ESG Masterclass | October 2018

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  • 45 mins 31 secs

ESG accounts for around a quarter of the assets around the world, so does this mean that it is now mainstream? And what does an ESG fund offer compared to other funds that do not take into account ESG characteristics? On the panel for this Masterclass are:

  • Steve Waygood, Chief Responsible Investment Officer, Aviva Investors
  • Bruno Paulson, MD, Portfolio Manager, International Equity, Morgan Stanley Investment Management
  • John David, Head of Rathbone Greenbank Investments
  • Mike Fox, Head of Sustainable Investments, Royal London Asset Management
  • Simon Howard, Chief Executive, UK Sustainable Investment & Finance Association

Learning outcomes:

  1. Whether ESG analysis is mainstreaming rapidly and where that leaves ESG funds
  2. How to quantify the social impact of investments
  3. The argument for engagement versus divestment

Channel

Masterclass

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Hello and welcome you watching asset tv's master class meet jenny ellis today, looking at sg will have to account for around a quarter of the assets around the world. So does this mean that it's now mainstream ? And also, what doesn't sg fund offer that other funds that take into account esti characteristics don't ? Well, that's, what we're going to be discussing over the course of this session, and i have five experts with me today to discuss. They let me introduce them to you. We have john david, head of green bank investments, rough bones, simon how it chief executive uk, sustainable investment finance association. Mike fox, head of sustainable investments, royal lands and asset management. Steve way, good chief responsible investment officer aviva investors on bruno poulsen, md. Portfolio manager, international equity, morgan stanley investment management. Right, jump. Let's start with you and they're suddenly seems to be a lot of different definitions out there. So, is there a set definition yesterday ? And what does it mean to you ? Well, i think that the simple answer is no there's, not a set definition. Except to say that sg stands for environmental, social and governance. I think where the confusion lies is how people look at these factors in the context often investment, poor failure. So some will look att environmental, social and governance factors as part of the general investment process, particularly in trying. Teo, avoid risk. Someone look at it a way in which to integrate values based decision making into an investment portfolio. So perhaps ethical requirements, andi, increasingly, some people are looking at it as a way tio introduce on measure impact within an investment failure. But there's no one set definition that fits all the vase. Um, folks, if how simon would you describe, i think it's maur on approach a mindset than currently particular set of terms. And i think the things which contrasted with traditional fund management, our long term horizon as opposed to shorter and i'm an ex equity fund manager usedto quarterly sales, quarterly margin progress that's not the way of doing it. You need to reflect the long term in the changes we know out there, andi think the other thing which characterizes is the breadth of fact, as one would look at jonah's sort of hinted at some of them, you'd be looking at social issues like, are you treating your staff writer treating staff, right ? Is it polluting issues like that which currently don't have an immediate financial impact, but which inevitably will in the future that threats and the long term isn't it characteristics ? I'm mike for roland's on what you approached it think in terms of the definitional element, things important understand there are many aspects of investment that don't have a single definition, so viewers by growth trust, for example, you'll find four or five different for manager approaches to deliver the aim. So i think it's important in that respect not to kind of need a false test for definition for this area, from my perspective, it's very much about when we make investment decisions, understanding of the environmental and social contacts of those investment decisions, making sure that when we decide to provide capital for a company, whether it to equity or death, that then they use the capital in a responsible way. That's how we think about yesterday, i think it makes a super point that there are many terms that defined in many places. It's, not just the sd that has the tower of babel that it does, but i think when it comes to how you applies, i don't care what simon said. So we look to integrate the issues into our investment analysis. That's a moral that's just looking to secure a market inefficiency. How do you enhance alfa ? By looking at these issues, engagement or stewardship means have you behave as a good owner ? Avoidance is quite obvious. Avoiding anything that's controversial where's preference or some people think of impact is steering a portfolio towards companies that actually do something good for society or the environment. It matters how you apply in terms of the investment process as well as how you define it on bruno. Your thoughts on the gene also, considering the different definition is the different terms. Does this create a barrier for clients ? You know howto understands it and how to navigate it for them when there's no one definition it does, but it does has mentioned in all the other forms of investment jargon which way we commit it is we are very long term investors, very high quality companies calm pounders and if you're going to compound for the long run, the stuff that may not matter this quarter, but we'll get you one day you've got to consider