ESG Portfolios Series #1 – Transcript

Fraser Jack
Nathan Fradley. Welcome to this very first episode where we’re talking around all things to do with ESG and investing. And in this particular episode, we’re talking about the demand and dynamics. Welcome by Becky, thank you for being here. Now, of course, you are many things within the within the industry and the profession around ESG. You, you’re an advisor, you’ve got software, you’re you chair, the, you created, essentially the XY ethics committee. And of course, you’re you’re a Certified Ethical investment advisor with the Ri double A, yep,

Nathan Fradley
yep. I’m fairly involved in the space.

Fraser Jack
Your go to person and not to mention the fact that you are the host of a podcast yourself.

Nathan Fradley
Yeah, good for the beat podcast, which is not a long time coming at all, which is a long time. One thing. So it’s been, it’s been great to go through that and get that life

Fraser Jack
presents. Now. Thank you for coming on. Now, we’re talking about demand in dynamics in this episode, because there’s a lot of there is obviously or you’re you’re obviously seeing a lot of demand in the space. Yeah,

Nathan Fradley
I think it’s Look, obviously with my, you know, marketing and branding and everything. A lot of people come to me wanting ethical investment advice. But just as many if not more people don’t know that it exists. And when you start having that conversation, I think it really opens up opportunity and possibility. And it says more of the more of the clients I’ve worked with haven’t come to me for it. And they’ve been really happy with that outcome as well. Yeah. Okay.

Fraser Jack
So this is really interesting. So there’s, there’s people that want it, and then the two of them don’t know they want it, but then they want it when they say no about it. Somebody was saying,

Nathan Fradley
Yeah, absolutely. Absolutely. So the, you know, obviously, with with marketing, and what have you, they’ll come to me and say we’re looking for an ethical portfolio, or they’ll look for a financial advisor, see on my website that I do work in this space, and it’ll come up. But I think for most of the clients that I work with, as you go through the financial planning process, and you start talking preferences and priorities of products and approaches to investing and risk profiling, you start chatting about what they want to see with their money. And the point of I didn’t know we could do that always comes up, I’m yet to have a know, from talking to people about at various levels of engagement. Often price is a driver of that, not so much performance, because it’s not an issue. But a high impact portfolio has a higher ICR in general. So we might wind back some of the the more impact oriented investments and and chase a slightly lower fee approach. But yeah, I’m finding that clients of all ages, particularly most of my retiree clients, which is most of my work, is a really engaged with it, and for different reasons.

Fraser Jack
Yeah. So I want to get into the demographics in a second. Because I’m interested to know what different demographics think or feel about this particular style of investing. But before we do that is, do you think that because you’re so passionate about this field, that that might just come through and influence that, you know, the clients or potential clients into also wanting to be passionate about it,

Nathan Fradley
I think there’s definitely an advantage in having a huge excitement around that. No different to if a particular, you know, advisor is great at property advice or share advice. And, and because that’s their expertise, it would create a sense of confidence, from the clients perspective, a sense of trust, just say, well, this person knows what they’re doing here. They’re a professional, and they’re clearly very knowledgeable this. So I’m more inclined to go down that path. And I absolutely acknowledge that, that if I was sort of fumbling my way through the conversation, I imagined it might not go that way. As often. It’s also, I think, a pure belief, from my perspective that, you know, my darkest green portfolio outperforms any other portfolio I’ve seen so far. So be able to have that conversation with them and show it to them and have clients that are already in that space. And talk them through that, like any other advice, you give confidence through social proof. So I have other clients that have done this, but we’ve managed to get in the face like this. So yep, this is the impact that can have and this is the, the outcomes. And and through that conversation. You know, I’ve explained I’ve got clients that want their kids to be what a client wants the kids to be proud of his portfolio, they’re both really into sustainability. I’ve got other ones that want to leave a better world. I’ve got other ones that always wish they could do something like this. Whether there’s there’s political views and personal views and health and fitness use and and everyone has different causes that they care about. But I think the interesting thing about the issue spaces, everyone cares about something, no matter where they are on the political spectrum matter where they are on the age spectrum. It’s how much they care about that, versus the other factors of the product drive the advice?

Fraser Jack
Yeah, it’s really interesting. You mentioned the word pride is that is one of the emotions or feelings that comes up when people are in business. In the space and to be able to then, you know, talk to their friends at the barbecue, like using that term, you talk to their friends at the barbecue around what that means to them to be invested there, that’s probably the one of the biggest parts of the marketing. You know, we you mentioned marketing in the conversation that you’re having. And there’s obviously there’s marketing coming out, and we’ll get to it later. But there’s a bit of greenwashing coming out. But that conversation between client and client at the barbecue is pretty important.

