Outlook for Sustainability Investing

EMS:
Absolutely, Whitney. To kick off the conversation, tell us a little about the firm, and how you got to where you are today.

WS:
Yes, thank you. Schroders is a global asset manager. We manage about $900 billion in assets across fixed income, equities, multi-asset and alternatives. Our client base are institutional and retail investors, financial institutions, high net worth individuals that are all over the world. We have locations in Europe, the Americas, Asia, and the Middle East, and really like to think of our business as a global business that's managed locally.

We were founded in 1804, so we have over 215 years of experience in investment markets. What I would say has really contributed to our ability to be so successful for such a long period of time in this industry is our ownership structure. The Schroders family owns about 47% of the company, and when you put the shares of the employees on top of that, it brings us over 50%, yet we're a publicly traded firm. What this does is, it gives you the transparency of a public company. We have to report quarterly, we're traded on the FTSE, but we have the ability to think long-term. The family wants us, the board wants us to think long-term, and so we're able to deliver long-term value for our clients.

Now, how I ended up at Schroeder's is a bit of a circuitous route. I got out of grad school, and I worked for a forecasting firm, Wharton Econometrics, and I forecasted state and local economies. I'm not going to hit on every job that I had, but I was recruited out of there to go work for state government, forecasting state tax revenues, and working with policy, so anything that had a financial impact on the state, so serving as the assistant to the Secretary of Finance, and doing a lot of work with the governor and their tax policy group.

I, several years down the line, was recruited to work on a municipal finance desk at Schroders. Over the course of my time here at Schroeder's, I have covered a lot of different aspects within fixed income across municipals, or fixed income securitized, and also spent some time with our sales team, working as and investment strategist, meeting with our clients all over the country. I recently joined the sustainability team, so I was able to bring my investment experience, my policy background, experience talking with clients to a part of the firm that we think is very important to the future of investing. It's a little bit of a round way to have gotten here, but it's been interesting.

EMS:
Absolutely, Whitney. That's a nice segue into the next question I have for you about sustainable investing, which is obviously very topical right now. I wanted to hear your high-level outlook for this space.

WS:
If I'm thinking about sustainable investing, I think there are three things that I would highlight from a near-term perspective. The first is around the headwinds that are facing sustainability. They're likely to continue, and they start really with the Russia/Ukraine invasion, the macro environment that we have seen changing over the last couple of years. Moving into a rising rate environment, that's really certainly impacted some of tech funds that have tended to populate some of the ESG funds, versus the energy and defense companies, particularly in light, of course, what's happened with Russia and Ukraine, and the increased demand for energy. From a political standpoint across the state level, that has been a very challenging environment, and it's going to continue. Certainly over the next couple of years, we would expect that to do so.

The next thing that I'd highlight is the regulatory oversight, and that's going to continue as well. Right now we're waiting for several final regulations with respect to climate disclosure, the Names rule that should be coming out of the SEC relatively soon, these were proposals from 2022. We also expect that we'll have a proposed regulation around social issues coming from the SEC relatively soon. From a state level, there's been more than 300 bills that have been introduced around ESG-related legislation. Those range from challenging federal rules, prohibitions, disclosures, how we're voting, that's going to continue. The last thing that I would highlight is the S, so the social, the S in ESG. That social component is going to become increasingly important. Those social costs, that S part, are becoming financial costs. Understanding how a company interacts with the communities in which it operates is critical.

If we think about inflation, recession fears, a cost of living crisis, these are all social issues that are impacting people in countries all over the world. If we take just one example of the S, there's evidence that shows that paying workers a living wage leads to better health outcomes. It leads to an increased ability to recruit and retain staff, and increased productivity. Are we using this information so that we can not only deliver better outcomes for our clients, but also be able to address that S, which we increasingly see people care about?

EMS:
Whitney, more specifically, what are some of the greatest opportunities you see in this space, and why?

WS:
Well, when I think about opportunities, I would look back to the shift that we've seen in climate legislation, some of the major new industrial policies out of the EU and the U.S. that are mandating investments in green technology. Essentially, you're seeing a conversion from climate policies into concrete action, and as a result, you're going to see a reallocation of capital. If we think about the U.S., it's the Inflation Reduction Act, the IRA; in the EU, the Green Deal Industrial Plan. The IRA is nearly $370 billion. That's going to ripple through the economy. It's going to support projects that accelerate the growth of clean energy, energy infrastructure, and this is really a sea change for the U.S. energy sector. I touched on this earlier, the ongoing war in Russia and Ukraine, it's increased concerns around energy security, and the need to reduce reliance on fossil fuels. When we think about opportunities going forward, looking at having that necessary infrastructure for a successful transition to renewable energy, so looking at renewables, wind and solar investments, I see those as opportunities coming forward.

