The Responsible Investing Podcast, Ep.6: Value verses values, with Julie-Ann Ashcroft

Amanda Young: Welcome to the Aberdeen Standard Investments Responsible Investing podcast. I'm Amanda Young, and I will be hosting your podcast today. Now, these podcasts are designed to hear from a range of guests on responsible investment issues and today I am really lucky to be joined by the lovely Julie-Ann Ashcroft, who is the Head of Investments at Aberdeen Standard Capital. A warm welcome to you today, Julie-Ann

Julie-Ann Ashcroft: Thank you for inviting me onto your podcast. Amanda, I'm absolutely delighted to be here, although if I'm completely honest, I am more than a little intimidated to be following Richard Curtis.

[laughter]

Amanda: Well, I'm sure it's all going to be perfectly fine. A little bit of an introduction to Julie-Ann for our listeners, now prior to joining Aberdeen Standard Capital in 2013, Julie-Ann worked at Newton's private client business. In fact, she worked there at the same time as I was at Newton. I have been very fortunate and lucky to work with Julie-Ann for over a decade. Now, Julie-Ann manages private client portfolios and she also leads on Aberdeen Standard Capital's Responsible Investment Proposition.

She has had a convoluted journey into the financial sector, having grown up in Lancashire, studied pharmacology and chemistry, and worked on a PhD for four years at Imperial College. Now, part of this PhD, she ended up producing tech solutions for investment firms, and on a project with Mellon Bank, Julie-Ann was offered a job which finally led her into managing money. Now Julie-Ann claims she is still a bit geeky. She is currently learning Python, which is a programming language for those who don't know, and as a classic introvert, she loves to read, run, and do a bit of gardening. Let's hope our interview today doesn't put her too much out of her comfort zone.

Julie-Ann, let's kick-off and let's begin with your industry. Managing money on behalf of private clients and high net worth individuals is very different from potentially working in the mainstream investment management industry. Certainly in my experience, responsible investment activities have grown in prominence for the private wealth industry over the past few years. Now dealing with private clients, so face to face clients, is certainly different from dealing with pension funds or trustees of large institutions. Perhaps we can begin with how you have seen the wealth market change over the past 10 years in its consideration of these softer elements, as well as how your job has evolved to take on these issues.

Julie-Ann: I think I'm generalising pretty heavily here, but there's always been a residual number of clients that have applied a screen to exclude the typical sin stocks, more prevalent among charities and extreme among environmental and faith-based charities, as you might expect. We have seen a shift in what clients view as important. I took on a private client 10 years ago, who requested a screen to be applied that was solely focused on human rights. This was unusual at the time and I think we won the pitch largely because we could deliver the screen with some integrity. Since then, I've seen a gradual increase in demand for this sort of focus. This has gained more momentum in recent years, aided by the fact that we're better equipped to explain how we can implement such a request.

Over the last three or four years, we've seen a significant rise in interest around climate change and how we consider this, starting again with charities, particularly universities that are lobbied by their student bodies, but this interest has broadened quite significantly. I think today, about a third of our direct invested portfolios apply some kind of specific responsible investment criteria. And of course, over the years, alongside this, this has meant that it's going to become an increasing part of my role and in fact, an increasing part of the role for everyone in the investment team.

Amanda: What do you think the biggest drivers of these changes has been over the past 10 years?

Julie-Ann: I think as we digest an ever-increasing amount of data on a daily basis, we're increasingly aware of all that be considered wrong with the world. We become more motivated to do something about it. Older generations are not immune to this more enlightened state, but we typically see generational influence as more young adult children pressure their parents into taking more responsibility of how they invest. When they inherit assets themselves, we often see a radical shift to a fully responsible investment mandate.

I think beneath this very obvious trend, I think we're starting to see a gradual shift in mindset too. So for many families, their wealth has been looked after for generations by advisors and investment managers. Part of the service was that the client could handover all responsibility for their investments and they were steered first and foremost by what their advisor said. I think we're now starting to see an increasing number of clients ask more questions of their advisors and investment managers and you can see they are gradually reclaiming more responsibility for their investment choices.

Amanda: I think that's really interesting to see the end investor taking more responsibility but obviously, the shift has been gradual. Certainly, in my experience, having worked in the industry for 20 years, it hasn't always been easy to get people to buy into what you do and what you're saying. You have a direct ear to your clients, so that does help. I'm keen to hear about any particular areas of challenge you may have encountered in your career while promoting the benefits for responsible investment. Difficult fund managers, for instance.