Nathan Fradley
Yeah. And I think, particularly when you get someone who’s younger, who you work through their portfolio, and you provide them an ethical outcome, and then you get their parents coming back, who’ve already got an advisor other way elsewhere that came across to do that. You know, I think that’s the proof in that, that by having that point of differentiation, which I hope don’t exist within the next five years, I hope everyone will do this. But I think that creates a lot more value. And I also think it’s, it’s not something you can just index, as well. So when it comes to product recommendations, you know, if someone comes to me and says, I’ve got 100 grand, I want to invest it, they could just as easily do some research and, and put that in a diversified index product themselves fairly easily and don’t really need advice. But if they want to navigate the nuances of the ethical investment world navigate the greenwashing to know what they’re going into is, is actually genuine. And, and understand the ins and outs of that portfolio, they need an advisor for that. So I think it brings us back into the frame, in that respect is creating a lot more value. And I’ve said it before, but I think it’s the rise of the active manager again, because, you know, while there’s some great index products out there in this space, is also some really poor ones, that represent themselves much, much more than they are. And the if you look at the the active managers, it’s not just about their holdings anymore. It’s about their engagement, it’s about how they go out to a company and say, Hey, we will invest more with you. But we want you to change your steel production to be a lower lower carbon, or you’ve got some supply chain issues, here’s how you can fix that or address that or you something as simple as we’ve looked through your diversity inclusion within your hiring, and it’s not very diverse and not very inclusive. And you’re having supply labor issues. Why don’t you make these changes? And what we’re seeing with most managers, most companies, is it the companies are welcoming this engagement. They’re welcoming, they’re coming across. So that active manager approach, I think it’s it’s 61% of earnings calls, based on some research done by ethical partners. 61% of earnings calls in 2021, in included ESG, as a topic was 1%, less than 1% of 2019. But I saw some research by PIMCO. So companies want that active managers can can add that value. And then through that, clients get a greater sense of progress, because it’s not just about exclusion. It’s about progress in genuine progress. And you can really read through that.

Fraser Jack
Yeah, that’s incredible. That’s incredible growth stats that are coming out there. You mentioned the rise of the active manager in the within the funds. Is it also the rise of the active advisor?

Nathan Fradley
Absolutely. I think, you know, we, we saw a period, you know, maybe 10 or so years ago, where it was all high RCR active funds. And then Vanguard really came through and shook that up. And obviously, then some State Street and I share some BlackRock and, and it was really hard to justify for a lot of funds out there that perform sub market at a higher fee to use them. And so a lot of advisors, we end with it with the right with the right view, looked at it and said, Well, what’s Why would I charge my client? Well, my client pay more for this when they get better here. And I think that then created a more passive environment around the the advices investment advice, because they will just put you in an index product and where we go. What they don’t know is that it particularly this product might have over 200 force a few companies now. That it it may have very low engagement or low voting, or it may vote with manager if also with with management every time, which is actually potentially more damaging. So they need the advisor needs to be more engaged, and can bring back some of those investment dynamics in investment conversations with their clients that perhaps we’ve removed from our value add over the last few years because you know that the index approach was was so much more favorable, I think for clients. Yeah, looking

Fraser Jack
back, of course. Yeah, of course. It’s always one of those scenarios, isn’t it? Past performance, but we we digress. Now talk to us about um, you mentioned both younger younger clients as well as retirees. Are there any different graphics here or is this a for everybody?

Nathan Fradley
I think I think people can tend to throw it in a millennial bucket. And I think anyone who does that still thinks Millennials are 25 years old. And Millennials are 40 now, and they’ve got plenty of wealth and capability and desire for advice. But I think I don’t think ethical ESG responsible investing is limited to younger demographics. I think their parents and their parents parents, you my oldest ESG client is 75. And they paid a higher fee. They came in and said, our son says we should use an index product, low cost, but we want to explore the options to get proper advice. And compare that to the higher fee. And it’s a couple of different options. And they came out with a darker screen, because of the social impact. So I don’t think it’s particularly demographically limited. I think I tend to see women more engaged on this, generally speaking, then then men, but at the same time, I think my client base is more leaning that way. So that’s probably just a factor of demographic, my client base. But um, yeah, this very rarely, once, if you can bring it up the right way, I think it’s the trap. If you bring it up the right way, and engage with it lucky would talking through asset classes is how Australian shares with search national shares work, because infrastructure was important. And if you can engage in the same kind of manner, you’re educating clients, and if you educate the clients that they can make the informed decision. You know, I try to pitch any bias or anything, it’s about them coming to the table saying yes, that’s important. And that’s more important or less important than this. Demographically, that’s across all age groups, all demographics.

Fraser Jack
Wonderful. Thanks, Nathan, for being part of this episode. We’ll catch you very shortly.

Nathan Fradley
Thank you.

Fraser Jack
Thank you for joining us, Karen McLeod,

Karen McLeod
Lovely to be here. Thank you.

Fraser Jack
wonderful to have you. Now, of course, you’re from ethical investment advisors, give us tell us a little bit about that.

Karen McLeod
I’m a financial advisor. They’re based in Brisbane, and we look after clients across the country that want to invest their money in an ethical and responsible manner. So usually, we find we’re attracting clients that have a social conscience. So they might be particularly interested in climate change or social issues. And importantly, obviously, they want to make a good return on their monies. So I’ve been doing that exclusively for more than 12 years now. And I sort of began doing that quite a while ago, obviously now, and I went to see the Al Gore movie, An Inconvenient Truth. And then when I got back to my desk, I sort of started realizing that had a lot of clients and companies that I felt were actually harming the planets, whether they be tobacco, oil, and gas, or junk foods, and started to realize that I could actually start looking after my clients in a different way, by setting up their portfolios for a better future. And that’s when I started looking into responsible investment. And I went to a conference at the Responsible Investment Association of Australasia in Sydney one year. So that conference is held every year for those that are interested. And upon attending that conference, I realized that this was more than just, you know, a small niche or a fad, this was like a really growing sector. That was really I thought going to position portfolios really well for the future for my clients. And obviously, as we were well aware, at that time that climate change was, you know, accelerating. So at that point, I decided that that’s what I would specialize in. And I have done so ever since.