on do you want to be at forming of the long run ? Don't get this difference between the way between the stuff which it doesn't matter this court to next quarter. Sooner or later it will bite you absolutely crucial. Okay, so the u n sustainable development goals son steve, how do you interpret these into your ears ? For the u n sustainable, violent girls written by countries four countries there's only one of them that actually relates to companies directly in the sense that cos of the target, but many of them will apply to many of the companies that were investing in so some farm managers of presenting the sg equals std that's, absolute nonsense. So what we try and do is look across, but just the goals. There seventeen but the targets they're one hundred sixty nine of those measures themselves and then see how they mapped onto the companies and the sectors that were analyzing. And in particular we're looking at impact not just materiality, where the issue hits the company's cash flows, but impact how does the company hit the issue ? Because our kinds compared care about both things they care about making money but doing good while doing well. How do you measure impact now eyes the industry ? This is the emperor has no clothes. In all honesty in this area there are very, very few genuine measures of impact that people can see and understand that were built with consensus approach. If you like. Most of the measures that exist are behind a paywall, you have to pay for them. The methodology is someone's intellectual property. So i think in order to revolutionize this area, if we're all honest in order for our customers to really understand impact, we need freely available public league tables ranking company's on their impact wares. Aviva investors have just created a world benchmarking alliance working with seventy other allies which we launched at the u n general. Assembly, of course, monitoring the esso that the u n statistical division khun themselves see impact on the world benchmarking alliance will build those impact measures that don't exist yet i was just going to adam and i think impacts an interesting word in itself, isn't it ? Because there's a focus on impact is being on inherently positive thing, which it can be, but there are also negative impacts off cos in the way in which they work, and i think these negatives are often lost when people are fixing on on the positives and i think it's important, we don't lose sight of all the bad stuff cos potentially doing when just looking at perhaps positive elements of their business through product or service. So how good you think from managed so i'm looking at the negative aspect rather than just sort of greenwashing or impact washington you gave that words me before, so, you know, on what sort of issues does that raise ? Well, i think it requires a greater depth of research on dh understanding, i think cos often quite good communicating a ll the good things that they're doing and the positive ways in which they go about their business on rg that the larger the company, the more sophisticated they could be in doing that, i think is an investment manager looking in the round, you have to slightly scratch beneath the surface. T c actually, how their businesses are being run that just takes a little bit more time and due diligence. So, mike, something i mentioned in my introduction is the mainstreaming of sg, so if this is happening, where does that leave the funds ? Things is really interesting question, i mean, two, three years ago, generally speaking give, you'd asked what role do environmental, social and governance issues having either investment products or investment process, the answer would have bean pretty marginal we've gone from that now to the point where there's almost like a fight to prove credentials in this space. You know, i think what i would say is that truly integrating sd into investment decisions is both culturally operationally difficult, not easy. You can't switch the light on all of a sudden it's truly integrated, so i think what you'll tend to find is that what will become defining is the way it's integrated and how you can evidence. It's integrated when you see that you'll see a spectrum of funds and you see spectrum's with with funds with a very light touch on overlay and that's absolutely fine, and then you'll see funds that really want to use capital for social good for social improvement and in the same way that an investor can make a choice in another sector like the growth sector we mentioned before, investors will be able to make a choice in this sector, but its understanding truly how that years she's integrated and how it influences the investment decision will give a good indication as to where people's preferences for product will says. I think this is is quite interesting, so oxygen are sister cities in europe will be releasing data on the shape of each of the markets at the end of november. My hunch is it will show in the uk sg integration is growing very fast, but the opportunity for advisors is not just to save everybody's doing integration it's to look at the kind of integration is, micah said, but also to look at those funds which are specialists which is sort of following a thematic or best in class approaches there's such a rich kind of bio system of funds here in the uk who are doing sg. The opportunity for the adviser is to learn the client wants and to go out and find the fund and that's an expertise which is in in demand. There's no doubt about it and steve what's the conflicts of interests that why isn't our integrated automatic stickley so there are conflicts of interest throughout the supply chain of capital. One of them, for example, is that the investment banking area