The point is raised by UniSuper’s investment chief John Pearce to counter the argument put by BlackRock’s Larry Fink and others that climate transition represents a historic investment opportunity.
The reality is he is not the only one in the market with that view and Tesla is already trading at some 1700 times expected earnings.
Still, Pearce, who has $93bn under management, doesn’t disagree with the sentiments expressed by Fink and notes his best performing fund, the $3bn Global Environmental Opportunities fund, returned 50 per cent in 2020 and is up 10 per cent this year already.
The fund’s top three investments are Solaredge Technologies (9.3 per cent of the fund), Tesla (8.6 per cent) and Digital Realty (8.2 per cent).
All three are in line with prevailing market themes in favour of technology and decarbonisation in a market flooded with liquidity and risk-on.
In his annual letter to corporates Fink said: “The more a company can show its purpose in delivering value to stakeholders — customers, employees and communities — the more it will produce long-term, durable profits for shareholders.”
He added: “The more a company embraces the climate transition and the opportunities it brings, the more the market will reward it with higher valuations.”
Fink’s views and widespread acceptance of the push to net zero emissions is in stark contrast to Prime Minister Scott Morrison’s views on the issue and his laughable suggestion that debate on the issue was over — it is, and consensus is against him.
In a note to clients on Tuesday, Goldman Sachs analyst Arjun Menon said: “US ESG-focused equity fund inflows in 2020 totalled $US47bn, two times larger than the previous five years combined.
“The average US ESG equity fund,” he noted, “has outpaced the S&P 500 (30 per cent versus 21 per cent) and the average US large-cap core mutual fund (19 per cent) during the past 12 months.”
It was metrics like that which first attracted AustralianSuper’s Andrew Gray to environment, social and governance investing in his Goldman days back in 2006.
He now heads the $200bn fund’s ESG team which has seven people and soon will be expanded with a London-based team member.
Back in 2017 he was one of the five founders of the Global Climate Action 100 group of investors, which now has 540 members with combined funds under management of $US52 trillion ($67.5 trillion), including Blackrock, UniSuper, Hesta, Aware and AMP.
Aware Super’s Liza McDonald argues ESG is a talking point with boards and engagement is the key.
UniSuper’s Pearce noted boards first got serious about investor dialogue 10 years ago when the two strikes rule was introduced for remuneration reports.
He said the governance issue is clear, as is the “e” which represents climate change, but the social issue is “very difficult”.
Benchmarking is the missing element. McDonald says the “s” is all about how the company operates in the community. Her benchmark is how willing a company is to engage and to respond to problems.
Gray says ESG is now integrated into investment decisions and boards have welcomed the increased engagement.
In his letter Fink said: “Companies, governments and investors are driving towards a net zero economy with dramatic implications for company valuations and for the global economy.
“Net zero (emissions by 2050) represents a chance to build a more resilient economy that benefits more people.
“Companies that have a well-articulated long-term strategy to address the energy transition will distinguish themselves with their stakeholders.”
Fink noted: “We support moving to a single global disclosure standard so investors can better evaluate long-term return potential.”
In March the Climate Action group will come up with its benchmark performance statement to measure company performance.
Homework debate
Ernst & Young boss Tony Johnson returned to the office last week for the first time in 10 months but figures nationwide suggest the average back in the office is more like 30 per cent-plus.
COVID willing and all going well, he thinks this time next year it will be more like 80 per cent.
Telstra’s Andy Penn will present at CEDA on the issue on Thursday, stressing the importance of management flexibility.
Last year staff surveys told him most people would prefer to spend just two days in the office and three days at home.
Johnson said the Sydney and Brisbane outbreaks clearly had some impact on the return to the office, and while not thumping the table on the issue, he is a supporter of office work.
“Connectivity, teaming and learning are an important part of corporate culture and are helped by more people being back in the office,” he said.
Orica’s Alberto Calderon is even more forthright on the productivity benefits of more people in the office.
He warns of the unintended consequences of the working-from-home switch — because if you can work in South Melbourne then you could do the same function in Singapore or Poland or South America.
“Running a big company by Zoom is inefficient. You have to schedule meetings every half-hour but some may last five minutes and others 1½ hours — so much time is lost,” he said in an interview.
Microsoft’s Satya Nadella told the New Yorker that “digital technology should not be a substitute for human connection”.
He worries about the loss of social capital, arguing “communities grow out of personal interaction”.
EY’s Johnson agrees but thinks COVID has created structural change in the workforce, which the New Yorker argues will mean a change in office design.
This has already happened in part, with the hierarchical structures disappearing and more open plan and flexible structures to encourage connectedness.
Calderon says some functions may be possible, like legal work where you can keep a closer eye on activity, but this can be outsourced.
As Australia edges closer to COVID vaccines the debate on the office will intensify, with entire city structures in question.
Telstra’s Penn will stress the need for flexibility later this week, rightly arguing it is difficult to lay down firm rules for different people in different jobs with different circumstances. Some argue an office is a respite from home, a source of friendship and maybe a place to learn. Spontaneous interaction with colleagues can work better than scheduled meetings.
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