Fraser Jack
You’re absolutely right. It’s not just growing it you know, it’s not just a fad, it’s definitely a huge part of advisors role these days is to bring this this conversation to their clients.

Karen McLeod
Mm hmm. Yes, it is, I think and I think clients, they do want your guidance and expertise in this area, because you know, you are their point of trust. So you know, if something was going to negatively impact their returns, of course, they would be relying on you to guide them and to prevent any issues. So I suppose when we think about fussier in our best interest duty, you know, where does that code of ethics lead us? And I would argue that it leads us to say that we really need to think of ourselves as stewards of our clients capital, in how we allocate that. And so it’s not, you know, it’s no longer really appropriate to say that they haven’t asked about it. It’s more really for you to position the portfolio to make sure that proactively, you’re preventing any downside risk. And I think also, the upside of engaging on these topics is that you might find that they really do have some values based ideas around where they’d prefer to make a return, and how meaningfully they could invest their capital because there’s no shortage of investment products these days that they can they can look at so you could really be that catalyst and also get a closer relationship to your client as they talk about their values,

Fraser Jack
their value, values based decision making, as you just mentioned, there is, it’s really important for the, like you said the client taking ownership in those decisions in those choices.

Karen McLeod
It is, and it’s also clients, you know, we all have a day job, mostly the clients that we look after, or they’ve all they have experience in being a global citizen. So they realize that, you know, they don’t want to contribute to things like water scarcity, because they’ve traveled overseas or they don’t want to contribute to plastics in the oceans, because they’ve swarming beaches in Bali, that have been full of plastic. So there, when you think about it from a real life perspective, clients are actually have eyes wide open on these topics. And they’re just struggling with how they connect what they see as problems for the planet Putney with their money. And that’s where you can be really a such a powerful conduit in connecting their money and their capital with solutions. So that’s really, I think, where you could view your role. And as I said before, I think there’s increasing regulatory impacts, really on advisors to understand what these risks are, and what the opportunities are for their clients, both in terms of the Code of Ethics and then stewardship, as well as there’s a lot of other really great bodies like Australia has released their roadmap for sustainable finance last year. So as an as a sector, the Australian economy is looking at how we can innovate to basically ensure that our sustainable our finance industry, I suppose continues to be world leading and also more sustainable. So every country around the world that pretty much has developed a roadmap. So it’s sort of aligned with what’s happening with cop 26. And there’s increasing requirements, I suppose on accountants as well to account for financial disclosures account for nature in how they disclose. So it’s important that you understand that, I think it’s something like half of the world’s GDP is basically attributed to extracting items from nature. So it’s not like we’re conducting business in a vacuum. So most of the businesses that clients are investing in are relying on natural inputs to survive. And if those natural inputs are not sustainable, then those businesses will not survive. So that’s an important correlation. It’s not just a nice to have. This is actually vital, basically, for the existence of the economy going forward.

Fraser Jack
Yeah, I couldn’t agree more. Now. You mentioned increasing military regulatory impacts on advisors. And we sort of touched on the regulatory impact on companies coming down the road as we as we strive for those Net Zero targets. How do you see the the invest is adding to that conversation? Like, obviously, there’s been this it seems to be quite a popular segment for investors to be having the conversation with, but how do you see investors driving that change in businesses from one end? Whilst what’s come you know the legislations? Dropping it from the other?

Karen McLeod
Yeah, sure. I mean, you only have to look at like hydrogen stocks, like when the government announced that they were going to back hydrogen as a key pillar. They’ve all rallied, you know, like its investors vote with their feet. So they will support sectors which they believe, like other key sectors that are receiving a lot of support at the moment as you like, listen to it probably not and go oh, yeah, of course, is like electric vehicles, battery, lithium. Mining, for example, anything that’s going towards basically, setting us up for a more sustainable and low carbon future is being well supported by the market. So clients are pretty aware of that. So you need to sort of just keep in mind, or what’s contained in the portfolio’s that we’re suggesting for them if they’ve actually requested investments that are going to be either solving planetary issues, or wanting to invest in opportunities, such as electrification of everything, which is a key pillar for the Australian energy market operator, which is a government authority, for example. And clients want to support that. What does that mean, if they’re owning a large company that still or a large bank that still heavily financing fossil fuels? Like is that positioning them? Well? Are they comfortable with that? Would they prefer to be in something that’s maybe more aligned with the new regulations and the new government’s view on where we’re heading for 2015? So yeah, it’s it’s there’s more than just I think, what the the government themselves at top level is announcing, like I was mentioning before, the task force For financial related disclosures and nature related disclosures are, you know, they’re all part of the g7 finance ministers. And they’ve all endorsed these taskforce for nature related disclosures. So there’s there’s lots of coming for corporates that they’re having to juggle. You might think as an advisor, you might not be aware behind the scenes of what, what corporates are having to do these days in order to explain to shareholders, how they’re positioning themselves as we race towards net zero. But it’s, it’s quite important because there are definitely some market leaders and then others that are quite behind the eight ball or have a lot of work to do. But you’re seeing quite big steps like I think BHP Billiton, they just sold another two coal mines last week. And then of course, I’ve got just the one remaining. So even large, traditional fossil fuel companies are really trying to transition themselves quickly at the moment. So

Fraser Jack
yeah, now obviously, it’s in the name of your business. You probably had a constant demand. But are you seeing a growth in their demand supply and demand compensation with regards to you know, more people wanting to explore this?