well recognized that investment banks need access to the company's they're covering, and if they criticize that company, that access can actually withdraw its particularly difficult for them to criticize the company's governance or ethics or their environment and social performance because they're more subjective, it's much easier for them to talk about the objective numbers be confident that they can criticize so self side investment banks. There are huge conflicts of interest there which we still have not overcome, which means that there is a market in efficiency in analyzing these issues that we can exploit to enhance alfa, but the conflict still exists. Biggest conflict is is timeless. Time period. So where you've got massive pools of money running short term money, bsd issues are much less important ofyour trading round a quarter it's not that much of the capital, which is genuine long term capital. I'd save your genuine long term capital. You have to integrate. Yes, jennifer not you're not doing a job this vast element to this market, which is short term capital of it's short term. You know, it's, just not as important for the investment process. And john weathers ethics fit in in the mainstreaming of airstream, i think for the sort of clients i ii look after within the private client in charity world ethics remain fundamental to the way in which they ought to see their their money invested. I think sometimes ethics are slightly lost in the development of vsd in an impact and and that's, because ethics are very much down to personal opinions. So you could look at the usgs, for example, on look a goal like ending hunger. Some might argue that genetically modified organisms could be an important part of the process of ending hunger. For some of my clients, gm maize are completely off off. Off limits. Similarly, health and wellbeing some might look at stem cell research is being a very positive development in the healthcare space. Other clients, particularly some religious views completely against it. So i think there's a danger some of these ethical issues are lost when developing product on telling to a viewer question and bruno on there, let you take this. So the trade off between sgn returns, they've said there's been a lot to talk about sacrificing returns for sg is that really necessary ? As some managers have proven, that both could be achieved ? What you're comes back to definitions as we talk about the beginning, so if you're if you're primary goal becomes impact and you are probably we're going to be top decile impact on top that's all returns, but i would argue that within within, if your primary goal is improving returns and there is no tradeoff. If you're a long term fundamental investor, be it trapped assets on environmental side beit governance, a badly run company, will not at four in the long run, we'll be at the social risk becoming increasingly important if you're getting those wrong. It's a company you are not. Going to outperform the long run so we do not within leave inside the impact site within materiality side, we see no conflict at all we see is unnecessary part ofthe calm pounding on long term investing in general, i had a little teo i absolutely agree with you that if you look at the academic literature on the broker research, the vast majority of the research is saying that it does. It does enhance returns to integrate these issues into investment process, and it can reduce risk, too. Now that shouldn't be why should that surprise us shouldn't be a surprise that looking after your employees looking after your customers, adhering to government relations and looking after your community relations is a is a good business practice. Doing the opposite is clearly absurd. You don't exploit your customers, you don't exploit your employees. Even milton friedman, the father of free market economics, accepted when he said the business of business is business that also businesses should comply with the law on ethical custom in what he wrote, but we've forgotten that last bit. Just one reference, perhaps, for the viewers arabesque asset management in oxford university did a review. Of the academic literature in our life. It's very good it looks that the results for s and g so you can separate it depending on what your clients interested in overwhelmingly, they say it has a positive benefit, it really that question shouldn't be really ask much so, like, how good, though, is sg is going, how good's the data out there something that data's pretty mixed actually, you think about financial data, for example, there's a long history off on piano, al's, balance sheets, cash flows and you confined numerous tools of integrated those into a very accurate way. Me bluntly, companies are not reporting, you know, data along the kind of methodologies that are becoming increasingly of interest on that miss march means that actually is very hard to buy an off the shelf system now, in some respects that's great, because if you're kind of working in this space, you know, that's the market inefficiency that gives you the ability to do some work differentiate that looks at things in a way that you can't do it. You just buying a shelf systems, but i think also in the kind of bash to quantify csgn impact just create a problem in the quantification process that is broadly desired is very dependent on the underlying information. It's online information is accurate, correct and obviously what's going to come out of the side is the same. So i think at the moment, the standard of the data and information out there is still pretty mixed. And john, just getting back to the returns question and should have fund manager think they've done well. Perhaps they haven't delivered alfa. But they