A chat with the Blossom Fund’s ESG expert on ethical investing and the fixed income market.
Humanforce Thrive and the Blossom Fund have joined forces to give employees the opportunity to grow their money straight from their pay, while doing something good for the planet. The Blossom Fund believes money can do good as it grows, so they only invest in the good stuff – no coal, no oil, no dirty investments.
We sat down with the Blossom Fund’s ethical investing expert Dr Kylie-Anne Richards whose job is to leave the fund’s savings and the environment better off. She’s the Deputy CIO and Chair of Environmental, Social and Governance (ESG) at Fortlake Asset Management (Fortlake), has a background in high-frequency trading and is a tenured academic at the University of Technology, Sydney (UTS) with expertise in sustainable finance.
There isn’t a clear definition of sustainable finance, however it refers to any form of financial service which integrates ESG criteria into business or investment decisions. So, when we talk about business, we refer generally to the corporates, where we’re seeing a shift from what we call shareholder value to stakeholder value.
As investment managers of the Blossom Fund we have a fiduciary responsibility – that’s something that’s well known – to act in the long-term interests of our clients and also to seek the best risk-adjusted returns.
ESG factors present both a financial and material risk and opportunities across the medium to long term performance profiles of investments. You may argue in the short-term in some cases If investment managers don’t consider ESG they’re actually not meeting their responsibility to their clients. And I believe – maybe it’s a little idealistic – that we need to consider the broader impact on our broader environment, on society and on the investment choices we make.
With these choices, we’re able to direct capital towards sustainable investments and leverage private capital to achieve the sustainable development goals. What we need is to achieve the scale of investment to meet, for example, the Paris agreement’s goal of limiting global warming to 1.5 degrees Celsius compared to the pre-industrial levels. There’s a huge amount of capital required to achieve that. It’s our job as investment managers to be allocating and directing capital in the most efficient, effective way to achieve those goals. I think we have a responsibility not just to our clients, but to the environment and to society to achieve that.
When people think about finance, they think about the stock market and that’s certainly helped by popular media. Despite the fact that equity markets get more attention, what many people don’t realise is that the bond market is actually bigger. In terms of fixed income investments, some of the key things are the investments that are focused on preservation of capital and income, and fixed income investments should actually form part of a diversified investment portfolio.
Fixed income investments offer a number of benefits, so there’s regular income and returns on a set interest rate, providing greater certainty than say shareholder dividends. If we talk about diversification from stock market risk, fixed income is broadly understood to carry lower risk than stocks and this is because fixed income assets are generally less sensitive to macroeconomic risks, such as economic downturns, geopolitical events and so on.
With fixed income investments, we have the advantage of capital preservation, so it’s protecting the absolute value of investments via assets that have a stated objective of return of principal.
The challenges from the past which firms like Blossom have addressed is making fixed income accessible to everyday investors. Historically, accessing fixed income investments has not been as simple as setting up an account and buying stocks, so this improved accessibility is a hugely positive development.
The reason I’m excited to be part of the Blossom Fund team is simple: it’s the alignment of values and investment philosophy and the desire to make a meaningful impact.
At Fortlake, we have the tools, the knowledge and the academic partnerships to develop and innovate the ways to facilitate investments that will shift capital away from your resource hungry brown investments to those that’ll help economies and businesses transition and more.
The Blossom Fund have not only recognised the importance of the environmental challenges we face, but have also made the fixed income market, which we know is a natural conduit for the financing of transition to a more circular economy.
Plus, they’ve made that market accessible to those investors who care most about it – such as the millennials. I see the partnership as an amalgamation of targeting the investors that are highly motivated to make a difference, as well as generating the financial returns and allocation of capital for positive and measurable impact on the environment and society.