Karen McLeod
Yes, it’s definitely has been a growing trend. Never higher, probably then, just when the bushfires were occurring at the end of 2019 and the start of 2020. And I think that’s been, you know, beyond, you know, our phone or our email inquiries, definitely, across the board, a lot of sustainability specialists, both advisors and fund managers who said they noticed, you know, a real Upswing then. And that came from people’s heightened awareness that climate change is really hear and now and impacting their day to day way of life, and how will that impact their money? And how can they position their portfolio so that when these large weather events occur, who will that impact, wanting to minimize any risk and also to be a part of the solution more than anything? In terms of figures, I’ve got some here from Morningstar. And they estimated that there was a 21% increase to the second quarter of 2020, from the 30th of June 2019, in retail assets invested in sustainable investments, and that was up to 19 point 9 billion. And global money invested in ESG assets has soared over us 100 trillion during the pandemic. So it’s vital that advisors really listen to what investors are wanting, and then skill up on how they can deliver it. And the other quote that I’ll take is from a consumer survey done in 2020, by the Responsible Investment Association of Australasia, which advisors obviously welcome to join. And they found some staggering expectations and demands among Australian investors. So this is all random, that investors that they surveyed, not just my clients or equivalent, but a staggering 86% of Australians said in the survey that they believed it was important for their financial advisor to ask them about their interests and their values in relation to their investments. So that one in eight, sorry, eight, you know, 86% is a lot. And then even more critically, or further 86% expected their super other investments to be invested responsibly and ethically. So there is definitely demand and certainly expectation from clients, for their advisor to give them advice in this area. I think the thing that’s most interesting though, is what the clients were really wanting to focus on. So they also asked, when you go on to the Responsible Investment website, you can see you can have like, there’s a tool there where you can start looking at, you know, on a screen in X or Y. So human rights, fossil fuels, tobacco, alcohol, and the thing that most Australian investors wish to screen is not the thing that most fund managers are delivering. So in fact, the thing that most fund managers are delivering is like an exclusion on, for example, on tobacco, but most clients are actually well beyond that. There. They’re actually looking at other topics now. And the topics were they’re really wanting to exclude fossil fuels, again, with that climate change issue in mind, but there’s a completeness alignment there. Because investment managers were really just focusing on tobacco uncontroversial weapons, but most investors really wanted to focus on excluding fossil fuels closely followed by human rights issues. So it’s hard for advisors obviously, to get cut through cut through I should say, with fund managers if they if they aren’t really delivering what the clients are after. But I should point out that in In recent years, we’ve seen a dramatic change in the delivery of funds in this country, both from overseas and obviously, innovation domestically, that is aligning with what consumers are after. to really do your homework,

Fraser Jack
some very interesting stats there. And understanding, I guess it sort of sets out the where we are in the sector to with how you a lot of these fund managers are still catching up to the demand,

Karen McLeod
most definitely. But the good thing is that the more they hear it from you, the more receptive they are to obviously delivering solutions that are going to meet the needs of your clients. So it’s really up to all of us, you know, as stewards for our clients capital to articulate those needs to the fund managers, or the you know, ETF issuers or whoever it might be that you use, or to your dealer group to explain that, in fact, what my client is seeking can’t be achieved with this fund for these reasons.

Fraser Jack
Karen, thanks so much for coming on this episode. Really appreciate it. We look forward to catching you in the next. The next part of this series, which we’ll be talking about the advisors approach. My absolute pleasure. Thanks for joining us at David Graham.

David Graham
Thanks for having me Fraser.

Fraser Jack
Fantastic to have you along from story wealth management, you want to give the listeners a quick overview of you at the moment.

David Graham
Sure. I’m one of the senior advisors in story wealth is for senior advisors, including my wife, Anne, who actually runs the joint as well. We have a couple of associates and support staff, and started this business about 20 years ago in an accounting firm, and we took it out of the accounting firm and partnered up with some other people in about 2016 2017. And been running around show ever since.

Fraser Jack
Wonderful. And you are the the CIO of the business.

David Graham
Yeah, it’s something which has developed over time. And I’ve been working together in the business since 2007. And through 2008 2009, we kind of decided to take the investment side on ourselves. Having been somewhat disappointed about, you know, what we were being given by a licensee at the time, we thought if we’re going to go die by the sword, we may as well be part of forging that sword. So it happened that it was my interest anyway, I had a background in foreign exchange markets before this, this gig and yeah, and I kind of kept studying and and the more I read about it, the more I wanted to learn. So did a masters did the same accreditation, and by default became the investment person.

Fraser Jack
Yep. So that makes you the Certified Financial Analyst that great.

David Graham
Sorry, that’s the same as the certified Investment Management analysts accreditation. Yes. There’s a CFP separate to that. Yeah.

Fraser Jack
Wonderful. Thank you so much for chatting to us today. Now, we are talking about demand and dynamics, everything in and around the ESG space. It seems like a pretty popular topic at the moment. And tell us about your thoughts on how this has come to be.

David Graham
It is popular at the moment. And one thing that makes us wary in investment circles is anything that’s fashionable or too popular, these things often, you know, go up in, in, in Smoke fairly quickly. So we’ve been very circumspect about this. Part of our investment philosophy from the start has been about quality investments about it’s about getting clients through the bad times talking about that, say, stuff like CBA, during the the GFC went down to $25. But rebounded. And we, you know, the idea was to get people comfortable that they can stick with something which is a quality investment, and not worry too much about the downside. So we know, we know from research that people are twice twice as likely to panic and downturns rather than joy, the upside. So we’ve managed that downside. So the sustainability side of this was kind of a natural extension to that in, if you like a risk management tool, saying, Well, if we can, by definition, have a portfolio which is sustainable, and however you describe that, that’s fits into that quality niche we’re talking about. And that’s behavior management for clients during those inevitable downturns

Fraser Jack
is a really interesting, very interesting point about human behavior and sustainability in the sustainability of keeping the keeping the clients accountable for keeping their policies or keeping their policy keeping their their portfolios intact. A huge part of what an advisor does.

