Facilitator: Ben MacGregor Expert: Thomas Hohne-Sparborth
Headlines:
- Transition is not just desirable, it is inevitable
- Transitioning your portfolio doesn’t necessarily mean simply moving out of high carbon emitting stocks
- There is a key balance that needs to be struck between ‘portfolio alignment and investment return’
Context:
“Transition is not just desirable, it is inevitable.” There was a lot of discussion around this, which included a look at regulatory vs fiduciary duties. Some of the views suggested that regulation was slowing this process down, and discussion around what the fiduciary duty will look like once transition has occurred.
“Investment Manager’s part is significant in the process due to being active shareholders”. The key point here is the fact that transitioning your portfolio doesn’t necessarily mean simply moving out of high carbon emitting stocks. In fact, this would be abrogating responsibility as a sustainable investment manager because then there is no influence on the future direction of these businesses.
There are a number of potential companies/investment opportunities that may appear to have high emissions but in reality, they may not.
Some examples of these included Booking.com, Ferrari and Air Liquide. The latter for example are doing a lot of work in Hydrogen and also are supporting/investing in transition solutions.
Companies (or sectors) cannot be simply dumped; proper research need to back these decisions.
There is a key balance that needs to be struck between ‘portfolio alignment and investment return’.
The group talked around how to balance the above. IM’s need to remember that clients still need to get a return on their investment, even though they are bought into the transition process.
It was pointed out that there is a cross-over with the new Consumer Duty which dictates the need for high quality client outcomes.
A key job for investment managers is how do they cut through all of the complexity to help clients to understand their methodology in the transition. Lots of group discussion about this – being honest with clients was the key theme. Lots of investors understand that this is a complex process and are bought into sustainability and want to support that transition. But they still want to see a decent return.
Key takeaway:
- “Take them on the journey with you and KEEP IT SIMPLE”
