The covid-19 crisis has led to a growing realisation that the world’s societal and investment practises were unsustainable and should lead to a massive shift in approach, according to Fred Kooij, chief investment officer at wealth manager Tribe Impact Capital
Companies are already thinking about their culture, the place they have in society and how they future proof their business, he added, in light of the pandemic that has brought businesses and economies to a standstill around the globe.
“The crisis has been an accelerant of that realisation and focus on sustainability,” Kooij said.
“We are gathering more and more evidence that the current market sell-off could mark a catalytic moment in the reassessment of the role impact investment can, and should, be playing.
“Covid-19 is providing a tragic, yet timely reminder of our responsibilities as citizens both within our community and globally; nature and society can only remain imbalanced for so long before the pendulum swings back.”
Kooij has worked at the wealth manager since last summer but it was set up four years ago by David Scott (chairman), Amy Clarke (chief impact officer) – who recently shared her working from home set up with ESG Clarity –James Lawson (partner) and Harry Catchpole (partner).
“Setting up this company back then was truly anticipating the direction of travel for impact investing,” Kooij remarked.
He added the one of the aims of the company was to encourage clients to have a closer relationship with the ‘impact’ their investments can have.
“People are detached from their capital. We are very much reshaping the wealth management industry. There is a huge inter-generational and inter-gender wealth transfer going on.
“We are focused on getting capital in the financial system to work to create a sustainable future. We have seen some disappointing behaviour; zero sum changing, no sense of collaboration, a quarterly focus… companies are missing the point of serving stakeholders, there is a virtuous circle.
“Those that think more carefully about it are servicing all their stakeholders and that is where you create more meaningful companies,” Kooij said.
The company is a Certified B Corporation business, which means it balances purpose and profit, and also directs 20% of its profits to high impact organisations.
Investment approach
“This is not ESG investing or a box ticking exercise,” Kooij explained. “There are certain sectors that know how to do well on those tests and investors can be misled into following it, such as oil companies or cruise liners – this isn’t going to bring us into societal harmony by 2030.”
While the firm does screen out exposure to airlines, fossil fuel companies and oil and gas, Kooij said portfolios are highly concentrated using the UN’s Sustainable Development Goals (SDGs) as the “north star” of its investment framework.
“We are a high-touch wealth manager; the majority of clients want bespoke portfolios. A lot of our decision making is based on our model portfolios and the themes we are most interested in,” he added.
However, he said traditional onboard processing of clients makes it difficult to understand their requirements particularly from an impact perspective.
“If you ask someone what their values are, it is tricky for them to articulate.
“There are lots of prompts for this at Tribe, our ImpactDNA profiling process helps uncover the values and preferences of our clients with regards to the UN SDGs and which ones they care about the most. This helps us understand why they have arrived at the point they are.
“Once we understand which SDGs are most important to them, we are able to look at stocks and funds and tag them to the goals they are most geared towards.
“We also talk clients about financial and impact returns; their investment is changing the world. The amount of power you have as an investor is as at least as great as the power you have as a consumer but a lot more understanding is required,” he said.
The firm constructs portfolios using a mixture of individual holdings such as stocks as well as funds and Kooij said their strict criteria does not restrict.
“There is a misconception that you restrict your universe with this sort of lens, we still have thousands of names to look at.”
Transition
However, on the fund side he said he and his colleague Clarke have looked at 110 equity and credit funds to seek to allocate to but only found 25 to be investable. They are also not afraid to hold fund managers to account when it comes to meeting sustainable goals.
“There are funds that are labelled fossil fuel free that aren’t yet but are in transition to be. We do not want perfect to get in the way of the end goal. If companies are in transition towards lower carbon and more sustainable practices; and we are convinced that this journey has got full buy in from management and will be seen through, we are happy to support in the early stages as well. So we may have some small fossil fuel exposure but that will be phased out over time as those companies migrate.
“There is no perfect company, every company has an offset, there are trade-offs everywhere. Electric cars have a carbon footprint – they are involved in mining lithium. We are absolutely cognisant of that; those compromises do exist.
“But also, we absolutely put together timeframes for these companies and funds to meet these targets. We recently divested with a fund manager for not meeting this.”
Turning back to the fall-out in the coronavirus pandemic, he highlighted recent Morningstar research showing ESG strategies held up better than their non-ESG peers in the volatile Q1 but he said the coming to the fore of businesses that are supporting and driving the world through this crisis is of more significance.
“The businesses that are demonstrating their ingrained sustainable practices across all metrics which is allowing them to not only weather the storm but help others to do so also.
“The current covid-19 pandemic should act as a catalyst for companies to re-cast their systemic role and responsibility, or investors will quickly recognise that companies who don’t understand this will, at best, have significant additional costs coming or, at worst, fail to respond and damage their long-term competitiveness.”
He said he hopes the common pushback from mainstream finance about impact investing is that it is a “fad” or “bubble” should dissipate as lessons are learned from this crisis.
“Companies will re-examine their purpose and culture as they assess their reaction to this sudden crisis – that is inevitable in the face of the scale and depth of challenge we have faced. As we work together to stabilise and kick start our economies, will it be ‘business as usual’ or will we take this opportunity to re-imagine business models and investment paradigms to be future fit? Only time will tell.”
