Welcome to the Fear and Greed Daily Interview. I'm Sean Aylmer. One of the most significant trends in investing is sustainable or ethical investing. Today, I wanted to look at one aspect in particular, and that's green investing - the idea that you can help lower carbon emissions while at the same time ensuring a financial return on your investment. Altius Asset Management, which is the in-house cash and fixed interest team at Australian Unity, launched the Green Bond Fund last year, the first in the Australian market. Bill Bovingdon is the Chief Investment Officer of Altius Asset Management. Bill, welcome to Fear and Greed.

Welcome to the Fear and Greed Daily Interview. I'm Sean Aylmer. One of the most significant trends in investing is sustainable or ethical investing. Today, I wanted to look at one aspect in particular, and that's green investing - the idea that you can help lower carbon emissions while at the same time ensuring a financial return on your investment. Altius Asset Management, which is the in-house cash and fixed interest team at Australian Unity, launched the Green Bond Fund last year, the first in the Australian market. Bill Bovingdon is the Chief Investment Officer of Altius Asset Management. Bill, welcome to Fear and Greed.

Thanks very much.

Thanks very much.

Let's start with the basics for people like me. What exactly is green investing?

Let's start with the basics for people like me. What exactly is green investing?

Yeah, well, look, there are quite a few definitions and terminology around green investing. And clearly, it straddles not only various levels of direct and impact investing across different asset classes, but it also has, you know, high touch and low touch or deep green and light green, if you like.

Yeah, well, look, there are quite a few definitions and terminology around green investing. And clearly, it straddles not only various levels of direct and impact investing across different asset classes, but it also has, you know, high touch and low touch or deep green and light green, if you like.

Right. So can you give me some examples of what you're and the Green Bond Fund is investing in, for example?

Right. So can you give me some examples of what you're and the Green Bond Fund is investing in, for example?

Yeah, absolutely. Well, in the fixed income space, I guess ESG (Environmental, Social, Governance) is a relatively new phenomenon. Altius Asset Management launched Australia's first sustainable green bond, which is a green bond that has an ESG focus. So a responsible investment option, if you like, in fixed income back in 2014. So, you know, only about seven years old now. And I guess the distinction there is that's a fund which is starts with a relatively conventional fixed income universe and then sorts that universe according to the research that we undertake on the ESG profile and capabilities of those debt issuers to exclude any unacceptable activities and to positively sort for better ESG performance. And the Green Bond Fund is really a very much an extension of that because it takes that search for positive impact from the lending that you do to organisations to the next level because a green bond actually specifically identifies the projects and uses of the funds when they actually make their way to the organisation that's doing the borrowing.

Yeah, absolutely. Well, in the fixed income space, I guess ESG (Environmental, Social, Governance) is a relatively new phenomenon. Altius Asset Management launched Australia's first sustainable green bond, which is a green bond that has an ESG focus. So a responsible investment option, if you like, in fixed income back in 2014. So, you know, only about seven years old now. And I guess the distinction there is that's a fund which is starts with a relatively conventional fixed income universe and then sorts that universe according to the research that we undertake on the ESG profile and capabilities of those debt issuers to exclude any unacceptable activities and to positively sort for better ESG performance. And the Green Bond Fund is really a very much an extension of that because it takes that search for positive impact from the lending that you do to organisations to the next level because a green bond actually specifically identifies the projects and uses of the funds when they actually make their way to the organisation that's doing the borrowing.

Okay, so just sort of putting examples on that and not necessarily the green bond fund does this, but that first level, it's saying we won't support or fund tobacco companies or gaming companies or whatever it happens to be.

Okay, so just sort of putting examples on that and not necessarily the green bond fund does this, but that first level, it's saying we won't support or fund tobacco companies or gaming companies or whatever it happens to be.

Exactly.

Exactly.

But this next level with the Green Bond Fund, what you're doing is saying you will support organisations that are having an impact. What sort of assets are you lending to through the bond fund?