have delivered that. Yes, she characteristics. I think it depends on the nature of the mandate. You know, with my client base my gold is very much to produce market returns whilst achieving their ethical and sg objectives. I think there are certain areas the market where the social or environmental impact is more important than the financial impact. That's not really. That the space i work in. Nor is it the space of most of the financial industry ? Yeah. You think it's still extremely rare to find investors that will say. Okay, it's great. If you kind of deliver these more social positive elements to your product. But i'm very happy to take worst investment return to do that people like that do exist very respectful about that. But i think fundamentally, the premise of what we do has to be that it gives you an investment return at least as good, if not better than you well, the styles of investment and if you could do that, then the question becomes, why ? Why wouldn't you rather than why would you invest in this area ? So i think you know, this idea that individuals might feel more competitive recompense to get kind of strong ns element teo, i think, does exist, but i think it's for managers, you know, we don't rely on that. We work on the bases, we gotta deliver the investment return. So with scoring, i mean, i think there's no substitute for being deep in the company, knowing the management, engaging with the management, thinking about the fundamental issues which potentially hit the company material risks and opportunities that agree on that exist on these areas. Andi, i think that nothing i seen in the scoring world yet. So yeah, you're almost measuring the degree to which the company or talking to is engaged in the process. The mohr resource they dedicate engaging the process, the better they tend to school. It's working. Okay, so, steve, a viewer question coming. Few, which he believes will improve our companies. Sg performance, disinvestment or engagement with the company itself. Your thoughts. The answer to this question depends on what the client wants to achieve. If they want a their conscience to be pure and clear and have nothing to do with the company, then they should walk away from the firm. They shouldn't. However, if they want to change the practice of the business soon as you walk away, i could no longer influence it. Put yourself in the shoes of the director in charge of health and safety. Imagine it's a fatalities issue if you turn up with the a g m and you say to him or her normally him, and by the way, we haven't done very well with the diversity of this panel today. Every goodness i'm here because i miss you. But if we go to that individual and we say we're gonna vote against your reelection or we're gonna vote against your pay unless you sort this out, that is a much, much more likely thing toe have changed. To effect change just walking away. So we strongly believe in voice over exit, but that the exit should be there in the extreme after a failed engagement process. It is not a badge of honor. It is a failed engagement process, and i think that engagement has to be credible. A cz well, it could be all too easy. Toe say, oh, well, you know, we hold this company there some issues, but don't worry, we've we've engaged with them, which might just be a letter saying we're not terribly happy with this aspect of your business. It has to be a bit more tangible than that to make it work. I'd like to echo that bucks if you know which represents what's, the fund managers thinks engagement is crucial, but it's got to be proven to work, so we need more case studies. Wei need we need the companies to know when the fund managers our working together is increasingly they do they mean it on that the company has to react. We cannot disinvest everybody's pension fund from all the big existing cos we have to look to change so engagement must be practice must be carried. Out must be talked to no. Okay, so, mike let's move on to some of the clashes within stu we often hear a lot about the environmental, the governance aspect, but when it comes on to the social, i mean, how do you measure the social side ? And also other clashes between the two ? I'm thinking automation, for example, maybe it's better for the environment, but people could lose their job so that's not so good. I mean, how do you manage that social out ? The energy is definitely the most subjective environmental, whether it be carbon footprint ing governance, whether we board stretcher and remain oration, you can have a pretty good go it really quantifying those social it's constantly changes and often it's with issues that don't have precedent now. Whether they be taxation, whether they be censorship, whether they be data privacy, which is a big one at the moment, they often don't have precedent and really it's just a case of going case by case and understanding each individual issue and trying to take what you would consider to be a reasoned, rational approach to that. But certainly the esses depart the g it has changed. The most on this, the most subjective wait do opinion polling ? Oh, annually on it is s issues, which frequently resonate most with the general public on climate change just being kind of the thing we've all been looking at, probably all our careers consistently sort of only third or fourth things like gender tax, employee rights, treatment of people in emerging economies, they consistently score very high and what the public want. But as mike says, they are tricky thing you mentioned issue automation, i think, is a great example where the first instinct isn't necessarily correct. For the first instinct is automation means less jobs, but it depends. First of all, what those jobs are, many