Dealing constructively with the businesses in their portfolio is an integral part of the job for asset management’s burgeoning band of ESG-oriented investment professionals. To Eden- Tree chief executive Andy Clark’s (pictured) mind, though, the sector has work to do when it comes to another vital area of two-way communication – engaging effectively with end-investors and their advisers.
“I would not say ESG is a complex world but, as a result of the different messages out there and all the new fund groups that are suddenly ESG-friendly, it has become a confusing one,” observes Clark, who joined self-styled ‘ESG boutique’ EdenTree in September 2020 after almost 15 years at HSBC Global Asset Management and, before that, spells at DWS Investments and Fidelity.
“What that means for a business like us is we now have to be very specific in terms of our distribution strategy. From my perspective, EdenTree is a 30-year ESG veteran that people like and respect. We have £3.7bn of assets under management and, given responsible and sustainable investment is all we do, that effectively makes us an ESG boutique.
“While we have built some strong relationships and enjoy good support from fund selectors, private banks and family offices, however, we have not seen as much business as perhaps would make sense in this environment.
“Now we are seeing end-investors moving a lot more into ESG funds, the company is looking to widen its distribution channel and position itself more into the advice space as well.”
According to Clark, after eight years as chief executive at HSBC Global, there were two particular “pull factors” that drew him to EdenTree – its specialisation and an ownership structure that sets it apart from other asset managers.
“That this is an authentic ESG house was really exciting for me,” he says. “The other factor was that EdenTree is owned by Ecclesiastical Insurance, which is owned by Allchurches Trust.
“And Allchurches is not a PLC or a private company but a charitable trust, which means all EdenTree profits go up to the parent group and then to charity. That is pretty unique – certainly in the UK – and so not only do we invest in an ESG way, we also run our lives that way in terms of the structure of the business.
“Furthermore, when I first joined, I was asked not just for a one-year and a five-year business plan but a 10-year one as well.
“I have never been asked for a 10-year business plan before – and, of course, you could debate how relevant what I wrote might actually be 10 years from now – but the fact the company is thinking that way is massively important.
“When we talk about ‘long term’, it is not just from an investment perspective – how our fund managers are thinking – it is also how we are thinking as we look to grow the business.
“We are not lurching from one set of quarterlies to another – there is a long-term business perspective when it comes to bringing in new people, directing investment and changing the footprint of the company. And, as I try to do that, the long-term thought process offers a rare quality of … ‘security’ is not the right word – a robust structure in which to actually deliver a strategy.”
Setting aside the longer term for a moment, it feels remiss not to check how Clark’s one-year plan worked out. “We made some good progress, thank you,” he replies. “Just by doing a few simple things, such as badging the funds a bit differently – because they are all responsible, sustainable funds – trying to be clearer about how we run money and doubling the distribution team because we just want to talk to more clients about what we do.
“As I say, ESG is a confused market these days, with everyone claiming they are experts, so it has become very difficult for investors and advisers actually to work out what to do. One trend we have been picking up from quite a few clients is, rather than looking at individual funds, they are adopting a broader ESG perspective and taking a closer look at the house itself – so it is not just about capabilities, it is about culture and character, too.
“Charlie Thomas, who joined us from Jupiter as CIO at the start of last year, always says EdenTree is different because you just end up talking on the floor – all the time – about ESG.
That might seem dreadfully dull for some people, but it is all we do here. Every idea and every thought process has ESG at its heart, which means there are no conflicts within the business.
“So, there are no non-ESG funds competing for marketing budget, say, or researching companies we would not otherwise buy – EdenTree is very pure-play. In the medium term – so five yearsplus – I would expect a lot more concentration on the ethics of the fund group you are buying into, not just an individual fund. It goes without saying this is a trend we would be very keen to see but a conversation really is starting to happen here.”
Nobody expects fund managers to behave likes saints – even those specialising in ESG at a firm ultimately owned by a Christian charity – but how would Clark define good corporate culture and how is it encouraged at EdenTree? “To me, it is just consistently good behaviour,” he says. “And I would say it is endemic in the business because, culturally, we are there for the greater good.
“We are not there to push up a PLC’s share price or deliver on options some private equity house has given us, so the longer- term view that encourages – in tandem with the ownership structure and the area we work in – feeds into the culture. At the same time, as with any fund management group, it is crucial to call out bad behaviour whenever you spot it. Seeing bad behaviour not being addressed is the most cancerous thing of all.
“My job, I believe, is to be very clear on what we are trying to deliver and make sure we deliver it in the right way – and, again, that comes down to the people. I want to work with great people, and I think people come to EdenTree because they want to work with great people – not just intellectually, but emotionally, which ties the culture together. You are lucky when you are a boutique of 60 people because you can really make that happen.”