David Graham
Yeah. And so here’s the hard part. I had a conversation this morning with a client and clearly out of the rebound. from last year’s downturn returns look pretty good. But I said to them, I don’t want any credit for that because you’re going to kill me on the downside if you give me credit for this. So, you know, we know that asset allocation is the main driver of returns. but getting people comfortable with that. Volatility means building I think some, some airbags, like quality investments and like sustainability. And from our perspective, when we talk about sustainable investing, it comes down to a fairly simple soundbite is that if it’s not sustainable, what is it? That’s unsustainable?

Fraser Jack
Yep. Yeah, it’s a very, very good soundbite. Yeah, absolutely. It was not. It was not sustainable. Not suddenly, we will we want to look at. So how’s the demand been from the client or consumer point of view? I mean, obviously, it’s, there’s one thing for you to bring this, the philosophy to, to the conversation, but like, what’s the demand been, from your point of view from people coming in?

David Graham
So until relatively recently, I’m talking about the past five years, it’s been pretty light on actually, I think people were that aware of it, we had a small group of clients who were always very aware. And, you know, at five years ago, we kind of struggled to build a complete portfolio for them, that could meet all the criteria they had. I guess it’s been, we’ve seen this upwelling of interest, more generally, just in the media, in financial markets, generally. And we took a decision probably two years ago now to say, well, maybe this should be our default. And so we’ve kind of gone the other way. And so instead of moving with the demand, saying, well, maybe this should be our starting point. And if you don’t want some sustainability, for whatever reasons you have, then we’ll go to plan B. But by setting it up as a default, again, as I was saying before, it fits into that narrative we’ve had about, you know, quality investments that and moving into that sustainability. So it becomes an argument about not why sustainable, but why not?

Fraser Jack
Very, very interesting mindset shift that, isn’t it, then, then, when you’re talking with the clients, the conversation just comes down in a different way? It does.

David Graham
And part part of our ability to do that as well, comes from the fact that we became self licensed a couple of years ago, as well. So we, we also had a broader ability to write our own narrative.

Fraser Jack
Yep, a little bit more, a little bit more control over what you what you can do and what you can say. Yeah, absolutely. So as this as this journey is taking place for you how the client’s attitudes or opinions changed over that time, and just sort of you changing the conversation slightly,

David Graham
it’s a, it’s a work in progress, still, so a lot of our clients are relatively mature, if I can put it that way. And a lot of them have been with us for a long time and are very comfortable with where we are from a portfolio perspective. So this comes across as a relatively radical change to some of them. And so we’re having the conversation and in part, easing them into it, again, using that sustainability narrative as much as being about economic sustainability, as you know, saving the planet. So one or two clients have been skeptical, but it’s really, once we start them on this journey, and they start, we start embedding that that principle, at very broad principles, sustainability, there’s very little pushback, and occasionally will quite often actually require us to surprise clients say, are we? Why aren’t you doing this for them? My response to that is that we didn’t have the capacity to build a full portfolio. Because we didn’t have the the components to put together in a what we think is a diversified portfolio as with a standard portfolio. Yes. So yeah, it’s really interesting how that conversation gets some momentum once you kind of stick the pin in a little bit.

Fraser Jack
Yeah, exactly. And I think there’s that, you know, supply and demand dynamics as well at play where, you know, the more people that are interested now as as the, as the, you know, as as everything grows, there’s going to be more things available, and therefore, you’re able to, you know, look, it’s not just one or two narrow market, you actually got a full market to choose from.

David Graham
Yeah, Indeed, indeed. And part of that as well has been the research space has certainly opened up in this area as well. So again, whether it’s, you know, push from fund managers or pull from from client demand, the researchers have kind of gone on board and started doing specific research about sustainability of a particular investment, and I guess, encouraged managers to put their flag in the sand as well about where they stand on that spectrum. So it’s been quite interesting and the momentum behind over the past 12 months has been fairly staggering. So from our perspective, it feels feels like a structural change in both investment markets and equity. armies more broadly. So when we go back to the question of you know, it becoming fashionable and clients be skeptical about you just kind of getting on the bandwagon. You know, we do phrase it in a, in a longer term. This is the world going forward rather than keeping doing what we’re doing before.

Fraser Jack
Yes, might be the bandwagon, but it’s the only wagon. Tell me about demographics. Are there any particular demographics that are embracing it? Or and? And on the other side of that, are there anyone? Is there any demographics that you find it difficult to or don’t want to get involved?

David Graham
Now, it’s fairly broad, I think, very general terms. younger demographic is more attuned to it. I guess the older we get, the more conservative we get. And it’s harder to been some of those people. But having said that, some of the some of them surprises as well.

Fraser Jack
It’s always interesting, isn’t it? There’s always something in a conversation. It’s pique somebody’s value chain. And, and, you know, whether it’s, you know, the world that they’re leaving behind for the grandkids, or whatever it might be.