of those jobs might be double, dangerous and dirty as they described. Um, maybe new careers that come along that better be the last kind of big concern about automation was when the personal computer came in. We see here today we'll probably never working guard, you know, unemployment rates, you know, thanks for nothing is a kind of message on the personal computer, so, you know, social issues of ones that often the first instinct first intuition isn't necessarily what the right ? Pry approaches on, i think it's often easy, tio you think of the e and the s and the g as being separate it's easy to talk about, but actually they're fundamentally interconnected. Andi, i think you know, things like the just transition movement have bean designed to look at the impact on society off remove to a low carbon future, so they're trying to bring the two together little bit more constructively. We'll just i want to get a working example. Mike. Now you haven't choosing facebook in your firm, but whereas you, you have picked alphabet. I mean, why talk me through that decision ? So i think if you could data is an issue, you know that this huge social benefits to sharing data you think about sharing health records so on so forth of i get an illness that you've had previously good access your treatments that work for you, then that would be very beneficial to me. Three idea that kind of data sharing is a good thing i think is on firm ground. I think the issues become, what are the policies and procedures of companies had to the user data and what we would say is and we're very respectful to say both out on facebook used people's data, it was very observable in doing to diligence on facebook a number of years ago that their policies and procedures were poor, that they were very much more gung ho with the way that they used data versus other companies in the same area. So that's, what it comes down to, it starts off with the belief that the sharing of data can be socially positive, but then looking our it's inactive, trying to make a decision about which companies acting in the more responsible way, way actually made the same came to the same conclusion and it's partly that search, which is at its core, is less toxic than some of the sharing element of facebook. But a cz you said it's a link between these different things the governments of facebook we do not believe this is good, isn't it ? Isn't alphabet, which lead to these procedures and policies and gun home cavalier is the word we use use data, and therefore we concluded, but the investment risks were much more material. Facebook they were not zero alphabet, the stuff to worry about on antitrust, maybe heading down the road towards us. Got that alphabet was once heard the line on facebook. The other we completely agree on it's, a combination of s and g and it's. Those link between two oceans. Ok, so jon and question you hit from a buick ? Do you think he sd impassive investing could go together ? What's your thoughts with the past with brooke ? I think it will do you granted me, but i think there are some inherent problems in combining sg with passive investing. I think that the range of sg based indices out there is protein the pretty few and far between on dh. The level of screening is probably too light for many, and i think it links toe some of the unforeseen consequences of a vsd investing where it may cause unpredicted style drift in a way that you can manage in an active port failure and be aware ofthe but you may not be able to in a passive failure. So for example, it might shift you teo smaller or mid cap companies over large cap, for example. Okay, on mike equities, that's what we always sort of think about. When it comes to stu, but other sufficient fixed income offerings viewer question here that we see what they're asking the same, you know, and also what role green bonds playing the whole context of bsd investment, i think there's a greater understanding from corporate entities out there that there is a pool of capital within debt markets looking for more socially positive projects things like tend to tide ways or not, from quoted one in london supersonic sewer that's going on the thames. So i think in the wonderful way that capitalist markets work is an understanding that there is this growing put capital in debt markets. There will be more bonds that facilitate that that said it's, still quite a small area, and often you find that green bombs get price to the premium to regular bonds. So from the financial return aspect, sometimes that becomes a little bit more complicated in fixing. But the big picture messages that sustainable fixing me sg fixed income is evolving very, very rapidly. And actually, if you could have took a five ten year view, i suspect it will evolve a lot more meaningful e from the fixed income site, then. That will do in the equities. Partly equities is very mature for a long time. We're looking at the sg beyond equities at our conference next month. We found it very easy to find from the membership speakers on espn commodities, fixed income, espn, private equity way stop looking at that point, i didn't go to infrastructure and some private actually sorry, really state of evil ? Does that renewal energy ? There are plenty of asset classes where you can find this kind of exposure. Would you like a little tea that so our infrastructure team for the equity side eighty to ninety percent of the run rate of the convention investments that they're taking on conventional portfolios you could describe as environmentally beneficial become the uk is biggest donor, for example, of rooftop solar wind turbines or something that a lot of money and just because they make good sense today, commercially, economically, financially