Welcome to the Fear and Greed Daily Interview. I'm Sean Aylmer. I'm always interested in speaking to investors and fund managers about the principles that underpin their decisions beyond just the need to deliver a strong return. A the consideration of ESG, that's environmental, social, governance factors, has certainly become a bigger influence in recent years. Federation Asset Management is a fund that invests in businesses and assets that fit a social and economic need. It's headed up by Cameron Brownjohn who's had decades of experience with Macquarie Group, UBS and Merrill Lynch. He's now the CEO of Federation Asset Management and my guest this morning. Cameron, welcome to Fear and Greed.

Welcome to the Fear and Greed Daily Interview. I'm Sean Aylmer. I'm always interested in speaking to investors and fund managers about the principles that underpin their decisions beyond just the need to deliver a strong return. A the consideration of ESG, that's environmental, social, governance factors, has certainly become a bigger influence in recent years. Federation Asset Management is a fund that invests in businesses and assets that fit a social and economic need. It's headed up by Cameron Brownjohn who's had decades of experience with Macquarie Group, UBS and Merrill Lynch. He's now the CEO of Federation Asset Management and my guest this morning. Cameron, welcome to Fear and Greed.

Thank you for having me.

Thank you for having me.

So why focus on ESG? And is it more on the E or is it a bit of everything?

So why focus on ESG? And is it more on the E or is it a bit of everything?

It's probably a bit of everything, to be honest. Maybe to guide you, Federation invests in businesses and assets that meet a social and economic need. And really, the way that we think about ESG is from a perspective of, we think it's the best way to protect an investor's money and to grow that capital. And we think that in fact, if you invest in an ESG savvy way, and if you make a range of positive and negative undertakings as to how you will screen for ESG related factors, that you are more likely to protect investors capital and that you are more likely to make a return on that capital as opposed to lose money because you are trying to focus on ESG factors.

It's probably a bit of everything, to be honest. Maybe to guide you, Federation invests in businesses and assets that meet a social and economic need. And really, the way that we think about ESG is from a perspective of, we think it's the best way to protect an investor's money and to grow that capital. And we think that in fact, if you invest in an ESG savvy way, and if you make a range of positive and negative undertakings as to how you will screen for ESG related factors, that you are more likely to protect investors capital and that you are more likely to make a return on that capital as opposed to lose money because you are trying to focus on ESG factors.

So why? Is it because it's a global mega trend? Is it because that's where investor money is going? Why?

So why? Is it because it's a global mega trend? Is it because that's where investor money is going? Why?

I guess maybe I'll give you an example, which is notable in the press these days being the thermal coal industry, which is not an industry that we do invest in, in Federation. And really using that as an example as a negative selection bias from an ESG perspective, we would be fearful that the pool of investors that would be likely to buy a thermal coal asset in the future will be less than the pool of investors that would be available to buy that asset five years ago, 10 years ago, a generation ago. And if you, I guess, take the crude example of there is less buyers than sellers, you should be expecting the price of that asset, all other things being equal, going down. Then, if you take the example of what will you do with thermal coal, you can do a number of things. But one of which is you can burn it to make electricity with the pivot to obviously green power and renewable energy generation, which is something that my team knows a little bit about, you would be there for expecting the price of coal, all other thing being equal, going down over time. So, it would be our fear that if we were to be investing into that sort of space, that there are easier ways to protect investors capital and try and find boats that float on a rising tide as opposed to a tide that is going out. So I guess flipping that logic around, we like to invest in renewable energy. We like to invest in new technologies that should benefit from social change, I guess, on the flip side of that logic.

