This week the FundCalibre team focus on sustainable investing with two key figures from CCLA: James Corral, head of sustainability, and Charlotte Ryland, head of investments and manager of FundCalibre Elite Radar CCLA Better World Global Equity. They explain their unique approach, which balances achieving robust financial returns with driving significant societal change.
Why you should listen to the interview
This interview offers valuable insights into how sustainability and financial performance can coexist within a robust investment strategy. It’s particularly enlightening for those interested in how large corporations can be influenced to improve their practices, making it a must-listen for investors and sustainability advocates alike.
This interview was recorded on 20 September 2024. Please note, answers are edited and condensed for clarity. To gain a fuller understanding and clearer context, please listen to the full interview.
Interview highlights:
A sustainable heritage
“In many ways CCLA is the heritage asset manager that very few people have heard about, given that exclusively until a few years ago, we focused on the not-for-profit sector and it’s only in the past couple of years that we’ve really gone out of that area to try and attract a wider audience, including the retail investor.
“So a little bit about CCLA, we draw our roots back to 1958 and like I say, during that period through to about 2021, we exclusively focused on charities and local authorities and with the UK’s largest asset manager for charities at the moment. You mentioned our good investment philosophy, that heritage is so important for who we are and where it is that we’re going.
“Because in essence, charities require first and foremost good investment returns to be able to go out and do their good works. They are not able to sacrifice return for the sake of style, for the sake of sustainable portfolios. They genuinely need their investments to perform. But the second thing that they want is they want to use everything they have to genuinely try and achieve their mission of driving change. And so sustainability, whilst not at the portfolio level, has been hugely important to them. And that’s driven our approach to always trying to give our clients that twin objective of great returns, but also using their assets as a force for good.”
Making the “bad” companies “better”
“The sustainable investment sector for me has run this risk of let’s build a bubble that pretends the world is warm and cuddly and forget all of the bad stuff. And if you forget all of the bad stuff, you’re not going to make it better. You have to accept what the world is and be in it to actually drive improvements. And you get right back to the core of what a client is really looking for when you talk about sustainable product. Most want to make money and be proud that their money is doing something useful for society and the environment as well. So making sure that actually we’re not turning a blind eye to the problems of the world. We’re in the world and working to change it.
“We are not building a portfolio of sustainable leaders. We’re building a portfolio of what we think are great companies, but there are great companies that often need to change because we have to recognise that actually while sustainable investors like to think we live in a sustainable world, we really don’t.
“Most companies are frankly not perfect, but what we want to do is exclude, perhaps might be the worst, and then actually sort of work actively with others in order to improve what they’re doing. And so our firm does have some exclusions. It’s about 10% of the world market that we’re excluding from the portfolio.
“But actually, if you looked at those, all of those companies from an investment perspective, they’re probably not naturally things that we’d want to be investing in anyway. Our focus on policies on businesses, which we think are on the right side of change. And so something like the oil and gas extraction, for example, these are businesses where in the long term we are gonna be using less oil and gas than we are now. And even today these are deeply cyclical businesses, very capital intensive and just don’t produce the kind of returns that we think are the right ones for our clients. So that it, it doesn’t seem to us attractive from an investment perspective.
“So we think it’s actually by taking the world for what it is and trying to make it better, we can achieve the changes that we need to see. So for us, we want to see those companies in our portfolio that aren’t irredeemable cases, but genuinely do need to improve because our unique selling proposition is getting into them, engaging with them and trying to get them to take those steps that they need to take to become a little bit better. And like I said at the start, a big company that gets a little bit better is a large amount of lives improved.”
“Looking for companies on the right side of change”
“Healthcare for us seems like a really interesting area. I mean, one, you’ve got demographics on your side and the fact that we have an aging population in most of the world and as we get older, unfortunately we tend to consume more healthcare products. But the other side of that is the huge amount of innovation that’s going on within healthcare, whether that be genetics, whether that be new drugs that are coming out, whether it be new medical devices and getting access to all of those trends we think is really interesting.
“The majority of our healthcare exposure is coming from what we call the picks and shovels of the healthcare world. So these are the businesses that are helping the scientists when they’re researching new things, but also when they are producing new molecules as well. So bioprocessing, so all these new protein based drugs really quite difficult and complicated to manufacture. So things like Thermo Fisher, things like Danaher, Agilent, these are all businesses along that supply chain, which are providing those tools but also providing a lot of consumables. And that gives you a degree of predictability in the revenues that they’re producing.
“We’ve also got AstraZeneca, which is a leader in oncology products. They’ve got quite a lot of products already on the market. They’re extending them from one type of cancer to another. And that’s been really interesting. We think that continues to be quite well placed. And then the other one we have is Nova Nordisk, which we originally bought because it’s diabetes franchise, but actually of course has generated this obesity drug, which is one that has been incredibly successful.”
Conclusion
It’s clear that sustainable investing requires a nuanced approach. By engaging with companies, even those with challenging issues, investors can drive meaningful change. This discussion underscores the importance of not just avoiding problematic companies, but actively working to improve them. This conversation provides valuable insights into the true power of responsible investing.