David Graham
Yeah, well, yeah, that’s true. But also on that, you know, self interest isn’t far from the surface in most of these conversations. And, you know, you drill down into into client’s motivations. And, you know, at the end of the day, say, Yeah, we’re all on board about this. But what are the tax consequences? What are the what are the cost implications, all that sort of stuff? So, people do kind of, yeah, happy to say the world, but what’s going to cost me kind of thing. Everyone seems to have a threshold where they kind of start to get a bit nervous. Yeah.

Fraser Jack
David, thanks so much for catching up. In this particular episode. I look forward to continuing the conversation with you about that exact thing, when we talk about the advisors approach in the next episode. Thank you. Thank you, and welcome to this episode, Michelle and Claudia.

Michelle Brisbane
Hi, Fraser. It’s great to be here.

Fraser Jack
It’s wonderful to have you both here on this particular episode on all the episodes actually, Michelle do want to do a quick intro.

Michelle Brisbane
Sure. So my name is Michelle Brisbane. I am the CEO of Ethical Investments services. We’re a financial planning practice based in Melbourne, but we have clients all over Australia. I’ve been here for 22 years in this specialist space in the actual business has been running since the late 80s, which sounds like eons ago now. But we’ve been in the ethical space all this time, even before Ethical Investments were sexy. So we’ve seen a huge growth in the demand and the understanding and appreciation of Ethical Investments. In the last few years. We used to be a little bit like the unusual people in the finance industry, but now we are the sexy people. And I’ve got Claudia here, Claudia.

Claudia Mah
Hi, I’m Claudia. So I’ve been with Ethical Investments for over seven years. And I help head up the investment committee where we discuss the stocks and investment selection funds together without the advisors.

Fraser Jack
Thank you both for joining us out wonderful business. I’m Claudia, of course you’re you’re an analyst, you you work mostly in the investment space. And Michelle, you you’re one of four advisors in their business. And I love the way that you mentioned that fact that you know, you’re around before it was sexy. And now it’s all it’s it’s a it’s a hot topic. Where did you get that foresight?

Michelle Brisbane
Well, it was started originally really by? Well, a couple of people said Spindler, who was a Democrats operator, and he had a partner, George Batman, they started it, but then they went more into the politics side in the early 90s. And then the real driver was Janice Carpenter, originally in the 90s. So she built it up. And they always had the, the ethical philosophy. And then I joined in 1999. So I’ve been here from our century, let’s say, and I’ve just seen it grow massively. It continues to grow. And we’re we’re constantly inundated with new queries, new clients, and it’s a great space to be in.

Fraser Jack
Yeah, wonderful. And before we get into the dynamics around the demand and the dynamics, what drew you to the business in the first place?

Michelle Brisbane
I answered an ad after I’d finished my business degree, which was my second degree, and it was a boutique financial planning operation. I didn’t really know what that was, because I was new into finance then, but I like the word boutique. So I came here and really quickly realized that this is a great, great business a great space to be in. And personally my philosophy, I suppose I’m a bit of an environmentalist. So the type of operations here in business aligned with my philosophies.

Fraser Jack
Yep. Now the name says all the name of the business is a fairly good indicator that for clients as they’re looking to seek financial advice or they’re or they’re coming in or they’ve been referred. The name of the business ethical investment services sort of lets the client know that this is the type of investing philosophy you have. Tell us about those, the demand and dynamics around the business. As you mentioned, it’s been going a long time. And obviously, it wasn’t popular. There might have been some myths around returns that we can do bank later. But tell us about how that sort of changed over time and what it’s like at the moment?

Michelle Brisbane
Well, I think originally, back in the early days, people used to come and wait, there weren’t necessarily enough investment options to cover the whole ethical thing. So we used to have a bit of a mix of mainstream and some ethical funds just to get the whole investment mix correct. But these days, there are plenty of ethical options available. And the clients come here expecting that they will get an ethical investment solution for their portfolios. So that’s what they want. That’s what they come here. And they would be shocked if we didn’t provide that.

Fraser Jack
Yeah. Is there a, as you mentioned, a lot more opportunities now? And Claudia, I guess this is where you’ve, you’ve come into the fray of things, I’ve been able to help build out that, that extensive knowledge, or they have an extensive supply of different opportunities?

Claudia Mah
Yes, yes, it’s evolving very quickly, you know, over the last few years, so we’re constantly keeping up to see what result is coming out of the market beat from the engineering, product engineers, or product developers, or the companies itself?

Fraser Jack
And of course, there’s Is there a particular demographic of client that’s drawn towards towards your business? Or is this is it? Is it more of a values based thing? We have

Michelle Brisbane
a range of different professions who come here, and you could sort of say, we could be architects, psychologists, doctors, some teachers, some engineers, but as most financial planners knows, the engineers can be troublesome, troublesome clients, we love engineers, but you know, they try and tell us what we need to know what we already know. So it’s really a broad range of professions. And, you know, the clients that come to us generally a pretty sticky so because we have that values discussion with them, and were aligned in in various ways. They generally hang around unless, you know, buy a house or something.

Fraser Jack
Yeah, fair enough. And just how do you approach that values conversation? What’s sort of the your methodology when it comes to, you know, having a conversation with the client? Well,

Michelle Brisbane
it’s part of the initial client meeting. So we, we do a fairly comprehensive ethical profile with them. So we have a discussion about the sort of things that they want to either avoid, or support with their investment money. And then they really rely and trust us to provide that solution for them. And that’s where Claudia comes in with the the type of investments that we know that the clients will lie.

