EP34- How you can invest Ethically – Patrick Thomas

So, for this podcast show, we’re going to be talking to a gentleman that really knows his stuff when it comes to how you can invest ethically. And I’ll be introducing you to Patrick in just a moment. So, the title of this show is all around, can ethical investing change the world. 

Now, why am I asking this question? I feel that women will be able to make better decisions when it comes to creating financial plans and investing, and looking at their financial future if it meant thinking, “hang on a minute, you could do this and have an impact on people’s well world in the world, not just your children’s” and if they recognised the buying power that they didn’t even know existed.  

So, this isn’t just a case of ‘you should invest for your future for 10 years or 20 years. This is ‘you should invest in achieving your long-term objectives, but also could have a positive impact on the planet’. Now, that could mean that we reduce the wealth gap, that women have more money in retirement, we can make better financial decisions, leave jobs earlier, leave partners without feeling the stress that we’ve got no financial backup, and many other reasons.  

In this series of ethical investing podcasts, I’m going to introduce you to some super interesting people. Today, we’re going to kick off with Patrick, a wealth management expert.

Rebecca “I’m joined today by the lovely Patrick Thomas. I’ve worked with Patrick for a few years now, and he was top of my list to come and talk to me about ethical investments. Patrick is Head of Environmental and Social Governance investing at Canaccord Genuity. Welcome, Patrick.” 

Patrick “Thank you for having me.” 

 R “I’m looking forward to this; I always learn something new when I talk to you. And you’ve given presentations to a couple of different groups with me.  

Now I’ve got a couple of questions we’re going to lead off with, and we’re just going to see where it where we end up. Investing ethically is a subject that is very passionate for you, right? This is something you’ve done for a number of years; obviously, you’re head of a department running it. And so, what got you into this particular area? What interests you personally?” 

 P “So I think there are two bits of this that really interest me. One, that clearly the world has problems involving sustainability, be that using less carbon, be that having cleaner water, be that having cleaner air, be that having a more sustainable kind of food system. And the important thing is really, that we think that the way to solve those problems is through innovating in ideas that are providing kind of solutions. So how do we get cleaner water? How do we get cleaner air? How do we have a less carbon-intensive world? How can we create more food that is healthier for people while still being kind of tasty? And these are the kinds of questions that always really kind of interested me. And from an investment perspective, it’s a great way of bringing finance and the real world together—so real-world investing for real people.  

R “Amazing. And is it right that you still ride your bike to work every day?” 

 P “Ahh, you know what, I’m not as good as that as I should be. And my wife doesn’t like me riding on the road so much. So, I’m not an everyday bike rider. But I should be really, and I certainly was before it was cool. So, there you go.” 

 R “I can just imagine. So, what is the future of ethical investing? Do you think the roadmap has changed a lot over the last three years? I think it has quite considerably. So where do you think it’s going to lead?”   

P “Yeah, so I think the frame of ethical investing has really changed quite substantially. The frame that people used to have in this area was very much this is good, and this is bad type of view of investing. It meant there were some kinds of sectors and companies that were completely out of bounds. But actually, it didn’t do much for the world, and making the world a more sustainable place and making it a better place to live for people.  

Yes, avoiding investing in tobacco and weapons is probably a morally good thing to do. But you’ve not made the world better by just your investment not being in that. So actually, we think it’s changing quite substantially in terms of how much of an impact you can have by what you’re investing in, rather than what you’re not investing in. 

So, can you invest in companies that are making the air cleaner? And can you invest in companies that are making energy from the sun? Can you invest in alternatives to milk? You can invest in lots of areas that you can positively help the world, rather than just avoiding what’s perceived to be bad. And I think that’s the big shift that the world has started to make in terms of investing. But we’re still very, very early in that journey.” 

