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We’ve seen the importance of ESG investing through the short-term lens of companies’ performance during this pandemic. Yet, Jeremy Richardson, Senior Portfolio Manager, Global Equity, RBC Global Asset Management (UK) Limited, suggests that it’s more about looking at how businesses have stepped up to their environmental, social, and governance responsibilities that will pay back over the long-run. (Recorded June 11, 2020)

Transcript

Hello and welcome to the Download. I’m your host, Dave Richardson, and I’m joined today from London, England, by someone you might think is my relative by name, but he’s actually a critical part of our global investment team. We had Habib Subjally on last week and Jeremy Richardson, who’s joining us this morning, is a huge part of that team. And in particular, Jeremy is a huge believer in the value of looking at ESG when evaluating companies. On an earlier podcast, we had Melanie Adams who talked about what ESG means, what it stands for and how it is an important part of the investment process that her team, her broader team uses across RBC Global Asset Management. But Jeremy, very specifically, with a fairly open mandate to invest in companies around the world, you really believe that ESG is an important differentiator for the way you and your team evaluate companies and businesses? Why do you think it’s so important?

Well, it gets us better results at the end of the day, Dave. We think that really investing for the long term is about taking a long-term perspective and putting yourself in the shoes of being a real owner of a business. And if you think like an owner of a business, we think it’s in your interest to care about the things that kind of drive long-term performance of that business that you’re part of. So by integrating environmental, social and governance considerations into our assessments of every business, every investment that we’re considering making actually enables us to get a more complete, more holistic set of data to consider. And that’s going to just work in our favour, because we’ll be able to have better insights, we’ll have a better understanding with the risks and opportunities facing that business and that enable us to value that better. It’s a little bit like, if you’re going to make an investment in your own life and your personal circumstances, maybe you’re going to buy a house, or you’re perhaps thinking about getting a new car, you check it out first, right? You go and get a surveyor to check out the property, you read the reviews of the car. And it’s only then that you would really have a good understanding of the quality of the asset you’re considering purchasing and the right value that would be associated with that, too. So what we’re trying to do here, by integrating ESG, is to get a more complete, more holistic or total view of each of the investment opportunities that we’re considering so that we can end up then making better decisions.

Now, with everything that’s been going on in the world over the last few months, as I mentioned to Melanie when we recorded yesterday, just looking at the S&P 500, if we take a specific look at companies in an index that’s put together, companies that are very strong on these measures of environment, social and governance, they’ve actually outperformed the broader market. Is this something that surprises you in any way?

Well, I think we need to sort of pass that data and be quite careful about that, because there’s quite a lot of moving currents, when you look within that. Particularly because the travails that the energy complexes has been through and a lot of ESG funds tend to be a little bit light on that. So I think we need to try to look through that, all of those sort of moving parts and actually look at the building blocks of businesses. I think one of the things that we have observed actually, as investors, when we think about the companies involved, is that those companies who’ve actually been thinking a bit more broadly about all of their responsibilities during this pandemic, they are probably going to come out of this better positioned, we feel, than when they went into it. This pandemic has been a time of uncertainty for lots of people and communities have been suffering. And companies have been forced to play their part and how they can respond to that. And we’ve been enormously heartened by the way that many of the companies in our portfolio have stepped up. Examples like textile companies, clothing companies who’ve been repurposing factory sewing medical gowns, hotel companies opening up vacant properties in order to be able to shelter the homeless that they can self-isolate in safety and technology companies, making available processing tools in capacity in order to take apart the virus so we can sort of work out a sequencing and therefore find a solution. None of these activities are necessarily going to create any profits in the short term and not things that as investors, we would expect to appear on the bottom line. But if we think about the values of these organizations and the stewardship of this reputational capital, this is going to pay back to owners we think over the long run. Because you just think about things like recruitment. If you’re graduating from college and you’ve got two companies, two clothing companies you want to go to, debating about whether you want to work for, are you going to choose the company that turns its back on its community, or are you going to choose the company to go work for that actually played a part in helping your community to get back up on its feet. I think that’s a fairly easy answer.

Yeah. And that is so important. My question was positioned, looking at the short term, but this is really about building long-term value within a company, building that reputation which, as you say, pays back over the long run. And if you are an investor, — not a speculator or a gambler — that’s what’s important to you. And it’s a lesson that we talk about on this podcast over and over and over again. And thank you for emphasizing that. I think that’s why Grandma always liked you better. You were always the smarter member of the Richardson family. But, Jeremy, thank you so much. Great to see you. Thanks for joining us today.

It’s been a pleasure. I enjoyed it.

Disclosure

Recorded June 20, 2020

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