sources where they'll publish their own reports and their own information. And for me, my big takeaway is that it's thoroughly unsatisfying. Yes, it is, but 

Bryce: [00:29:12] it's improving 

Alec: [00:29:12] and there will be big winners in actually delivering this information to retail investors better. And I say that in the knowledge that it's something that we could probably do if we knew how to code that. But yeah, I think this is a this is an opportunity because a lot of the ASG industry has focussed on delivering this information to the big end of the investing world, the institutions who can afford to pay for it and, you know, get what exactly what they need. And I think as it becomes a bigger focus for the overall investing community, we should expect solutions for retail investors because right now it's it's definitely suboptimal. 

Bryce: [00:29:54] It is so Ren. Look, it is unsatisfying. It's confusing. There's a big opportunity that we might take out for Kinko's, and there's probably no better way to close this out than actually hearing from the experts what they think the best resources are. Because if you've been confused from allowances, then let's hear what they have to say. 

Alec: [00:30:15] Yeah, yeah, yeah. If you're thoroughly unsatisfied with where we've left, where you can find information, hopefully these expert investors will be able to give us a better answer. 

Bryce: [00:30:23] So let's give him a call. So we're joined by Mary Manning, portfolio manager at Alfinity Investment Management. Mary, welcome. 

Mary Manning: [00:30:30] Thank you very much for having me. 

Bryce: [00:30:32] So, Mary, what is one resource or a number of resources that come to mind that are great for retail investors when it comes to ESG? 

Mary Manning: [00:30:39] Yeah. So it's a it's a great question, Bryce, because there's a lot of confusion out there about what exactly ESG investing is. As you will know, there's sort of a whole spectrum. There's ESG and there's sustainable investing, there's ethical investing, there's impact investing. And so investors really need to get their head around what they're looking for when they're looking at ESG, and that will dictate what kind of resources they're interested in. One really good resource is RIAA stands for Responsible Investing Association of Australasia. And if you go to their website, they have a really good diagram that explains the differences between ESG and sustainable impact. So that's a great place to start. Also on that website, they have a learn and a resources tab, and that will give retail investors just some insights and some tools in terms of how they should start down the road on their ESG or sustainability journey so that that would be a good place to start.

Bryce: [00:31:31] We'll put a link to that in the show notes if anyone wants to have a look. Are there any others that come to mind? 

Mary Manning: [00:31:37] Yeah, there are. So it depends on on how serious and what people want to get out of sort of their journey down the ESG road if people want to understand how to integrate ESG and. Analysis into stock making decisions. I would recommend the U.N. PRI that stands for the UN Principles on Responsible Investing and a lot of the funds in Australia and globally are signatories to the UN PRI, which means that you agree with the sort of guidelines that they've set out in terms of good ESG investing. So they have a lot of resources on that website, podcasts and webinars and guides to how you can integrate that sort of thinking into your investment decisions. So I'd suggest that in terms of sustainability, which is sort of a close cousin to to ESG, particularly on the E, the SDG Academy is a it's free. And you know, actually when I went to Harvard, Jeffrey Sachs was a globally renowned professor on this. This topic was one of my professors and cost a lot to go to Harvard. And now you can get all of his material at the Studio Academy for free. So anyone who's interested in that sustainability side of ESG, I would recommend that. And then I guess the last thing I'll say, which is is probably the most important is that your own best resource is actually you. So for your investors, you know, this is not like doing a decaf and there's an academic way to go about it. And you know, there's sort of a right answer at the end. A lot of ESG investing and certainly sustainable investing is about aligning your own personal belief system with your investment portfolio. And nobody knows more about your own personal belief system than you. So I would start out by just, you know, for your listeners and and for your viewers is sort of making a list of what is your personal value system and how does that align with what you want out of your investments? For some people, that simply negative screens like, I don't want alcohol, I don't want tobacco, I don't want weapons. For some people, it's it's, you know, I want companies that are doing good and you know, there's a list of of those kind of companies. For some people is very strongly on the environment side. They don't really care about energy. It's just they want companies that have a net zero commitment so far, regardless of how individuals are looking at ESG. I think it's important to understand what your personal value system is and then go to companies annual reports and see if what's written there by management and what the company does and what their outlook is, whether that aligns with your own personal value system. 

