After the Hayne Royal Commission many advisers decided to steer away from large dealer groups in favour of becoming self-licensed. In the last six months, however, that trend has taken an abrupt turn.
While known for being the flagbearer for financial product providers, the Financial Services Council is now making serious inroads into the financial advice sector.
Following the money key to investing for a better world
“Following the money” was the resounding theme during the first, exclusive session of Australian Ethical and The Inside Network’s inaugural ‘Investing for a better world’ Masterclass.
Set over the three separate sessions across three weeks in the lead-up to Christmas, the Masterclass has been adeptly structured to bring together industry experts spanning the financial, investment and technology sectors. In an era of ‘greenwashing,’ in which everyone has an ESG policy, the mission is to provide Australia’s leading financial advisers with the tools to answer the questions of their clients and ultimately deliver better outcomes for all.
Data and benchmarking was the topic of the first interactive session, which combined Andre Roberts of Invesco, Stuart Palmer of Australian Ethical and Tim Buckley, of the Institute for Energy Economics and Financial Analysis.
Hosted by industry and ESG leader, Giselle Roux, the session began with Roberts providing an overview of the deep and diverse array of data sources relating to the booming ESG investment thesis. Coming from a data-driven lens at Invesco Quantitative Strategies, he flagged the four major challenges facing investors, advisers and everyone in between.
The first, is in actually understanding the plethora of ‘vendor’ data coming through, which is broadly split into “specialist” and “comprehensive,” and ranges from large and smaller players. This led into the importance of choosing the right vendors of data for the purpose for which you are seeking that data, with nuance even between comprehensive providers like MSCI and Bloomberg.
Comparisons were made between various ESG providers assessing the same companies, with as little as 30 per cent agreement on major aspects of their analysis, with the conclusion focused on identifying which benchmarks should actually be used by investors based on their own objectives and views.
Buckley relied on an extensive background in financial markets and industrial engineering to put forward key considerations on the ‘financial implications of decarbonisation.’ In a wide-ranging presentation he placed blame on a lack of clear energy policy from the Federal Government for close to a decade for the seeming stop-start nature of investment into fossil and renewable energies. Questioned on the topic by Roux, it is clear that private markets require rules and regulations along with policy guidance to really pivot to the ‘new economy’.
Buckley suggested COP26 had been quite a significant success despite the headlines, with some US$130 trillion ($180.6 trillion) pledging to institute policies that will keep temperature increases to 1.5C, saying “I wouldn’t bet against it.” Australia’s Scope 3 emissions remain a “huge externality not priced in,” with Australia’s outcomes likely influenced by what our major customers in Korea, Japan and China do.
“Why so bullish?” he asked, highlighting the “massive ongoing deflation” in the cost of producing renewable energies. Comparing today’s largest utility in the US, NextEra Energy, to yesterday’s in Chevron, Buckley highlighted that one had returned negative 16 per cent over the last decade and the other over 500 per cent.
Stranded assets, remediation and other costs were under-appreciated risks, with BHP’s decision to write-down Australia’s largest thermal coal mine to a negative value the perfect example. He remains sceptical on the opportunity for carbon capture and storage (CCS), highlighting the ‘White Elephant’ Kemper plant being literally blown up in the US.
Closing out the session was Stuart Palmer, head of ethics at Australian Ethical, who offered insight into the unique ways in which his team have leveraged many differing data sources to deliver long-term outcomes to investors.
He flagged the fact that ESG data and analysis is only a few years old, in comparison to traditional accounting practices that measure dollar outcomes, which have ‘centuries’ as history. The ‘countless dimensions of impact’ were a key consideration of the analytical team, which ultimately determines the investable universe from which the analytical teams take over with fundamental company specific analysis.
“What does meaningful ESG data look like?” remained the key point of discussion, with many operating in the industry seeking to “cherry pick” data that suited their existing strategy or finding the financial characteristics of ESG companies.
Australian Ethical’s approach, he says, was ultimately about understanding that you “need to use imperfect data” and that there is no one source that will be available. Sources ranging from non-government organisations (NGOs) to Responsible Investment bodies and academic groups were among the range of sources they used, depending of course on the type of company or sector.
For instance, AE has its own framework for most sectors of the economy, retailing being one, in which the key impact considerations, both positive and negative, are common across sectors and can be easily compared.
Ultimately, he concluded that regardless of the data sources used in each situation, it “must be systematic” to actually make sense in a helpful way for advisers.