it's not about a green you that they're good investments. One thing i'd add on the green bond market while specific fans, whilst we've heard about a billion into green bonds over the last few years, we believe that the definitions of very badly struck cleverly onda also it is important to recognize that almost all the time. It's a secondary refinancing mechanism on the asset that's already that's being described already exists. This isn't new money flowing into new build that's dealing with the paris agreement. Often times people make that mistake. They think it's new money going in and politicians count it towards the paris agreement. It's nothing of the sort but the fact there is that interesting. It senses it globally. It is good. So is winning way. Should perhaps you said that at the beginning ? Yes. Is winning on the green bond. It needs to evolve. But you know it's a very encouraging. So i remember the ox if board table about twenty years ago when we would dream of a future when sg was was mainstream. When we have farm manager's coming around daily two teams like mine asking questions. And how is this issue material where we had clients daily challenging us about how we're doing that ? That is the reality today when the dream is a nightmare so difficult to service. But it is huge. We were just talking about how many of our institutional customers now put pressure on us. Every single one of our consultant into mediated request for proposals. Now ask us questions on so some of us are talking about funds and products. Some of us are talking about investment processes and the whole farm manager and that's what i'm describing our entire farm management business is under more pressure today than it has ever been under because of these issues and i welcome that. Okay, so we're looking now at a geographical breakdown a viewer question is it more difficult in emerging markets because, yes, she scores that high in the uk, us, europe so does that pretty much rule out emerging markets ? I mean way of investing in our global funds being ultra quality, emerging markets are more difficult for us on just start with governance, it is difficult emerging markets but it's even more important because the government stand it's a much more variable in emerging markets and saying the uk some companies had better run and govern others, but there is a basic minimum standard, so i think the date and everything could be more challenging, potentially the rewards for getting it right. The potential outfit i think, being mentioned several times, its inefficiency, the biggest possibility of alfa and if you find a well run company which is exploiting opportunities and avoiding the risk the upside could potentially be bigger because it's yeah, your thoughts on emerging markets, mike something that points affair the information is a lot more difficult as well and i think we have to remember that in the uk and sometimes you have to realize this when you read the papers, but standards a vsd in the uk are exceptionally high relative on a global basis. If you go to japan and talk about corporate governance of you going to emerging markets and talk about environmental standards, there's a lot of good work investors could do that, but it's a very different dynamic than it is here in the uk. That dynamic is changing rapidly. So in japan now we've got the stewardship code in malaysia. They've been looking at the listing rules. We've now got more than sixty global exchanges signed up to the sustainable stock exchange initiative, which is all about getting the data into the market more rapidly for u n agencies working on that there's a meeting next week at the u n focusing on exactly this issue. How do we change listing rules so that the companies that list have to publish this data as well as on the credit side. So the market inefficiencies of there to be exploited on the market opportunities absolutely exists. I think i think that's a good point. I think some of the greatest opportunities as an investment manager come from a company or economy and transition, not necessarily the ones that are already there. So how'd you pick your stocks then ? I mean, what sort of sustainable themes you exploit the moment we represent the views of ah wide range of clients within wrapping remains we have ah, certain set of baseline criteria in terms of metal, social on governance factors that we will abide by. But then we will be guided by a client. Says the water is particularly important to them either on the avoidance aspect there port failure, a worthy inclusion aspect that covers a very broad range of environmental and social factors. So i want to turn to some more of your questions. Now, we've we've touched on this. But just to reiterate, as investment managers what frameworks of the panellists our affair to show that they have adopted dsg principles in their investment process. Perhaps they can comment on the u n principles for responsible investment. Steve, you nodding so you can take it ? The pirate interest i was in the expert group wrote that beer i so hands up now they would never designed as a standard, but they've become used as one. Andi, i think that's a problem we need to actually get proper standards. So if you're looking for chocolate or coffee that's fair trade, you know what to look for, there's a logo and you know what that means ? If you want a fair trade finance product doesn't exist. So i really welcome the fact that the government, the u k government started to invest about half a million with the british standards institute to build a standard that actually means something it's a quick way of the end investor knowing that good standards have bean applied it, what they do with the criteria