R “Definitely, I’ve noticed that quite considerably. But with that, what I’m noticing is a lot of buzzwords; a lot of you know ‘we are socially, ethically doing this, and we are doing that’, but to me, it feels a bit fluffy. I don’t’ want to make the sound derogatory, I’m not suggesting they’re greenwashing. But I do feel like how can they really be very clear that the companies that they’re investing in aren’t just ticking a box, so they meet a certain standard, making it okay to sort of say they’re ethical. And there are some good examples of that, for example, I think Microsoft is a fantastic example which you’ve previously given, when I did a talk. It’s really good example because they sort of tick a lot of boxes in terms of their governance. Obviously, they’re a tech company, but you know, they do invest a lot in the US Army. So, when it comes to that impact piece, are the investment firm choosing what computer companies in their funds are ethical or not? What are their standards? And every firm seems to have a different standard. They’re using a lot of different buzzwords; it’s almost like it’s become if you don’t have this sort of ethical piece and you’re not jumping on that bandwagon that then you know you’re not the cut, like you talk about bikers. Biking is the cool thing to do. It just feels a little bit like because it’s the cool thing to do everyone’s doing it. Box ticking.” 

P “Yeah, so I think that the piece with that, and the way we would kind of help frame that would be, think about what a company actually does, and how a company makes money. So, a company like Microsoft, makes money from its technology, and it can help the world by using more renewable energy to make that technology. So that’s the way to kind of think about that. But primarily, it’s still a technology company. And it just might be a bit more environmentally friendly than other technology companies, because of the way it’s choosing to access power. But you can think about other companies where their actual purpose, and the actual way that they make profit is from doing something sustainable.  

Think about companies making batteries make that are going into electric vehicles, companies that are electric vehicle companies, and you can clearly see that what that company does is environmentally positive.  

And we think that’s the way to think about it. What does the company actually do? How does the company make its money? And you can say very easily whether that is or isn’t helping the world become a more sustainable place? Totally.”   

R “And there’s a lot of grey areas, right. So, you mentioned batteries, what’s your thoughts on the disposal of those batteries? For example?”  

P “Okay, so if you’re looking for the perfect investment, that has absolutely no downsides for the world, it really doesn’t exist. So, you can get companies that do incredible things for the world through the products that they have. But that are not very nice places to work, and maybe not the most diverse places to work, and maybe have other things that are not so nice. So, I think it’s very difficult to find that kind of perfection. But what I think you can say with something like an electric vehicle is that ultimately, taking internal combustion vehicles off the road and replacing them with electric vehicles does a huge amount for carbon emission reduction. It’s just an unqualified good. And the disposal of those batteries, while it’s kind of environmentally problematic and harmful, and it’s not nearly enough to offset the positives of just taking that much carbon off the road.”   

R “And so when it comes to this shift that we’re starting to see, what changes have you seen in the last year from businesses and the ethical investing environment, especially over the pandemic? I’m sure you’ve seen large corporate firms make different strategy decisions, and then that affects, obviously their share price and how investors view them? 

P “Yeah, so generally I think this is government fund companies. And I think that the amount of governments worldwide and the amount of companies worldwide that have committed to a net zero target by 2030, is pretty large. So, whether you’re going to take that seriously or not, you have had a big shift in kind of governments and corporates and that matters. So that’s the first point that that we would kind of bring out. Ultimately, companies have said that they’re going to do something about this and actually, they are increasingly remunerating key personnel to make sure that happens. I if you’re the CEO, you might have a target a part of your remuneration that is involved with your ESG credentials. So, I think that’s important. And I think in terms of the past year, as well, and there’s a growing realisation that this has to happen quite quickly, so you’re seeing some quite youthful, aggressive targets being made and people having to adhere to them. I think that from a perspective of corporates, generally, there’s been a market shift, and it’s been a positive one. Good thing? Yeah.” 

R “And then just a little bit about the pandemic, I couldn’t really not bring it up. Because some of my greatest results last year, from our portfolios, and I’m sure you found the same was from ethical investing. And that’s not to say that future returns. And past performance is a dictation of future returns. But why do you think that is?” 

 P “Why that is, is because ultimately, a lot of this space has got very fast growth and very strong growth relative to the wider market. And if you’re in a situation where the economy isn’t really growing very much, or is going backwards, then investing in a company with that kind of growth trajectory is generally a good thing. And investors kind of want that. So, I think the second bit of that is probably while short term markets can do all kinds of things, and economies can deal with that kind of thing, I think people can see that the trend is very much in place that we are going to move towards cleaner energy, we are going to move towards less meat consumption, we are going to move towards making sure the water infrastructure is better. And we are going to move towards kind of having better healthcare for people. So, I think those trends and the companies that are involved in making those trends, a reality, we think of just clearly going to be in place for the long term. And I think there’s an investor community that has really kind of embraced that and understand it.” 