Bryce: [00:33:54] Well, I was so much awesome in for there in four and a half minutes. Mary, I think you've provided some great resources there, a number of which I hadn't heard of. So as I said, we'll put a lot of the links to all of those in the show notes and very much appreciate you coming on to share that with us. If you are listening out there and would like to hear more about what Mary has to say on this topic. We're very fortunate to have her coming up on Equity Mates investing podcast, so make sure you tune into that in a couple of weeks time. Keep an eye out for it. But Mary, as always, a pleasure to have you on on the show and we look forward to chatting soon. 

Mary Manning: [00:34:25] Absolutely. Thank you so much. 

Bryce: [00:34:27] So we're joined by Adam Verwey, though he's the co-founder and managing director of Future Super. Adam, welcome.

Adam Verwey: [00:34:34] Hi, thank you.

Bryce: [00:34:35] So, Adam, we've just discussed some of the resources that we think are applicable in this space. But what do you think of some of the best resources when it comes to ESG and sustainable investing for retail investors? 

Adam Verwey: [00:34:46] Yeah, I think if you've already got a short list of different funds that you're looking at, and I think the best place you can look is that those funds websites themselves. So I think if the fund is really genuine about ESG or ethical investment, and if you are clear about what kind of criteria is important to you, then the fund should be really clear at explaining to you how they take those things into account. So what I think you want to look out for is, you know, are they really clear about what they do and don't invest in? And if they're not clear about that, you know, if you see evidence of them being a bit vague or super specific, you know, for example, if they're really specific about the type of coal but they won't invest in, but it probably tells you that they might not entirely exclude that activity. So I think that's a good place to look at. I really care about what they do or don't invest in. And also, are they publishing their portfolio holdings disclosure in a way that's also easy to find on their website? And I think one of the great things that's about to happen is that from January onwards, super funds are going to be required to disclose their portfolio holdings for all of their assets, which means rather than just taking funds on their word for word about what they will invest in, you can actually see what's in their portfolios and make a really good judgement about whether what you see in their portfolios matches your expectations about what what an ethical or ESG fund should be investing it.

Bryce: [00:36:14] Well, that that's interesting. I didn't know that, but I think that's going to be great for the industry. 

Adam Verwey: [00:36:18] It's going to be it's going to be great for the industry. And I think the other thing is going to be grateful for all of those NGOs and advocacy groups who are campaigning with super funds and investment funds to do better with how they're investing many trillions of dollars that they're responsible for. And I think those groups are another great place for retail investors to have a look at to see how super funds and investment funds are performing on quite specific criteria. So as an example, I know a lot of people are really concerned about. Climate change, and it can be hard to work out what funds are actually doing when it comes to climate change, but there's resources like market forces who have gone out there. They've surveyed, you know, Honduras, 200 super funds that are out there and ranked them on criteria that a normal retail investor would expect them to be judged on. When it comes to investing in arrive, it's better for the climate. So, so market forces is one highly recommend if you're if climate change is one of your big concerns. 

Alec: [00:37:16] Yeah, that's great. We actually didn't touch on those NGOs, but there's a few out there, so that's a great one to for people to have a look at. To get some, I guess, some impartial information on how these funds and products are going. 

Adam Verwey: [00:37:27] Yeah, and there's a few out there. It all depends on what your what your number one or number two sort of ethical criteria is. On other criteria. There's groups like Don't Bank on the Bomb who do lots of great work looking at Australian and global investment funds and banks in terms of their exposure to nuclear bombs and nuclear weapons, which is something that I think a lot of people just don't expect that funds are still investing in. So they have they have a Hall of Fame and a Hall of Shame, and so really easy for retail investors to work out who is doing the right thing and who's not doing the right thing when it comes to an issue like funding nuclear weapons. 

Bryce: [00:38:03] Wow, there you go. Plenty. Plenty of resources there, Adam. And as we've sort of spoken about in this episode, there's not sort of one clear answer, but the more resources that we can find and give to our community, I think the better. So thank you very much for your time. 

Adam Verwey: [00:38:18] No worries. Great. Thanks, Chet. 

Bryce: [00:38:20] So we're joined by Emily O'Neill, co-head of ESG and an equities analyst at Perennial. 

Emily O'Neill: [00:38:26] Hi guys. How are you? 

Bryce: [00:38:28] Very well. Great to have you back on. 