But this next level with the Green Bond Fund, what you're doing is saying you will support organisations that are having an impact. What sort of assets are you lending to through the bond fund?

Well, look at a really good example of the distinction is that for many years in our sustainable bond fund, we had an exclusion on Woolworths. And the rationale there was that they had a obviously part of their business was in alcohol sales and also gambling. So two activities which are in a responsible investment mandate didn't find favour. We knew that they had a demerger plan in place and we, therefore, kept an engagement going with Woolworths, but they still stayed on our excluded list. Then they brought a green bond to the market and the green bond was specifically being used to retrofit and to improve the emissions performance of their retail businesses. And we thought that was a terrific initiative. So we gave them a carve-out to allow their green bond to be held both in our green bond fund and our sustainable fixed income fund on the basis that they didn't backslide on their demerger, which they obviously completed not long ago when they spun off the Endeavour Group. But I think that gives a distinction. We certainly wouldn't have entertained being invested in Woolworths in any fashion until they completed that demerger, except that they brought this green bond to market and we really wanted to support that initiative.

Well, look at a really good example of the distinction is that for many years in our sustainable bond fund, we had an exclusion on Woolworths. And the rationale there was that they had a obviously part of their business was in alcohol sales and also gambling. So two activities which are in a responsible investment mandate didn't find favour. We knew that they had a demerger plan in place and we, therefore, kept an engagement going with Woolworths, but they still stayed on our excluded list. Then they brought a green bond to the market and the green bond was specifically being used to retrofit and to improve the emissions performance of their retail businesses. And we thought that was a terrific initiative. So we gave them a carve-out to allow their green bond to be held both in our green bond fund and our sustainable fixed income fund on the basis that they didn't backslide on their demerger, which they obviously completed not long ago when they spun off the Endeavour Group. But I think that gives a distinction. We certainly wouldn't have entertained being invested in Woolworths in any fashion until they completed that demerger, except that they brought this green bond to market and we really wanted to support that initiative.

So it raises the question that companies can change. And so airports used to be much dirtier than they are now in an ESG sense. BHP is there's talk around the place that it may get rid of its oil and gas assets. Without you commenting specifically on those examples, that's not what I'm asking, can companies be on the list and then off the list? And does that happen often, and particularly if you're changing from fossil fuels to renewables, is that going to curry favour with people like you?

So it raises the question that companies can change. And so airports used to be much dirtier than they are now in an ESG sense. BHP is there's talk around the place that it may get rid of its oil and gas assets. Without you commenting specifically on those examples, that's not what I'm asking, can companies be on the list and then off the list? And does that happen often, and particularly if you're changing from fossil fuels to renewables, is that going to curry favour with people like you?

Look, it's a great question because there's a whole philosophical question around things like transition bonds, where a business, you know, has a legacy of high emission activities. And, you know, we don't want to penalise them for that because those businesses were created and indeed a lot of good for society in terms of economic development and so forth for many years before it was obvious that there was a problem with emissions, so really it for us it's about intent going forward. But equally, there's a real concern that and due diligence required on our part before we will be comfortable that there is a credible transition plan in place. Look, the name of this podcast is Fear and Greed. So let me, I guess, highlight where I see the fear in the green bond market and ESG investing in general. And it's all around greenwashing. So to the extent that there are organisations that will cynically or otherwise use the cover of potential, you know, what would you say ...

Look, it's a great question because there's a whole philosophical question around things like transition bonds, where a business, you know, has a legacy of high emission activities. And, you know, we don't want to penalise them for that because those businesses were created and indeed a lot of good for society in terms of economic development and so forth for many years before it was obvious that there was a problem with emissions, so really it for us it's about intent going forward. But equally, there's a real concern that and due diligence required on our part before we will be comfortable that there is a credible transition plan in place. Look, the name of this podcast is Fear and Greed. So let me, I guess, highlight where I see the fear in the green bond market and ESG investing in general. And it's all around greenwashing. So to the extent that there are organisations that will cynically or otherwise use the cover of potential, you know, what would you say ...

