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Inside the mind of our Investment Manager, Giles

Oxford’s Giles McKean explains why climate change is close to his heart – and how the rise of Environmental, Social and Governance (ESG) investing is growing in importance for professional investors and their clients.

Tree in palms as a symbol of recycling and nature protection

by
Giles McKean

in Features

22.10.2020

One of the most satisfying things about being an Investment Manager at Charles Stanley is that we can invest our clients’ money in the same way that we invest our own. For those not familiar with the industry, you would have thought that this would go without saying – but, in the real world, this is often not the case.

Charles Stanley is in the absolute sweet spot for investment management. We are large enough to have all the research teams, support, checking and monitoring that we need – but not so large that investment decisions are made by a distant committee in a ‘one-size-fits-all’ way.

This means that Charles Stanley’s Investment Managers have the freedom to make our own decisions in areas where we have the understanding and expertise to add value for clients – but we can also use our research teams’ selections in areas where they have a greater level of expertise and have undertaken a rigorous analysis.

Trying not to melt

One area I have always been particularly passionate about is renewable energy and climate change. This is out of naked self-interest, as my Scottish blood means that I melt away at any temperature above 25 degrees Centigrade. Global warming is my own personal nemesis.

When I joined Charles Stanley in 2010, I spent time working in our Collectives’ Research Team. At this point, there were no funds explicitly targeting Environmental, Social and Governance (ESG) factors on our recommended list – so I was delighted to be given the opportunity to set up meetings with the candidate funds to see if any qualified for inclusion list as a suitable investment for our clients’ hard-earned cash. There weren’t that many ESG funds around at the time and the few that did exist were mostly of the ‘best-in-class’ type – i.e. the funds invested in the ‘least bad’ oil company. However, today the situation is utterly different. Many such funds have entered the market.

WHEB Sustainability is one that I have watched closely – and I have invested client money based on the analytical skills I learned during my time working with our collectives team. It was £16m in size in 2010 and struggling to survive. But, as a result of the rising importance of environmental and social issues amongst the wider public, the fund now manages £460m and is going from strength to strength. This was one of the few funds I identified that was investing in companies that were making a net positive contribution to humanity by tackling climate change issues, water scarcity, healthcare etc.

Having been quite niche ten years ago, ESG considerations are now front and centre of the investment process – and even carbon-behemoth BP is planning to build 50 gigawatts (GW) of renewable energy plants by 2030. The UK grid tends to run at around 35 GW. For those so inclined, if you Google “national grid status” you can see the live dials revealing where our electricity is being produced in real-time. This is especially exciting on sunny, windy days, when the solar and wind power dials jump to more than 50%. (It is often necessary to temper my enthusiasm on this to avoid boring my wife to tears!)

Conversations relate to the meaning of life

ESG conversations are quite tricky, as they weave between morality, philosophy and investment. They are always enjoyable, but clients often aren’t entirely sure about what they are asking for at the start. Often it becomes clear that they would just like to feel that their investment portfolio is doing some good. Investment returns are always uncertain – but feeling happy about part of your money building wind turbines – or providing disease-free water to millions of disadvantaged people – isn’t altered by the daily fluctuations in the stock market.

I’m not actually that keen on the ESG acronym. I prefer the more meaningful phrase ‘positive impact investing’, an approach that goes a stage further and translates to what I think many our clients want when they talk to us about these issues. It satisfies me to see that ESG considerations are now mostly incorporated as part of good investment practice – whether ethical considerations are desired or not. 

Companies that don’t meet certain standards of ESG are likely to face lawsuits, public opprobrium and potentially be rendered uninvestable by large institutional investors. This will harm their share prices and therefore investment returns. The good news is that ESG factors have now been elevated to be board-level discussions, rather than just a subsection of their marketing department. This trend now appears unstoppable – and my pale Scottish skin will be forever grateful.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal. Please talk to your Charles Stanley Investment Manager if you are interested in adding some exposure in this area. 

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