Julie-Ann: Yes, most certainly. I think you're absolutely-- you hit the nail on the head. Convincing some colleagues and advisors that investing responsibly doesn't need to be detrimental to your wealth has been the big one. I think Richard Curtis termed this really well his podcast, it's the value versus values debate. I think even with considerable persistence on my part, and others, and yours, this ingrown attitude just-- it still remains for some. I think what many fail to recognize is that responsible investment looks very different now or it can do.

I think as newer preposition, positively themed proposition, gains track records this will help the arguments. I think this has been the big challenge behind this view, the history of a poor performance track record of many negatively screened ethical funds that exclude significant exposure to certain parts of the markets and the important characteristics that they provide.

For example, if we exclude mining stocks and China stocks building houses, more houses, then we're in trouble when we look at performance relative to the broader market. Now, we have this opportunity to invest in positively themed stocks, we can create a portfolio that reflects the whole of market, or at least the characteristics of the markets. For example, we may exclude oil producers in our climate strategy, but we can add exposure to the energy price in other ways, such as through renewable energy.

I think the second bigger challenge is translating what we see is considerably interest from clients into actual demands for investment proposition. Historically our industry has had a tendency to describe what we do in a language that just doesn't engage clients. I think this remains a problem to this day. It can lead to a lack of trust that we can actually meet a client's responsible investment requirements with integrity or even interpret what they're looking for.

In the middle, you may have advisors or consultants who are also struggling to interpret what the clients are asking for and to appreciate or understand what's available to meet their requirements. Increasingly, we're meeting clients who know far more about investing responsibly than their advisor or many of our colleagues. I think this will change though with regulation.

Amanda: I think the regulation is a big piece coming down the line but obviously at Aberdeen Standard Capital, this responsible investment has been a big area of focus for you and your colleagues. However, there's always been a bit of a perception that private wealth sector within the investment industry wasn't really interested in the softer issues.

I was quite interested to hear that you've always had an element of clients that have wanted to screen certain things. I would be interested in your view of the private market industry, the private wealth market as a whole, and whether your competitors or whether other colleagues in the market have moved as quickly as Aberdeen Standard Capital to embrace these issues as part of their investment process.

Julie-Ann: I think it's a rapidly changing field and changing of its own accord. As our clients are becoming more informed, we're triggering these conversations ourselves by talking about how we consider ESG factors, what we expect of the companies that we invest in, how, as an organization, we advocate the positive change and quite rightly our clients are asking us if we hold ourselves to the same standards. They're going to be asking the same of other investment houses, this is happening all over the industry. You can see this start to have an effect. We're starting to see some of our peers become benefit corporations too and certainly a huge shift in the proposition that is being offered. It is definitely being steered towards-- certainly towards climate at the moment.

Amanda: Coming on to that, that's something I was quite keen to touch upon. It'd be great to hear your views about the types of conversations you're having with your clients. You've just mentioned climate there but also earlier you were talking about how you had a client 10 years ago who wanted a Human Rights screen. What are the hot topics, so to speak, that your clients are raising with you at the moment?

Julie-Ann: Certainly, climate change as the most significant by far, but increasingly-- and these things always start with charities in the main. There's always a few private clients but generally, charities start these trends. Diversity and inequality, and also registering. More usual, I saw a list last week from a new client who has just recently inherited a portfolio and it was a very long list and it included veganism and mental health and countering religious discrimination, so far more granular and I think that's the trend.

Amanda: Wow, some of those are pretty tricky things to think about in portfolio construction.

Julie-Ann: The one thing that all ages care about though is social duty and taxes, probably one of the more common concerns is companies that don't pay tax. It strikes a chord.

Amanda: It also raises another issue because some of these issues are clearly not black and white, they can have a variety of shades of grey. These complex issues, how do you explain your views or help your clients develop their thinking on some of these issues?

Julie-Ann: We found that the best way to do this is to be as transparent as possible and to actually drill down to what the stocks are and what the individual companies are doing, for example, when we talk about energy transition, we describe it not just by showing carbon emissions but talking about what these companies are actually doing. It's a careful balance between rewarding the truly mission-critical initiatives that some of these companies base their whole strategy around, but not compromising how we quantify that.

As you're fully aware, there are a number of areas of contention and this is a fluid debate, but I believe personally, that we're approaching these tricky areas in the best way if we remain pragmatic and transparent. I think the best way to do that is just to talk about what the companies are actually doing, and where they need to make improvements, and how we are engaging with these companies.

Amanda: Now, we've talked a lot about what your clients are asking for. You've talked a lot about why it's important, but on a personal level, what is it that interests you about responsible investment, perhaps at specific topics, or sometimes are there things that you yourself have a difficult time wrestling with?

