In this episode of the Green Dream, Mollie Thornton, senior investment manager at Parmenion, talks to Natalie Kenway about engaging with asset managers on SDR and their voting records, and how the sustainable investment landscape has improved in recent years.
Watch the full video interview above and read the transcript below.
NK: Hello, and welcome back to the Green Dream. Today, I’m speaking to Mollie Thornton, who is senior investment manager at Parmenion. Thank you so much for logging in for a chat today. Molly, how are you doing?
MT: Very well, thank you. Yeah, I’m not enjoying the weather so much but other than that I’m great. Thank you.
NK: Yes, typical British weather again today, isn’t it? Lots of rain
So, let’s talk about sustainable portfolios. That’s your area of focus. Performance has been a bit, what’s the best way to describe it is probably all over the place over the past few years, we had that big uplift in 2020/2021 and then a big downturn. What would you say is going on with the performance more recently?
MT: Yeah, it’s certainly been a journey, as you say. I think what’s been really pleasing to see is that as we’ve come through sort of back end of 2023 and into 2024, things have been a lot more stable and lot more positive.
A lot of sustainable portfolios tend to have a bias to those more innovative, younger, slightly smaller companies, more growthy. And so, it’s been really beneficial for them that actually as inflation started moderating, interest rates have been kind of more stable and starting to come down. So that’s been a really nice kicker for the performance of these strategies.
I think the interesting thing has as well been the Magnificent Seven. They’ve obviously been dominating broader equity markets for quite a while. There are different approaches from different sustainable managers. Quite a lot of them will have Microsoft and Nvidia, for example. They pretty much avoid the likes of Meta because of the social media damages and the recent riots and the involvement there.
And then there is mixed views on some of the others, but in general some of the portfolio tends to be quite underweight, so we’ve seen that having a bit of a drag. But actually, over the last few weeks that has started to even out. If we look at the market rally as it’s been continuing, it’s been a bit broader, which again, has been benefiting these solutions over recent months.
So, yeah, nice to see that the performance improving when the conditions have been better, as we would expect.
NK: Do you think that’s set the course for from now onwards?
MT: We’d like to think so. If you look at a lot of these portfolios they’re actually quite attractively valued at the moment, especially as the smaller mid-cap element those companies have lagged the wider market rally.
But actually, we’re seeing those companies are still delivering really strong earnings. They’ve got really strong growth potential. That should be recognised with performance. We’re quite positive about that.
NK: That’s very positive to hear. And the other big part of the sustainable landscape at the moment is regulation. We’ve seen SDR being rolled out in the UK and some groups start to adopt those fund labels.
WHEB recently adopted the impact label, which is fantastic to see. They said themselves it wasn’t an easy task, but it was worth it to get there in the end. And I think that’s what we’ve been generally hearing that there are a lot more hurdles to get through to get those labels.
But what’s been your takeaways from the asset managers that you have conversations with?
MT: Like yourself, we’ve been speaking a lot to asset managers and also directly with the FCA as well. We’ve been quite active on this. I think we’re really pleased with where the labels have got to and when it’s all in place, the regime should be really helpful.
But as you said, there seems to be some teething problems put into practice, which is expected. This is totally new, isn’t it? So, some of the fund managers have been quite open about what labels they want to go, and they’re still quite positive about hitting that deadline before the 2 December. I think others are noting that the process involves quite a lot, and there’s different approvals they need to go through.
It seems like we might be more into next year before the dust settles and we see what the universe of labelled funds looks like. And that’s obviously only the onshore funds as well. We use quite a lot of offshore funds, and I think that’s still a work in progress as well. So yeah, watch this space.
But I think is going to be a trickle rather than this flood of funds being expected to get a label on the 31 July that hasn’t quite come through yet.
NK: Yeah, very much so. It’ll be interesting to see what happens around that December deadline as well whether we see funds move away from it or towards it. Worth a chat next year.
See the latest PA Future special magazine on private markets.
Another thing that’s been going on in the industry recently is we’re seeing voting records of say Blackrock and Vanguard, the big passive providers, reducing the number of ESG resolutions they’re voting in favour for. I know that you’ve done a review of passive providers recently. What’s been your findings?
MT: We do regular due diligence from passive perspective on the quant side, but also annually we have this big ESG review, which basically involves looking through all the ESG reports, looking at voting records and, digging into under the bonnet of how these fund houses are voting and engaging with the underlying companies.
And it’s been quite stark, as you said, over the last few years, if we group into two camps; you’ve got the big US fund managers who were making some quite positive noises about ESG back in 2021. Unfortunately, since then we’ve seen the voting stats, as you say, tailing off especially support of shareholder proposals and shareholder proposals in climate in particular have been lagging.
And then on the other hand, the European fund managers have always had a lot more support in that area and have been continuing to build on that. And also, we look at broadly how these managers vote against company management in general. So are they challenging management on things like climate plans or even filing their own shareholder proposals as well.
So, I think on the face of it, we can see that passive providers offer a very similar service. I think this is a really key differential in the voting and engagement. We have a small voice, but it’s something we try to give feedback on and that managers know where we think they’re fully behind on this.
See also: Parmenion Q&A: We want evidence fund managers are voting
NK: What are the other trends that you’re seeing in the sustainable investment space in terms of asset classes and perhaps your outlook for the next 12 months or so?
MT: As you said at the start of this conversation, obviously performance did struggle a bit especially in 2022. We are in a much healthier place now through last year and 2024 it’s been really positive. We’re starting to see fund launches continuing through. And also, the flows have been positive. The latest Morningstar Quarterly report that shows a nice trend coming back in the space. We’re starting to see that in our research as well, so on our database of funds we’re seeing a lot more bond funds especially, which is good. So, impact green bonds etc.
And we’ve been seeing some work on, interestingly as well, we’re seeing a few more global equity funds with more of a core approach, which is interesting. Some of them have more focus on engagement but trying to have a bit more balance in the portfolio, which is helpful in the toolkit. And we’ve recently added one of those funds into our solution, which we think is a nice diversifier. So, yes. No doubt that it’s been a difficult period for clients, but I think from this point forward, we’re seeing positive signs, both in terms of the client demand, the flows and the range of products out there with really strong track records.
Which makes our jobs as fund selectors easier obviously.
NK: Okay, fantastic. That’s great. We always end the Green Dream with this question. What is your favourite sustainable drink or snack?
MT: Well, at this time of year, I have to say apples. I’ve got a little apple tree in the garden, so I’m looking forward to them being ready, hopefully in a few weeks’ time.
NK: Amazing, apple pie and custard one of my faves.
MT: Yes! Can’t wait.
NK: Okay, well thank you very much for your time. Molly. It’s great to talk to you as always.
MT: Thanks very much. Cheers.