will really matter. So i'm gonna withhold endorsements final product until we've seen that. But it's the right way forwards this stuff. Would you say that they're going it's too complicated ? We've made this tower of babel, which which keeps the end climb away from actually where their money is disconnected them too much we need to reconnect stein is his problem. Outsiders come in there ? Yeah, there is a a lot of attention being paid to standards now globally on dh in the uk on dh i've been running up stiff now about five and a half years. I think when i joined five and a half years ago, the generosity of the membership didn't really want definition or standards or labels for very good reasons, which had to do with the definition no point which has run through here. Anybody who seeks to say this is the way you should do it, you know, there's a fair chance i'm going to get it wrong so and that thinking is now changing the members the ox if members want something on the debate is increasingly about what it should be. Yes, i initiative, i think, is very good because as i read it, it's going to be kind of inclusive and permissive. I'm led by examples rather than by saying you must do this that's why we're going to get it wrong because just opinions about things like bio fuels, you know, just can change. So quickly in the new issues, which mike has mentioned, if the standard is written in stone and turns out to be wrong is the world evolves ? We've got a problem by feels directed exactly. I think wei need to encourage investors to being engaged in this process as well. So, you know, one of the most important decisions any of us can make is how we invest our money, you know ? And i think what we want to avoid is a kind of movie review style approach, you know, that's got three stars, so we'll go and see that it got four stars are going to see that, and i think there's a kind of subjectivity and a nuanced what we do that actually developments that that might not be quantifiable. So, you know, standards help common different definitions hell, but i think equally should all encourage investors to get engaged with how their money is being invested and really understand for themselves whether approach or intensity suitable for their investors don't ok, another question here, ronal, that you take this. So this is on the cost of integrating sg how would you advise integrating esti in the investment ? Process for a small investment management that could not necessary bear the cost of third party here, steve scoring firms or additional in house researcher i think the third party research has some value, but ultimately it's about the in house, the detailed analysis of the cos you're investing in, and that is to me, given what we do highly concentrated, high quality funds, absolutely central to what we do ondas part of that it's not doing softer but it's really, really thinking about the wrists on these buckets because they're becoming increasingly important particular social, with the rise of governments becoming less friendly to business, with the rise of regulators getting tougher with the rise of social media's, meaning campaigns can wipe out a brand which taken took a century to build in five minutes, these factors are going much more important, and so i think if you got limited resources just when you're analyzing the company, make sure you're thinking about these long term risks. So i don't think it's cost it's more about attitude, because now if you're only investing for the court in that, it doesn't matter anyway, right ? But if you're thinking what wes is company going to be in ten years, then just make sure you're thinking this way and i think someone said about attitudinal change right now, it's the attitudinal change of thinking for the long run on dh not ignoring these issues and then big surprise when stuff blows up. It's so and i think we used some third party data, we find it useful, but not essential key thing is thinking hard about the individual issues. Some of the boutiques in our membership have some of the most challenging thing sighs, you know, and sort of dis economies of scale, i don't think operate we're talking about market inefficiencies. If you've got someone who's thinking the right way, small or large, they could pick up on this. I certainly wouldn't you size of the fund manager is a screen dance kind of investing, so we don't have a great deal of time left, so i want to go on to another topic and john, i'll put this to you know, this is going off. A recent article in the financial times that argued the key part folios thatyou stock screening can have unintended consequences for equity portfolios as it leaves. Investors exposed to other risks an example they gave us europe tens have superior sg scores we've discussed, so more stock exposure increases, exposure to euro denominated earnings what's your thoughts on i think that's very true, i just think it's something that you have to be aware ofthe take count off going back to the passives example, a basic screen may lead you toward smaller midcap stocks because more medical companies perhaps have less chance of doing something wrong somewhere compared to a large global multinational. Conversely, you could argue that it could push you towards large cap stocks in some cases because larger companies are better at gathering and certainly communicating their gsg data compared to some small companies. So i think that's absolutely right, you just have to do your analysis, be aware of it, make appropriate adjustments think on that point, you know, any investor has to decide where they're going to take race. You won't get reward without risk. What we're basically saying that because a collective around here is that, yes, it