And how does Clark see EdenTree emerging from the shadow of lockdown into the bright light of the ‘new normal’?
“From a people perspective, the last couple of years have changed perceptions – changed the game,” he asserts. “The industry talks about these important issues like diversity and social mobility, and now we have a real chance to turn talk into action.
“I want to take this ‘reset’ as far as we can. People are important in all industries but, in asset management, it is all we have. Attracting the best minds and the best people – again, emotionally as well as intellectually – is vital. The past few years have kickstarted this and we have been having conversations with people who previously may have thought they would not fit or could not spare the time – and we are really open to that.”
It is a short jump from company culture to sector regulation, so how well is the Financial Conduct Authority (FCA) striking a balance between protecting consumers and allowing asset managers to do the best job they can for their investors?
“The FCA is in an incredibly difficult position,” Clark begins carefully. “Nevertheless – how shall I put this? – where you have regulation, there is always a risk of over-regulation.
“And if we continue to add rules in a bid to cover every possible eventuality in investment – given there are always going to be bad actors in any industry – then there is a danger of missing the bigger picture. Anyway, the best way to protect consumers is actually to ensure better education around financial ideas – though conversations on those lines have been going on as long as I have been in this industry.
“My children – twins – are 13 now and, apart from compound interest in maths, they have no concept of any of the things we talk about in investment: inflation, returns, risk and so on.
Indeed, as a nation, we are not great at analysing risk, whether we are talking about Covid-19 – the risk to us personally, the risk to most other people – or about investment and the risk of, say, staying in cash rather than investing in stocks.
“Perhaps the FCA would do better to accept you cannot protect everyone all of the time – adding rule after rule can lead to a bureaucracy that creates problems of its own – and instead try and take a holistic view of how to protect investors. As I say, inflation is racing up – and so many people in cash is, in itself, hardly a situation that is protecting end-investors.
“And of course, alongside the regulator, the asset management industry can play its part in trying to make that leap to invest easier. To be fair, that is happening a lot more – particularly on the end-investor side – with different apps and companies entering that space. Nevertheless, we do not do ourselves any favours in terms of how easy we are to access or the language we use.
“There is a massive wave of money that could flow into the industry globally – and the worstcase scenario is we miss the opportunity to attract as much of the growing assets of the world as we should. On the other hand, the best-case scenario is we do attract that money – although that will need a rethink in terms of how we go about things, given every 20-something I talk to seems to be investing in the latest dogecoin or whatever.”
Our conversation has come full circle to the most effective way to engage with end-investors – a task made even more challenging for businesses such as EdenTree because they need to achieve ‘cut-through’ on several extra levels.
In additions to persuading people of the merits of equities and bonds over, say, cryptocurrency, non-fungible tokens and meme stocks, they must also convey what they mean by ‘ESG’ and who they are as a specialist in the field.
“That is absolutely right and why we have to be crystal clear on what we stand for and what we do,” agrees Clark. “It is about making something that can look quite complex into something very straightforward. As an industry, we have often done communication poorly and, at the moment, we are probably losing out on our messaging.
“Ageing populations, growing middle- classes – we all know the stories about where the money could come from – but where it goes, that is in our hands.”
What is the best piece of advice you have ever been given?
Don’t just sit around pointing out obstacles – be part of the solution.
What is your ‘top tip’ for professional investors to help them run a better business?
Keep listening. It’s easy to get caught in an echo chamber, so try to talk to everyone in your business.
What single issue should most concern professional investors at present?
The lack of engagement with the investing public.
Does anything about your job keep you awake at night?
What worries me is missing something blindingly obvious – that I could look back in a year’s time and go, what was I thinking?
And what most excites you about your job?
I am genuinely excited to be working at EdenTree with some of the best minds in the industry and a benevolent shareholder to grow a business from a low base.
If you were in charge of the FCA, what would be your priority?
Financial education – the more we educate people, the better equipped they will be to make good decisions.
And what advice would you give to someone starting out in investment today?
Work is not just about money. You can have a long career so make it about the people and work with the best.
VFM + ESG
Would Andy Clark include value for money among the various elements of investment ESGoriented asset managers think about in a different way? “ESG does add an extra layer for us – and not just because our fund managers know their ESG companies,” he begins. “We also have our responsible investment team, who have the power to veto investment decisions, which is a very unusual set-up.
“A veto does not happen very often because the team works in tandem with the fund managers, and they all report to the CIO. This is not an ‘add-on’ – they are not there to support the fund managers but to o er equally valuable input. It is like a debating chamber where they can argue, well, we have screened this stock, reached this conclusion and maybe you want to reconsider your decision. It is an additional filter for authenticity.
“And that is where the value comes because that approach – looking at the fundamentals of a business’s culture, not the fundamentals of its balance sheet – involves a whole different mindset. ESG lends itself very well to active management because you can have so many different arguments about what it is, which in turn means we have the opportunity both to add some serious value and to demonstrate that added value quite easily.”
