In this Green Dream episiode, Charlie Thomas, CIO and fund manager at EdenTree Investment Management, discusses green investing during US elections, why M&A activity is picking up and how the visa has run out for green tourists.
Thomas also urges investors to take a step back and look at the back picture, rather than focusing on short-term noise, and shares his penchant for wine due to his farm upbringing.
Watch the full video interview above and read the transcript below.
NK: Hello and welcome back to PA Future’s Green Dream series. I am Natalie Kenway and delighted to be joined by Charlie Thomas from Eden Tree Investments. Thank you very much for your time today.
CT: Good morning. Thank you.
NK: So, sustainable investing has seen a number of challenges over the past few years. We’ve moved from what I would say was greenwashing to now greenwashing.
And now with, Trump taking power yet again, there is a lot of negativity around green initiatives, especially in the US, and that is having a knock-on effect in some parts of Europe. So how are you, navigating this or how is EdenTree navigating this and has anything caught you by surprise?
CT: This is a big question. But trying to frame a little bit, sustainable investment always changes. I think that’s really important to understand. This isn’t an area which is static. This is an area which is constantly dynamic. It could be regulatory. It could be the drive for new technologies in this area and the like. So this idea that it’s static is, is wrong. And I think us as investors have to adapt to that. In the same ways that we will have we are currently adapting to a more restrictive policy environment, particularly in the US. You’re right. I think that’s well known. We’ve seen this playbook before. And, I’m sure there’s we’ll see it again. I’ve been involved in this area now for 25 years, we’ve seen a lot of different kind of, changes that have gone on in this area.
I think where perhaps we were more organised as a firm this time round is understanding, what that playbook might look like. And we arguably went into the election and post-election, probably more cautiously, a position in certain areas. Quite often in investing and particularly investing around green solutions, which is very much the core focus of myself as CIO and fund manager, its not just about investing in those companies, but also avoiding sectors. For example, we have no exposure to renewable energy manufacturers in the portfolio. Now, despite that, we believe that there’s a very positive long-term opportunity around that sector. We realise that this is now which is going to come under a lot of scrutiny and have pared back our exposure.
So those are examples of where we kind of tried to be proactive, having seen the playbook, already, albeit the playbook is more organised this time. In that regard, my final point I would just make is that it isn’t just about the US, and I think it’s a lot of focus around it, but we’ve got to remember that Europe is still pushing for greater energy independence.
Japan, for example, has come out with a very significant policy in terms of driving forward renewables in their instance as well. I think sometimes we can get caught up in that, in that short term US narrative and forget the bigger picture.
NK: Yeah, absolutely. And I think, some of the conversations have been around, this is perhaps an opportunity for some of the sustainable players in Europe and other areas like you mentioned.
And which areas of sustainable investment have been performing a bit better, perhaps in, in this environment?
CT: Sustainable investment covers a lot of areas. I would say that the areas that we’ve been seeing, particularly in the Green Future fund, areas which actually continue to perform pretty strongly, have been around the area which we would define as the circular economy, so very much around recycling the re-use of products, that was an area which has continued to contribute positively over the last couple of years in the portfolio.
That’s certainly one area, I think the areas around water, again, this isn’t an issue which is disappearing. This isn’t an area that is getting more and more focused in terms of water scarcity right through to pollution. So, those are two really notable areas where we’ve seen positive performance.
What’s also been interesting in the portfolio, and I think it’s a, a recognition, a subplot, as it were, is that we have actually seen quite a few acquisitions. So that’s companies in our portfolio being acquired. And I think that’s a reflection that actually corporates, see this still as a very important area for long-term growth. They see arguably valuations more depressed today and therefore they’re being opportunistic. So for me actually that that’s a really interesting I dimension that we’ve seen over the last probably notably over the last six months actually one which may continue as well.
NK: Yes. That is really interesting to say that, that corporates are seeing, opportunities in these, perhaps all the players and want to be part of that long term story. We’ve also seen flows suffer, sustainable funds have seen have a trickier time particularly end of last year at the start of this year.
How have EdenTree funds been performing in terms of flows? You have equity funds and fixed income funds. Are there any funds that are seeing more flows or are more popular?