is a really good britt michigan on that, it might mean that you'd take risks on somewhere else maybe because you decide through that approach, you have a particular schooners to develop markets or certain company. But i think what we're saying is that there's a better risks to take bad governance, socially responsibility, environmental degradation and so on and so forth. But how does factor exposure change when an overlay is applied ? I think you get quality bias, i think that's very true, you know ? And i think you tend to find the companies that take us seriously. They tend to be high qualities businesses. So you know, over europe, you think value is an investment that's a style, you know, which typically lend you in the uk too. Oil, gas, mining, tobacco, things of that nature. Then you would be away from that. So definitely you do get factor biases. But i think you get that in any products that think investor, you're just trying to choose the biases that suit your requirements. The best. So, bruno, final question view. And where do you think this market will be ? In three to five years time, i think yes. Will be integrated all over the place. Certainly. With anyone who's remotely long term, you just see the pressure from the end. Clients growing daily almost andi, i think we will have a clearer that be everywhere, and i think there will be more clarity about the different flavors the impact through to continue and better different nations, more standardization. So it will be a base level yesterday. Everywhere on then the niche markets i think will become cleary more clearly defined will grow as well. No, i agree with everything that i just said i dad, i think the evolution that we see coming is going to be greatest in the real estate world where i think a lot of practice is being done for over a decade, but no really clearly defined. We've also spent the entire time talking about market inefficiencies, how you exploit them to enhance our phone that's obviously our primary job. But there are also plenty of occasions where the markets failed, which means the markets left uncorrected lead to a sub optimal outcome for society. That's the economic definition of market failure and for as long as that's true issues like climate change for farm manager for an insurance company, crop and flood and fire at some point will cause an existential crisis for our business we need those market failures to be challenged, and financial institutions were influential in government engagement, too. So the next frontier for mei isn't so much corporate engagement, how do we engage with the system itself and re engineer it ? So that creates the react the right outcomes for icons creates the future that they actually wish to retire into. Yeah, well, unfortunately, out of time. So i'm going to ask for your final thoughts now say, john, why don't you go first ? I think my father thought would be to urge everybody to read last week's, pcc or mental panel report on climate change report on the action that needs to be taken. Teo combat climate change and meet the paris goals, i think it's a bit of a wake up call tio everyone as individuals on dh investors on the good money week website there's a write up of this year's opinion polling for nine years the most popular answer from the public when asked, what do you want to do with your money ? Is make money nine years that's being the most popular answer this year, for the first time, the most popular answer was make money on dh make a difference. There's. A change happening with our fellow citizens, the people watching this broadcast go out there and exploit it. It might. I think my final message would be that there is a bigger context, this discussion, if you look at consumer choices more broadly, increasingly, it'll be on the basic utilize your products and environmental, social context of that product. And i think that's, perfectly natural, that i started work is way into investment decisions. My messages, whatever you're kind of previous beliefs or views of this area, is to be, is to really look at it and re think about it and make a fresh decision as to whether this is relevant. Post the financial crisis thing that financial institutions lack more than anything is trust. In order to restore trust, we need our end client to understand what happens with their money in their name. We select few the viewers here. We understand how finance works, but the vast majority of the people whose money it actually is. Do not. You need to change that so that we can help them understand how we work on restore trust for our entire sector. There is no trade off between ian returns. Long term investment is a necessary condition for a good return. Super. Thank you. Well, do you stay with us here on asset tv is we've got information coming upon how you could put this master class towards your structured cpd. So all that remains is to thank my fantastic panel today. They were john david, head of green bank investments. Wrath bones. Simon howard, chief executive uk sustainable investment and finance association. Mike fox, head of sustainable investments, royal lands and asset management. Steve way. Good. Chief responsible investment officer aviva investors on bruno poulsen, md. Portfolio manager, international equity, morgan stanley, investment management. So it all of you. Thanks. So much. Being with us today and to you. Thanks for watching and see you next time. By the end of this video, you'll be ableto understand and describe where the g analysis is. Mainstreaming rapidly on where that leaves the sg funds. How to quantify the social impact of investments on the argument for engagement versus divestment. Please complete the reflective statements and validates your cd.