EMS:
Whitney, on the other hand, what are some of the greatest challenges you face, and how do you expect to conquer them?

WS:
I touched on this I think in the second or third questions around here, which is the current environment in the United States. I see the two biggest challenges today are the current environment in the United States and the lack of definition around what sustainability means. It's that lack of definition around what sustainability means that has allowed the vacuum to evolve into the divisiveness that we have around sustainability right now. There's not a single definition for sustainability. You could have several different people hear the word sustainability, and have completely different ideas as to what it actually means for them from an investment standpoint. There's a very real need for education around what ESG means, so explaining that spectrum from integrated to impact investing. People use them interchangeably, it creates confusion, it creates skepticism, and in that vacuum, we've now had the concept of sustainability, or ESG investing, morph into all one thing. It's all been lumped together, and it isn't.

If we take a step back, and we recognize that sustainable investing is about integrating financially material ESG factors into your investment decision, we changed that conversation. It's not necessarily a, you are doing too much, or you're not doing enough question. What has happened is, we have an environment that puts investors at risk, where the investment universe has become smaller, potentially, because of concerns around the ESG screening. That has implications for a portfolio. We want to ensure that the investment integrity of portfolios does not become lost in all of the political environment associated with ESG.

EMS:
Whitney, to shift gears a little bit, being a woman investment manager, clearly you're an inspiration. I wanted to hear your experience, and what you're doing to inspire others to follow in your footsteps.

WS:
Well, I'm going to start and say that it is awesome to be able to say that the world is very different today for women than when I started quite some time ago. When I would go to a conference, I would always do a mental tally in the room. Rarely there were more than 20% female in any given conference room, or any meeting. A great example, this is one of my first big speaking events. I'd been invited to present to a group of investors by their consultant. When I walked in with the consultant, the chairman of the group asked if I would get the group coffee while the meeting got started. Of course, I take a deep breath, and I said, "I'm happy to lend a hand with the coffee, but you're going to have to wait to get the meeting started, because I'm the presenter."

It was just a natural assumption that I was the assistant to the consultant that I'd walked in with, because I was the only female in the room. That would never happen today. If I look specifically at Schroeders, Dame Elizabeth Corley is the chair of Schroeders' PLC board. We achieved our target of 35% female representation in senior management, that's up from 33% 2021. We published our global gender pay graph data a year ahead of the UK. That transparency is very important, and I personally feel that I've been very fortunate to have had strong women role models throughout my career. When I just started out, I worked the job at the state that I mentioned, I was the assistant to the Secretary of Finance, who was a female. I worked very closely with the Secretary of Transportation, who was a female.

Today, I have the privilege of working with a lot of really strong women portfolio managers and leaders at Schroders. When I think back to, what do I want to do to inspire others? I'd like to be that role model for women that are starting out today that I had a long time ago, whether it be through mentorship programs, informally at conferences, at networking, as well as through some of the volunteer experiences and board work that I do.

EMS:
Whitney, we've covered a lot of ground, and I wanted to see if there are any final thoughts you'd like to share with us today.

WS:
I think that if I were to take a step back, despite the challenges that I just outlined around the political environment that we see here in the U.S, I think sustainability is just an exciting place to be right now. I personally am looking forward to being part of the solution. I feel that the experiences that I've had allow me to bring a unique perspective. I have a background in investments, politics, policy. I'd really like to be able to bust some of the myths that surround ESG, and articulate how we can move forward in a period where there is so much division about something that, fundamentally, people want to make investment decisions with as much information as they have, or they can have, in order to make better decisions. When I think about what I want to do, I want to focus on my ability to help our clients invest in the things that they care about, so that they can make the kind of impact that they want to with their investments.

It might be specifically about having a positive financial return, right? Everybody wants a positive financial return, but some clients want to have a specific objective alongside of that financial return. I believe that we can get to a point where we can see past what has just become a politicized topic. When you really get down to the fundamental reason why investors care about these factors that have been labeled ESG, it's just about understanding those financially material factors. I think it's exciting because we are actually at a point where we can tailor strategies that are specific to the issues that people care about. If you think about things like less waste, that's the circular economy, better pay in work environments. These don't need to be political hot buttons anymore. Personally, as I look forward to the future, I want to work with clients. I want to help them achieve their financial objectives, and I want to find a way that we can move past a lot of the noise that's been created over the past year.

EMS:
Whitney, I wanted to thank you so much for sharing your perspective with our listeners. Thank you for listening to the EisnerAmper podcast series. Visit eisneramper.com for more information on this and a host of other topics. Join us for our next EisnerAmper podcast, when we get down to business.

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