Curry favour by leaning a little too heavily on green credentials that aren't there, perhaps?

Curry favour by leaning a little too heavily on green credentials that aren't there, perhaps?

Correct. Or alternatively, have a management that gets rolled. I mean, if you look at AGL, for instance, you know, with their previous CEO, it looked like they were really meaningfully going to try to transition their business and then backslid with the change of management. And so there's a lot to be done. And I think, you know, what we're seeing as a potential damage to our entire industry is a tightening up. And we've seen the EU come in with their anti greenwashing rules, sustainable finance disclosure regulations. And what that's done is it's actually declassified I think it's about two trillion dollars worth of funds which had been nominated as ESG and have had to resile from those claims.

Correct. Or alternatively, have a management that gets rolled. I mean, if you look at AGL, for instance, you know, with their previous CEO, it looked like they were really meaningfully going to try to transition their business and then backslid with the change of management. And so there's a lot to be done. And I think, you know, what we're seeing as a potential damage to our entire industry is a tightening up. And we've seen the EU come in with their anti greenwashing rules, sustainable finance disclosure regulations. And what that's done is it's actually declassified I think it's about two trillion dollars worth of funds which had been nominated as ESG and have had to resile from those claims.

Stay with me, Bill. We'll be back in a minute.

Stay with me, Bill. We'll be back in a minute.

My guest this morning is Bill Bovingdon, Chief Investment Officer of Altius Asset Management. So the question, of course, for an investor is whether the return is the same or higher or lower. Am I compromising on return when I'm going into a green bond fund?

My guest this morning is Bill Bovingdon, Chief Investment Officer of Altius Asset Management. So the question, of course, for an investor is whether the return is the same or higher or lower. Am I compromising on return when I'm going into a green bond fund?

Look in bonds and in general, there's a good body of work out there which has shown that investments with an ESG or green angle have performed really well. And I guess that's been a function of the fact that there's been some challenges in fossil fuel industries and clearly in a lot of risk in activities like gambling, where we've seen what's happened to Crown and so forth. So it does I guess that extra layer of risk management and a focus upon both environmental and social risks to an organisation does really, particularly in the context of a bond portfolio, which are defensive assets with an asymmetric risk profile, you get your interest or you lose all your money. That extra level of scrutiny that comes from doing ESG assessment stands investors in good stead. And there's lots of studies, particularly in deeper markets like Europe and the US, where they've looked at long term assessments of bond markets and then sorted them for good ESG and bad ESG performance. And definitely, the ESG portfolios have performed as well if not better than the market as a whole. And we found that with our sustainable bond fund, it's based on our long standing Altius Bond Fund, which has been running since 2011 and has an absolute return style. And both portfolios are managed to exactly the same strategy and the sustainable bond fund it has actually outperformed its regular cousin. So that's like a little bit of a lab experiment that many managers are able to do. And it does really show that sustainable and ESG investment doesn't compromise on returns. And indeed, we've just passed one year on our green bond fund and it's one per cent ahead of its underlying composite bond index, which is its benchmark. And clearly, that has no restrictions with respect to activities. So, again, that's a good sign that the performance is still there in these funds and you are hitting the extra objective of being a responsible investor.