Fraser Jack
Yep. And as the demand for your business from people hearing or reading about you that some of the stuff that you’re doing, outwardly focused, obviously, with, you know, the conversations or marketing you might be doing, or is it coming from existing clients? How are you finding a lot of people actually approaching your business?

Michelle Brisbane
Well, I mean, we’re, we’re fairly well established, we’ve been operating for a long time now. So there is a bit of quite a bit of word of mouth and our reputation in the area is is very good, I have to say, and, but there’s, we also do advertise, and we advertising in areas that are aligned with the sort of things that our clients are interested in. And that might be like, a conservation magazine, or an organic gardener magazine, or even triple R, we advertise on triple our, and, you know, the old hippies that have grown up, you know, same time as me that they listened to Triple R and they’re really aligned. aligned with that with us, it seems

Fraser Jack
you’ve managed to find your your old hippie crew. Surely it’s not just for old hippies. Oh, is it?

Michelle Brisbane
No, no. It’s very serious professional Steiner, we have, like I said before, a lot of well, those hippies have become serious professionals, teams now.

Fraser Jack
It’s an interesting demographic, isn’t it? The the, you know, even the X generation where the old XY generation, but the X generation are all now, you know, of an age where they’re starting to gather some serious assets.

Michelle Brisbane
Yes, exactly. No, no. Our clients are very interesting. Largely, I find them all very interesting, which is great, because you meet people that you wouldn’t necessarily meet in your day to day life. And, you know, they are very intelligent people. And that’s why they come to us.

Fraser Jack
Yeah. And that’s, it feels to me like there’s a bit of a supply and demand equation that’s overlying this, you know, the more clients that can be interested or the more consumers that take Note, obviously, when we were recording this, we’re in the, in the midst of of a conversation around. net, net, net wasn’t net 2050. Net, zero 2050. But look like that’s obviously a reasonably, you know, a topic that’s bringing more investors I guess towards this type of investment. And I guess the more advisors providing advice in the space, the more investors looking to invest quality, then the more options that are available or the more that that dynamic puts a demand on. The opportunities are available.

Claudia Mah
Yes, phrase around. So there’s there’s been, I think the type of products that’s coming onto the market, we’re seeing more thematic focus as well, you know, not just ethically, not just a broad theme, but we’re also seeing some with concentrated themes be a social, social impact, a climate impact, quite targeted. We’ve also seen, for example, Impact Bonds come onto market, they are probably more for wholesale investors, and the government has adopted that from you know, originally started in the UK, that program has has been adopted in Australia, we’ve seen these bonds used to invest in targeted areas such as disadvantaged children, or the elderly, or the homelessness, or, or children that has been displaced and are in the interim of entering adulthood. These programs are they’re giving genius, a really good way to to fund so. So across the spectrum we are seeing even the level of what we kept dress ethical. They’re all they’re all coming on to market and, and I think it’s I think we’re only going to get better from here.

Fraser Jack
Ladies, thank you so much for being part of this episode. We look forward to catching you in the next episode when we’re talking about the advisors approach.

Michelle Brisbane
Okay, that’s been great Fraser.

Claudia Mah
Thanks, Fraser.

Fraser Jack
Welcome to the compensation. Grover Burthey.

Grover Burthey
Hi, Nice to see you Fraser.

Fraser Jack
Now I’ve recognized that your accent is a little bit different to mine. Let’s have a chat about we’re about to you from and tell us about what your position is at the moment.

Grover Burthey
Sure, sure. I’m happy to be joining you today from from Southern California Newport Beach to be specific. I met our headquarters here for Pimco, we are fortunate to be in a lovely area, still still phenomenal weather. But with that said, much shorter days now with past daylight savings time.

Fraser Jack
Yes, we’re the opposite when it comes to seasons, and tell us about your role at PIMCO.

Grover Burthey
I’m a portfolio manager here at Pimco, my specific role is head of ESG portfolio management. I’ve been at the firm since originally 2012, and a few different roles, including commercial real estate, securitized credits, and now lead our ESG integration and analysis team, and work closely with the fund managers on our various ESG dedicated vehicles strategies.

Fraser Jack
Fantastic. Now you have the perfect person to talk to on this particular topic that we’re covering up on demand and dynamics for ESG. And portfolios. What are you seeing in the US? Sure,

Grover Burthey
well, in the US lately, many areas, various clients that we have in various counterparties, or issuers that we engage with, or different parts of their ESG journey, but but in aggregate, the trajectory is relatively uniform, which is there’s more appetite, there’s more demand for more information. There’s more expectation in the marketplace for more progress on areas both across environmental, social, and governance as well. Much of that is focused on climate. But here in the United States, we also see a significant amount of focus on social issues. And and there’s a desire for for growth to move from a pure investment standpoint, or pure shareholder standpoint, your lender standpoint, it’s taking into account the needs and desires of the broader stakeholder base. And so we’re seeing this manifests itself at strategies we’re seeing this manifests itself in the primary market for fixed income, and increasing the conversations we have with our various peers and clients.

Fraser Jack
You know, this, this is not just a US thing, an Australian thing is obviously global. There’s a lot of stuff going on around the globe. You say you say increase in more what’s what what sort of sizable increase? Are we seeing as it’s like, I feel like we’re in the compound interest calculations, and we’re hitting up a steep curve.