R “Amazing. And what do you think has been the greatest impact over the last five years of ethical investing? Or do you think that’s happened more in the last year, the way that you’ve described already? 

P “I think it’s been happening since 2015, actually, where I think you had some very serious kind of commitments from the UN actually in this space they put in place. They’re called the 17 UN Sustainable Development Goals. And clearly governments and corporates kind of committed to try and achieve those. Whether they will or they won’t is another matter. But I think ultimately, you’ve got a framework really, that this climate transition really has to happen, and that there’s going to be companies that are going to need to help bring that about. So yeah, I think that the pandemic has definitely kind of accelerated it. But it’s a trend that’s been in place for quite a while and still has a long, long way to go to be achieved.” 

R “So let’s just say we’ve got people that don’t normally invest, maybe not invested before, or possibly have a portfolio, but not even really even considered ethically investing because they don’t know very much about it, but it sounds really interesting to them, and that this would possibly make them more engaged with their investment decisions because of it? Do you think that by having more people ethically investing that that could change the world?”

P “Yeah, it could, it really could. And I think that you’ve seen that happen by just the investor class changing a little bit over the past year and putting a lot of pressure on companies to behave in different ways. If you think about the big oil companies; over the summer they had a lot of pressure from climate activists about doing more renewable energy, and that pressure supported by a lot of big investors out there to make sure that happened. So, I think you have ultimately seen a group of people that really want change to happen. And a group of companies, who either want to do it, or the people that are buying their shares, want them to do it. So that pressure isn’t going to go anywhere. And we think only going to intensify” 

R “Amazing! Just before you go today; you’re head of Environmental Social Governance. So let’s just talk about investment into social and governance. Can you explain to people what that actually means? I think we could probably figure out environmental. But I’d love you to explain what that might mean in your business and the types of things you’re doing. 

P “I’ll try it quite simply. So environmental, clearly, anything that’s kind of helping the planet, social, anything that’s helping people. So, think about areas like education, health care, even data privacy. And governance really is about how you’re looked after as a shareholder. So, if you buy shares in a company, how well protected are you? And does the board run that company for you in a sensible and transparent manner. So, all of those three factors are important. And, and that is ultimately what we look for, can we find companies that are environmentally progressive, Socially Important, and are governed well for their people that are investing in them? 

R “Amazing. And one last little wild card? So obviously, a lot of the people that listen to my podcast are women? What kind of ways are you seeing that whole sort of women’s wealth gap, women’s at boardroom level have an impact when it comes to ethical investing? Obviously, there’s certain governances that are in place at corporate level. But are you seeing anything major in the last year? 

P “Yeah, I’m seeing a growing kind of, and the evidence is all there, right? If you look at the kind of fund manager performance, actually, there is a much higher percentage of top performing fund managers who are women than men. There are way more male fund managers, but if you’re looking at the performance, women perform better. And so, you’ve got that situation where women are clearly under represented by the fund management industry. But the ones who are involved are doing very, very well, indeed. Ultimately, there’s a diversity problem within fund management and it needs to be solved. And if not only for moral reasons, it needs to be solved so people do better in terms of what they’re investing in. Because just ultimately, women are good at this.”   

R “Yeah, it’s a report from the US actually recently that said that yes, we’re better at it. Do you think that’s because they’re more ethically minded? But I don’t mean, that’s just that sounds really terrible, but..” 

P “I don’t think they’re more ethically minded. I don’t think there’s a particular gender reason for any of this, actually. But yeah, ultimately, it’s just a sign that, ultimately, we’ve got a very unrepresentative gender imbalance within finance. So that needs to be addressed, and it will be over time.” 

R “I can definitely see shifts happening, generally over the last 12 months in that regard. But yes, it still is still an issue for financial advisors as well. I think 86% of finance advisors are male. But there we go. Hopefully we can make strides to make a difference to support the industry. It was loved having you here today. Thank you so much for your time.” 

P “My pleasure. Thanks a lot for listening to me.”  

So, thank you so much for joining us today. And if you want to come and check out one of my ethical investing Masterclasses, then come and find out when my next one is available by the links via my website or the link below. 

I’d love to see you to come and find out more about how you can invest ethically. Have a wonderful day.