Look in bonds and in general, there's a good body of work out there which has shown that investments with an ESG or green angle have performed really well. And I guess that's been a function of the fact that there's been some challenges in fossil fuel industries and clearly in a lot of risk in activities like gambling, where we've seen what's happened to Crown and so forth. So it does I guess that extra layer of risk management and a focus upon both environmental and social risks to an organisation does really, particularly in the context of a bond portfolio, which are defensive assets with an asymmetric risk profile, you get your interest or you lose all your money. That extra level of scrutiny that comes from doing ESG assessment stands investors in good stead. And there's lots of studies, particularly in deeper markets like Europe and the US, where they've looked at long term assessments of bond markets and then sorted them for good ESG and bad ESG performance. And definitely, the ESG portfolios have performed as well if not better than the market as a whole. And we found that with our sustainable bond fund, it's based on our long standing Altius Bond Fund, which has been running since 2011 and has an absolute return style. And both portfolios are managed to exactly the same strategy and the sustainable bond fund it has actually outperformed its regular cousin. So that's like a little bit of a lab experiment that many managers are able to do. And it does really show that sustainable and ESG investment doesn't compromise on returns. And indeed, we've just passed one year on our green bond fund and it's one per cent ahead of its underlying composite bond index, which is its benchmark. And clearly, that has no restrictions with respect to activities. So, again, that's a good sign that the performance is still there in these funds and you are hitting the extra objective of being a responsible investor.

It just seems to me that from a consumer perspective, government perspective definitely, regulator perspective, there's a weight of money going into green investing in a sense, which means you almost have to be part of it lest you be left behind.

It just seems to me that from a consumer perspective, government perspective definitely, regulator perspective, there's a weight of money going into green investing in a sense, which means you almost have to be part of it lest you be left behind.

It is a really fast growing market and a really exciting area. We're seeing innovation in this area all the time. We just saw Wesfarmers come to the market with Australia's first sustainably linked bond. And the idea behind that is not to make it tied to a specific project, but to set up some commitments or KPIs that Wesfarmers have to deliver on where they basically will get a penalty increase in the interest they pay on their bonds if they don't meet those objectives.

It is a really fast growing market and a really exciting area. We're seeing innovation in this area all the time. We just saw Wesfarmers come to the market with Australia's first sustainably linked bond. And the idea behind that is not to make it tied to a specific project, but to set up some commitments or KPIs that Wesfarmers have to deliver on where they basically will get a penalty increase in the interest they pay on their bonds if they don't meet those objectives.

Wow. That's putting your money where your mouth is.

Wow. That's putting your money where your mouth is.

Correct. It is. And they're meaningful objectives as well. So their first KPI was that they were looking to source 100 per cent of their energy for their retail businesses by 2025.

Correct. It is. And they're meaningful objectives as well. So their first KPI was that they were looking to source 100 per cent of their energy for their retail businesses by 2025.

Through renewables?

Through renewables?

Through renewables. Yes, exactly. And for the second KPI was around the ammonium nitrate in their fertiliser businesses and other businesses, even with any acquisitions and growth in their portfolio to keep that at a world best level. So both of those things, you know, the sort of market took as being really positive from an ESG point of view, but also the fact that if they didn't meet them, their coupon would step up by up to a quarter of a per cent. That really just shows some. Yes.

Through renewables. Yes, exactly. And for the second KPI was around the ammonium nitrate in their fertiliser businesses and other businesses, even with any acquisitions and growth in their portfolio to keep that at a world best level. So both of those things, you know, the sort of market took as being really positive from an ESG point of view, but also the fact that if they didn't meet them, their coupon would step up by up to a quarter of a per cent. That really just shows some. Yes.

Commitment.

Commitment.

A fair bit of commitment and confidence that they will meet their objectives.

A fair bit of commitment and confidence that they will meet their objectives.

Yeah. So just finally, who are the investors investing in the Green Bond Fund? Is it set up for not for profits or is it the smaller super funds? Who is it that really want to get into the fund?

Yeah. So just finally, who are the investors investing in the Green Bond Fund? Is it set up for not for profits or is it the smaller super funds? Who is it that really want to get into the fund?