Grover Burthey
Well, there’s there’s again, there’s there’s sort of the the distinction between how much capital is moving into the space versus how much discussion this and how much focus there is on the space and the latter is a leading indicator for for the former with regards to should really the best barometer that we look at as a active fixed income manager would be ESG labeled bond issuance. That’s that’s eclipsed, total outstanding stock of ESG labeled bonds as eclipse $2 trillion this year that broke through $1 trillion last year, that trend is likely to continue into next year. And it’s a good proxy for for the demand of the marketplace. Another way to frame that would be how much primary issuance is in some sort of ESG form or structure. And over the course of this year, we’ve seen that figure depending on how you measure it somewhere around 10, or 15%, up from from mid to high single digits last year. And so you’re seeing ESG products and structures also take an increasing amount of issuance market share.

Fraser Jack
Yeah, that’s, that’s, that’s crazy. You know, like, as far as this goes on over the next couple of years, what what are you thinking that will be, you know, you sort of mentioned up 10 or 15, from single digits, what are you? What are you predicting going forward?

Grover Burthey
Well, it’s difficult to project because there’s an argue there’s two ways that it could play out, you know, one would be ESG labels, whether that be in securities, whether it be in funds continue to grow and take market share. But it’s I think that’ll be the trend for the next the next several years. But if we talk over the next five or 10 years, we can move to a standpoint where that actually becomes the market standard. And maybe some of these labels, or some of these categorizations aren’t as necessary, because it becomes the market defaults. And there are there are pros and cons to both. For us as an investor, we certainly want to see, regardless of how you classify it, how you label it, right, we want to see there to be very broad integration across our investment process, across how we measure risks to diligence investment opportunities. And we want to also see progress on these issues with those who we engage with and those we have where we have dialogues. And the exact structure and sort of market market approach, which it takes, hopefully becomes a little bit less important over time, as long as the outcomes are still in the right in the right direction, which is more control over over climate, more more mindfulness over resource usage and utilization, and then more more progress being made on social issues, depending on the region or geography they can vary, but generally speaking, more more progress in those areas and seeing that across various parts of the marketplace.

Fraser Jack
Do you think the the discussion or the conversation from a consumers level? You know, so you mentioned they’re both they’re both driving this up? Is, is pushing all this ahead? Or do you think it’s actually happening more from the you know, from the lenders point of view, or the or the capital point of view,

Grover Burthey
I think it’s generally speaking, in our view, primarily being driven by by the end user. And so for an asset manager like Pimco, that end user is our clients, for a company, the end user is is their client. So yes, we want to, for example, see more progress and, and a grocer, let’s lower or let’s say, a retailer having more sustainability in their supply chain in their in their sourcing of products. And that’s something that we encourage, with regards to our engagement efforts. But similarly, when when a consumer walks into their store, their location there, they’re also increasingly wanting to see sustainable products sustainable offering sustainable options. And so and that’s also part of what’s driving, you know, the client side for for for Pimco, which is our own client base, is, you know, demographics are changing, priorities are changing. And all these themes are very, very large, very macro, which is why we think it’s it’s here to stay. This is this is not a short term trend, there really is a sea change in terms of how many different end users clients, consumers, view these topics. And that gives it some real durability over time.

Fraser Jack
It sounds like you’re saying is more of a direction than a trend. It’s not, it’s not something that’s going to go away. It’s something that just kind of, like you mentioned, make become mainstream.

Grover Burthey
Exactly, exactly. That’s our view. And that’s, and that’s a great, and that’s a great change. Like I said, they’re there, again, everyone’s at a different part of their respective journey. But the benefits of there being progress in these areas from a range of different angles, is that it hopefully drives more more market conventions, right? It drives more adoption of certain trajectories and frameworks. And and some of these trends become increasingly universal in terms of how they’re measured, which enables also an active manager at PIMCO to differentiate ourselves.

Fraser Jack
Yeah. Now, we’re seeing obviously a lot of talk in recent recent talks, government’s getting together globally to try and create, you know, targets and outcomes legislation around zero 2050, etc. Do you think that the drive from businesses will far outweigh sort of the legislation? You know, requirements?

Grover Burthey
Well, the private sector certainly has a role to play here. And it’s critical from a capital markets perspective that we play a role we do that we do so by by engagement efforts by encouragement of our counterparties to make progress in these areas to make commitments in these areas where appropriate, but the public sector regulators policymakers have to do arguably the majority of the work care, right. And when I say majority, you know, I mean more than half that doesn’t mean it’s 95 or 99%. But ultimately, this, this does have to be an effort to really, really have success where the public sector policymakers play and play a major role. And that’s because just the shifts are so significant that it’s going to you could do it arguably, only by the private sector, but it may take too long, coming out of cop 26. There’s a significant need that was acknowledged by much of the research leading up to that event, and then by much of the discussions during the event. But what needs to happen over the next decade, not over the next 50 years. And in order for for actions to take place over the next decade. There really does need to be regulatory and policy support and direction and in those efforts, and the private sector can help that can help drive innovation can help ensure efficient allocation of capital can help manage risks and identify where there there’s potential for obsolescence for transitioners for physical risk, protect capital on behalf of our of our clients as fiduciary to manage these these trends and these disruptions, but with regards to ultimately achieving some of these very specific goals, particularly with regards to climate, we think the public sector has to play a significant role.

Fraser Jack
Yep, tremendous. Sounds like a sounds like a teamwork team effort to be done there. But But thanks so much for coming on this particular episode, where we sort of covered up on demand and dynamics. I look forward to chatting to you when we hit the next episode when we start talking about the advisors approach to ESG.

Grover Burthey
Excellent. Thank you so much.