Julie-Ann: I think what really interests me is that ability to make a tangible difference for good, to be part of something real. I'm talking here about the impact approach, the global impact strategy. Investing in companies aligned to the UN Sustainable Development Goals, I think it just makes complete sense to me and it's incredibly empowering to be part of an agenda to tackle the world's biggest issues and see it quantified and cover a whole vast range of areas but also learn from the process.

By the reports that the UN produce, and the work that ASI do in this area, you learn so much about what is actually going on in the world and what needs to be tackled as well. I think it's just a fantastic opportunity.

In terms of struggle, the main areas of struggle day to day is tobacco. Not that I'm struggling with smoking- [laughter]. I don't smoke. I just struggle, I'm just trying to understand why anyone would invest in tobacco companies with private clients. We're discretionary fund managers but some in our area or in our industry, relentlessly argue the perceived value of these companies and that's my biggest day to day struggle I think.

Amanda: Yes, I do think we're at a position where some of these called sin stocks will actually suffer valuation loss over time, in a way that they haven't done historically. It comes back to your point at the beginning, that this perception that if you invest alongside values or you invest responsibly, you might lose money value and I think that that perception has definitely changed.

Now the one thing I've done for my listeners is ask my guests to provide a bit of inspiration. I've asked for book, film, TV recommendations that you might like to make relating to environmental or social issues. Is there anything, Julie-Ann, that you would like to share with our listeners that has resonated with you recently?

Julie-Ann: I think I could probably spend the whole podcast talking about books. I read quite a lot, and I think, in relation to this, only by understanding ourselves as individuals and our history as a species can we really attempt to fully understand these issues with the right context. I enjoy both historical and philosophical books, so I'm bound to say that. At the moment, I am three-quarters of the way through Yuval Noah Harari's Homo Deus which is the sequel to Sapiens his history of mankind, also another great book.

Homo Deus looks at who we are as a species in the context of what we have put both the planet and each other through over millennia, and after conquering unavoidable famine, war, and play, it covers where we go from here. It's absolutely fascinating and full of factual detail that I love as well as daunting in terms of appreciating the full scale of our impact on the planet. In terms of understanding myself, I've read a couple of books actually in the last year that have really stood out over a number of years actually. Eckhart Tolle's A New Earth which explains the voice in your head and the concept of the ego, and Susan Cain's Quiet which was recommended to me by a colleague, the power of introverts in a world that just can't stop talking and [crosstalk]-

Amanda: [laughs]

Julie-Ann: That's fascinating. It's about this idea that societies really, we're conditioned to be extroverts from the start, particularly in a US culture, but that's sort of spread to the developed world as well. Really really fascinating. Can I ask you, Amanda, is there anything that you've read that stands out?

Amanda: Well, actually, what I've started doing is buying all the books that my guests have recommended, so Richard Curtis's recommendations are on my reading list at the moment. I've just kicked off with those. Sadly, as a single mother of a nine-year-old boy, I don't have much time to read, but I am really inspired by my guests' suggestions. It's been a fantastic question to have as part of my podcast list of questions. So thank you so much for those, and listeners do be inspired by Julie-Ann's recommendations.

Now, sadly, we're drawing to an end our time together on this podcast. It would be great to hear what your view of the responsible investment industry is going forward. What is the future? Where do we see ourselves in five years' time, particularly with a focus on the private wealth market and the individual investor?

Julie-Ann: I think we're heading towards the tipping points where increasing disclosure of ESG data, mandated in the main by regulation converges with our growing desire to be more informed. This means that to ignore the impact of our investment choices would have to be a conscious decision. I think we're going to be informed to the point where we would physically have to put our head in the sand to ignore the monumental issues we face to protect the planet and the people on it and the part that individual companies play. I believe that investing responsibly, consciously making positive investment choices that tackle the world's biggest issues, will become the new normal - that will be a fantastic thing, how long this will take, I'm less certain, of course.

Amanda: Finally, are there any final thoughts you would like to share with our listeners today?

Julie-Ann: Well, yes, for want of a better phrase, it's just do it, make conscious investment decisions, invest for good and be part of the momentum that's moving the world and our industry to a better place.

Amanda: That's a really inspirational ending. Thank you so much for joining us today, Julie-Ann. It really has been a pleasure to have you on our podcast series.

Julie-Ann: Thank you so much, Amanda. It's been great to be here.

Amanda: Now, listeners, that ends our podcast for today. Now to those who have taken time to tune in, many thanks for listening. Please download previous podcasts, which you can find on our website or wherever you normally get your podcasts. Watch out for our next episode and tune in.