CT: I think overall, our overarching kind of overarching message would be actually flows have been, we think relatively good.
There have been positive flows, actually, you know, contrary to what, the market suggesting we’ve got, for example, we’ve just launched a new product in terms of our government bond fund, that has taken money in and there’s a lot of interest around that area. So, contrary to what’s out there launching new funds, taking money in, is a sign actually, that if you have the right products, which people want, which clients want, then appetite is there.
I’d certainly point to Europe again, which is where we continue to see positive flows into those strategies. Why? Because as, as we know, there is a return to focus around Europe. Performance has actually been very strong on those strategies. So that’s helped to reinforce, not only the geopolitical situation, but also the fact that we’ve got the right products for the market at this point.
The areas where we are seeing a little bit of a change, it’s been interesting, the one area where that’s been more challenging has been infrastructure. And in particular green infrastructure. What we are beginning to see is a kind of green shoots of interest in terms of clients revisiting that sector now, seeing that there is very significant potential value in that sector, and beginning to ask the questions again.
So I’m not saying it’s a perfect picture, far from it. But actually we are seeing some genuine interest in certain areas of the market. And I think that’s one of our advantages personally, I think we’ve got a decent chance that we do have a wide variety of strategies, for people to invest in the sustainable area.
NK: Okay. Well that’s fantastic. Good to hear that. You’re saying flows and you’re feeling quite positive. So one of some of those funds have adopted SDR labels. What’s your view on SDR now that you have some of those labels? Is it everything that you’d hoped it would be?
CT: Stepping back one second. This was regulation from the FCA. It’s not something we obviously have put forward. My view around it is that there have been a lot of green tourists out there, that’ve been using that sustainable banner, as it were, to attract funds and that visa’s run out. That what’s in effect what the regulation is about.
It’s about saying those who are genuinely committed to this area, here are the standards, meet the standards, and you can continue. And I think for us that’s important because I think that helps to reduce the noise around what is and what isn’t, and people’s indeed fund or fund managers commitment to to that area. So I think overall I see this as positive.
You might argue, I would say that because, EdenTree is entirely focused around that area. But actually I do think it’s it is an important development. Let’s be honest, we are at the early stages. Regulation has come in April, and I still think we’re going to find the next six months as a kind of learning curve in terms of how that’s going to move, how people are going to adopt the labels, but also clients pick up on it.
But overall, what we have got strong participation by leading investment houses, obviously, including ourselves, who obviously are dedicated to this area. And I think that means it will build quicker than we all anticipate a degree of critical mass in this area, which is important for the whole industry. If it had just been a few one or two players, you might question that. I think we’ve passed that.
NK: That’s a completely fair response. We’ve talked about quite a few of the challenges, but what are your reasons to be optimistic around sustainable investing?
CT: I’m always optimistic. I’ve done this for 25 years. I think it’s really important to step back a little bit, reflect a little bit, zoom out, call it whatever you want.
But just remember, the issues haven’t changed. The issues haven’t stopped. Climate change is getting going to get worse. Land degradation. It’s going to be more challenging than ever. Water pollution, water scarcity, these challenges haven’t disappeared, which I would argue are getting bigger. What does that really ultimately mean? Even if you take away short term politics and, and take a long term view on it, we need more solutions, right? We need more companies adapting to it. All of that, in my view, presents investment opportunity. And I think that’s really important. It’s very easy to get caught up in the short term on this issue, but really important to be reflective that the trends haven’t changed. They are getting worse and better respects. And those companies which provide the solutions will benefit from it longer term.
NK: Absolutely. It is important that we focus on the long term and the impact these things are having. Okay. Well, thank you very much for your time. We always end the green dream with one question, which is what is your favourite sustainable drink or snack?
CT: I was very unusually brought up on a farm. But that farm involved, making grapes and making wine. I have always been, have a penchant, shall we say, to wine. But our wines are all organic and biodynamic, so that’s my little play on it. It’s unusual. But, that’s. Yeah, that’s where I am. And that’s where I’ve come from, and that’s where I am.
NK: Well, fantastic. We definitely haven’t had that one before. So, thank you Charlie, really good to chat with you. Thank you so much for time.
CT: Not at all.