It may be testing Clark’s powers of tact, given his previous employer, but how does he rate passive solutions as a means of investing responsibly? “I am not against passive in any way – I come from a passive house in HSBC, of course,” he replies. “From an ESG perspective, however, I would argue it is a halfway house because, at the end of the day, you are tracking an index somebody else has created.
“And that index you are tracking has no discretionary overlay, involves no debate and will not b
changed very often. You are buying what you are buying – and that may be OK – but it is pretty rigid. Clearly, passive can get you a foot in the ESG market and it is certainly cost-effective, so I would not disagree there is a place for it. It is just, as I say, something of a halfway house. That is as diplomatic as I can be!”
EdenTree is actively considering widening its fund managers’ investment opportunity set to areas such as infrastructure and private markets, says Andy Clark, but for now the focus remains firmly on equities and bonds. Indeed, when we speak, Clark trails the imminent launch of two funds – one equity, one bond – intended to help investors “future-proof their portfolios” in line with responsible and sustainable principles.
Run by chief investment officer Charlie Thomas and Tom Fitzgerald, the EdenTree Green Future Fund will look to take advantage of the opportunities presented by the transition to a more sustainable, low-carbon economy. For its part, the EdenTree Global Impact Bond Fund, comanaged by David Katimbo-Mugwanya and Michael Sheehan, aims to produce positive financial returns through responsible, sustainable and ethical fixed income instruments.
As it turned out, in the first week February, the pair were among no fewer than a dozen new ESG-oriented funds competing for attention from Portfolio Adviser, its sister publication ESG Clarity and other investment magazines – so it was handy to have already posed one question to Clark: how does a firm like EdenTree aim to get its own message heard above the current wall of ‘green noise’?
“There is a conversation to be had here about trust, heritage and authenticity,” he replies. “Yes, it can now feel as if everyone is claiming to have been doing ESG for years but, for most investors, that is a kind of sideshow. I mean, we actually launched one of the first ethical equity funds back in 1988 – and, for us, that is very important – but what investors are interested in now is, OK, what does that actually mean?
“Well, there are no conflicts in our business, so there is a real ability to focus and be the experts.
Our job is not to be all things to all people – it is to say, this is what the company does; this is what we believe responsible and sustainable investing should be; and this is what you are going to get consistently if you invest with us. That may sound straightforward but, as you say, in a crowded market, it is hard to get your voice heard.
“On the other hand, this is not some marketing issue we are dealing with here – the move towards responsible and sustainable investing is a structural shift. And, once they dig a bit deeper, people will find investment quality. You cannot simply do a couple of exams and suddenly become an ESG expert – and when you look at the tenure of people at EdenTree and some of the other ESG specialists, that is where the experience is.
“ESG is not something you learn from a textbook but through staring at a screen, meeting with companies and talking with like-minded individuals in the same firm. That is what I mean by authenticity – it is more about the people and what they bring to the party rather than having this or that exam, say, or putting your rubbish in the right container or whatever.
“Asset management has arguably always been about people – and even more so with ESG because it really is intellectually stimulating. It is not just about choosing Shell over BP, is it? It is about choosing to buy neither and coming up with a different approach – so you change the game a bit. There is an extra layer of intellectual debate that goes on with ESG, which is exciting.”
Culminating as it did with the COP26 Climate Change Conference in Glasgow, could 2021 come to be seen as the year the different ‘stakeholders’ in investment – regulators, asset managers, consumers, governments, media – all began to pull in the same direction on ESG? “Things have probably been moving that way for three or four years but certainly we hit ‘peak ESG’ last year and it is not going away,” Clark believes
“ESG is mainstream and part of the future of investing – in fact, if I have a concern, it is that maybe we could start to see a bit of ‘ESG fatigue’ … that people get bored of hearing and reading about it, bored of seeing all the adverts, bored of trying to make sense of the conflicting vocabulary, which the FCA and EU are admittedly now working to clarify. That will not stop the direction of travel, but investors can and do switch their attention.”
Clark appears more sanguine about the risks of, if not bubbles forming within the ESG arena, then perhaps money ‘crowding’ into certain sectors. “I do not see that as a worry so long as the definition of ESG remains so wide across asset management,” he says. “Undoubtedly, there are companies that attract more assets than others but that has always been the case in stock markets.
“There is always the possibility of a bubble happening in ESG – just as there is with any sector – and yet, because there is no one definition of ESG and so investors can come to different views on the ESG merits of the same company, it does not strike me as bubble territory. Certainly, when you think about all the cheap money sloshing around markets, there are areas with a lot more potential for bubbles than the ESG space.
This article first appeared in the February edition of Portfolio Adviser magazine