Yeah, look, it's across the spectrum. So the fund was launched, as I said, a bit over a year ago. And the cornerstone investors at that time was the Clean Energy Finance Corporation. So the federal government's green bank, as they're often referred to, and they really want to support this fund and this initiative because they saw it as a great way to basically create more focus on this as a really important sector of the Australian sustainable finance market and debt markets in general. And they wanted to kind of democratise, if you like, access to this market because it had traditionally been tied up with big super funds and also large insurance companies who would buy these bonds at primary issuance and then just sit on them. They didn't come back into the secondary market, so it's very difficult for charities, not for profits, high net worths, small super funds and so forth to get access to green bonds. So our portfolio is a way for that to happen. And Crestone Wealth are one of the foundation investors in that as well. And clearly, they have a lot of both not for profits, charities, high net worth clients amongst their advisor base, and that allows their investors to get access to our fund. And just recently, we welcomed non-Government Schools Super Fund as the first industry fund that's also started investing into the fund. So the Green Bond Fund is now available to retail investors with as little as five thousand dollars. So for everyday investors who want to use part of their defensive assets in an impactful way, this is allowing, I guess, that whole range of investors to be involved in the green bond market.

Yeah, look, it's across the spectrum. So the fund was launched, as I said, a bit over a year ago. And the cornerstone investors at that time was the Clean Energy Finance Corporation. So the federal government's green bank, as they're often referred to, and they really want to support this fund and this initiative because they saw it as a great way to basically create more focus on this as a really important sector of the Australian sustainable finance market and debt markets in general. And they wanted to kind of democratise, if you like, access to this market because it had traditionally been tied up with big super funds and also large insurance companies who would buy these bonds at primary issuance and then just sit on them. They didn't come back into the secondary market, so it's very difficult for charities, not for profits, high net worths, small super funds and so forth to get access to green bonds. So our portfolio is a way for that to happen. And Crestone Wealth are one of the foundation investors in that as well. And clearly, they have a lot of both not for profits, charities, high net worth clients amongst their advisor base, and that allows their investors to get access to our fund. And just recently, we welcomed non-Government Schools Super Fund as the first industry fund that's also started investing into the fund. So the Green Bond Fund is now available to retail investors with as little as five thousand dollars. So for everyday investors who want to use part of their defensive assets in an impactful way, this is allowing, I guess, that whole range of investors to be involved in the green bond market.

It's kind of interesting. My 19 year old suddenly wants to invest. Now he's probably talking shares more than bonds. But when we're talking about how you might invest in equities or other places, he actually talks about the need for the investment to be making a difference, which I when I was 19, that's the last thing I was thinking of.

It's kind of interesting. My 19 year old suddenly wants to invest. Now he's probably talking shares more than bonds. But when we're talking about how you might invest in equities or other places, he actually talks about the need for the investment to be making a difference, which I when I was 19, that's the last thing I was thinking of.

Yes.

Yes.

But he is thinking of that.

But he is thinking of that.

You are so right. That's the feedback we get from a lot of super funds that their cohort is breaking up in terms of engagement. There's the highest engagement are for those about to retire and those just coming into the fund who say, okay, I'm not going to see this money for 30 years, but I'd like to know that it's doing something worthwhile in the meantime. So your son's attitude perfectly illustrates that.

You are so right. That's the feedback we get from a lot of super funds that their cohort is breaking up in terms of engagement. There's the highest engagement are for those about to retire and those just coming into the fund who say, okay, I'm not going to see this money for 30 years, but I'd like to know that it's doing something worthwhile in the meantime. So your son's attitude perfectly illustrates that.

Bill, thank you for talking to Fear and Greed.

Bill, thank you for talking to Fear and Greed.

Absolutely. My pleasure.

Absolutely. My pleasure.

That was Bill Bovingdon, Chief Investment Officer of Altius Asset Management.

That was Bill Bovingdon, Chief Investment Officer of Altius Asset Management.

This is the Fear and Greed Daily Interview. Join me every morning for the full Fear and Greed podcast with all the business news you need to know. I'm Sean Aylmer. Enjoy your day.

This is the Fear and Greed Daily Interview. Join me every morning for the full Fear and Greed podcast with all the business news you need to know. I'm Sean Aylmer. Enjoy your day.