Emily O'Neill: [00:38:30] Super excited to be back on the show. It's been a while between dreams 

Bryce: [00:38:33] and it's always fun, though. And today, and we want to get your views on what resources you think are great for retail investors when it comes to finding information on ESG and sustainable investing. So, yeah. What comes to mind? 

Emily O'Neill: [00:38:48] Yeah, it's an awesome question because I am a high, huge supporter of doing your own research and getting all the facts. So there is some fantastic ESG research available at that. What I will touch on is just a few of the general research providers for sustainable investing in sustainable finance to give retail investors a good overview. So there is a number of sources like Raya, which is the Responsible Investment Association Australasia, and they provide some fact sheets and some guides on all about responsible returns and investing. So you should definitely check that out, I guess. And another really good sources out your room, which is actually a non for profit library and resource centre, which is helping to summarise titbits of sustainable recent research. So that's a really great one for anyone who wants to go in and learn about a certain topic. We've also got sustainability, which is a news paper, and that's a great place for sustainable related news. Going a little bit more specific if you're looking for certain topics and there's a company called the WGA or Waka, which does all of the statistics on gender diversity by company and by sector. So that's great if you're wanting to do a gender diversity lens. We've also got sustainable finance, which is a great digital library of research as well. But if you're looking for stock specific research on Asian sustainability, I guess the best place to start would be going in and looking at the annual reports, which are all list on the ASX. Or if you go to the company web page, they usually provide links to it to those reports as well. Sustainability reports More companies are doing standalone sustainability reporting now, but also even a company's corporate social responsibility and ESG web page. So a lot of companies do have a dedicated page, just the sustainability information, and that's a great place to start. If you're going into fund research and you're wanting to do your due diligence on sustainable investment options out there on a fund's perspective. Rare Again has a website called Responsible Returns and that actually provide you with a list of fund managers who meet their credentials for sustainable investment products. And you can filter by different exclusions or screens if you want to remove certain things from your portfolio, like alcohol or weapons. The Ethical Advisors Co-op actually does a writing system for fund managers as well. The Finder actually does a great ETF of the Year award. We were really lucky to actually receive that for you this year. We consider that a future fund. And so that's a good idea if you just want to get an idea of the different types of awards and kind of fund manager ratings. And of course, on the Invest website and Instagram page, we provide a lot of information and articles on on sustainability and how we approach it so that just a couple of sources that we use in our research as well. I mean. We go out and and gather all of this ourselves, and it's a great place and free resource that retail investors can also access. Yeah, well,

Alec: [00:41:54] Emily, I think there was more than a few there. 

Emily O'Neill: [00:41:56] There's some great recommendations. Sorry. 

Alec: [00:41:59] No, no. It's great. I've been furiously Googling to keep up, so we really do appreciate you sharing that. I think that's a great overview of a lot of different resources that we can use to, you know, better inform ourselves about ESG and sustainable investing. 

Emily O'Neill: [00:42:16] It is so important, so definitely get out there and do your research, but thanks for having me on. And always, always enjoy it. 

Bryce: [00:42:23] Thanks, Emily. We really appreciate it. So I hope that after hearing from Emily, Adam and Mary, it has added to the list of resources that you can now reference when trying to find investments that fit your view of sustainability or ESG. Ren As we've made it very clear over the last couple of episodes, there is no right answer on this, but it is an incredibly important topic and we're going to be closing it out next week discussing what options you have when it comes to investing ethically. There are a number of products coming to market managed funds, superannuation ETFs. So we're going to go through each of those in a bit of detail to help you, I guess, get through this. Very unclear. 

Alec: [00:43:05] Yeah, yeah. Yeah. If you've if you've left this episode thinking, finding me information myself and making the decision myself is in the too hard basket. Well, be assured that in the next episode, we're going to talk about some of the people that you can entrust to make that decision for you. 

Bryce: [00:43:22] Absolutely. And before we do close out also, we are starting to look ahead to summer and we're doing our Get Started Investing Summit series. So we want to be highlighting some of the best investing stories from our community, and that includes getting you onto our show. So if you have an awesome investing experience or a story, be it a big win, a big loss, some mistakes, something that you wish you knew or someone had told you before you started, or you have a mate who ticks all those boxes we want to hear from you. Come on the show. Talk about it for five minutes. Talk about it for 20. We don't mind. Send us an email at and we'll get in touch at Ren talk next week. Sounds good.

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