I guess maybe I'll give you an example, which is notable in the press these days being the thermal coal industry, which is not an industry that we do invest in, in Federation. And really using that as an example as a negative selection bias from an ESG perspective, we would be fearful that the pool of investors that would be likely to buy a thermal coal asset in the future will be less than the pool of investors that would be available to buy that asset five years ago, 10 years ago, a generation ago. And if you, I guess, take the crude example of there is less buyers than sellers, you should be expecting the price of that asset, all other things being equal, going down. Then, if you take the example of what will you do with thermal coal, you can do a number of things. But one of which is you can burn it to make electricity with the pivot to obviously green power and renewable energy generation, which is something that my team knows a little bit about, you would be there for expecting the price of coal, all other thing being equal, going down over time. So, it would be our fear that if we were to be investing into that sort of space, that there are easier ways to protect investors capital and try and find boats that float on a rising tide as opposed to a tide that is going out. So I guess flipping that logic around, we like to invest in renewable energy. We like to invest in new technologies that should benefit from social change, I guess, on the flip side of that logic.

Okay. So that's fine. But when you see energy prices going through the roof, as they are at the moment, gas, oil, coal, all at multi- year highs, how hard is it holding the line in terms of staying away from some of those products?

Okay. So that's fine. But when you see energy prices going through the roof, as they are at the moment, gas, oil, coal, all at multi- year highs, how hard is it holding the line in terms of staying away from some of those products?

I don't think it's difficult. You can invest in an ESG savvy way and still benefit from those trends that you speak of. So for example, Federation builds wind farms. We bought Australia's leading wind farm developer in Windlab. It's the former CSIRO wind sites division. They use wind farms to produce electricity, not coal- fired power stations to produce electricity. So they can be benefiting from these energy price benefits that you speak of but in an ESG savvy way. So it's, I guess it's just a way of intelligently playing the mega trends and positioning yourself to benefit from them.

I don't think it's difficult. You can invest in an ESG savvy way and still benefit from those trends that you speak of. So for example, Federation builds wind farms. We bought Australia's leading wind farm developer in Windlab. It's the former CSIRO wind sites division. They use wind farms to produce electricity, not coal- fired power stations to produce electricity. So they can be benefiting from these energy price benefits that you speak of but in an ESG savvy way. So it's, I guess it's just a way of intelligently playing the mega trends and positioning yourself to benefit from them.

Okay. As an investor then, how do you think about, I mean, Shell is an example, Total in France is an example, BHP is an example, where they're trying... They have a climate change strategy and an ESG strategy to go from brown to clean at some point in the future. Is it okay to invest in those sorts of companies? I get you don't want to invest in a company who has a strategy to pull coal out of the ground for the next 50 years. But what about those who are going through a transition? Because we still need energy as we get to net zero in 2050.

Okay. As an investor then, how do you think about, I mean, Shell is an example, Total in France is an example, BHP is an example, where they're trying... They have a climate change strategy and an ESG strategy to go from brown to clean at some point in the future. Is it okay to invest in those sorts of companies? I get you don't want to invest in a company who has a strategy to pull coal out of the ground for the next 50 years. But what about those who are going through a transition? Because we still need energy as we get to net zero in 2050.

The Australian landscape is not dissimilar. Where certainly the federal liberal government believes that there will be a need to transition Australia's baseload power from predominantly brown and black coal- fired power stations through to a longer term, more sustainable set of power. Rooftop solar, grid- scale solar, wind power, pumped hydro and batteries, and I'm sure other technologies in the fullness of time, things like hydrogen. And to get from go to whoa, there may be a need to use transitionary fuels. People have talked of gas- fired power stations and the like. This will be a process if done in an Orthodox way, the way other countries have done it will take a generation or half a generation to play out. So yes, we would be open to considering how to participate in that energy transition. And we think that participating in the energy transition with the ultimate goal of getting to the most sustainable, and by the way, cheapest cost of power is a sensible investing strategy.

The Australian landscape is not dissimilar. Where certainly the federal liberal government believes that there will be a need to transition Australia's baseload power from predominantly brown and black coal- fired power stations through to a longer term, more sustainable set of power. Rooftop solar, grid- scale solar, wind power, pumped hydro and batteries, and I'm sure other technologies in the fullness of time, things like hydrogen. And to get from go to whoa, there may be a need to use transitionary fuels. People have talked of gas- fired power stations and the like. This will be a process if done in an Orthodox way, the way other countries have done it will take a generation or half a generation to play out. So yes, we would be open to considering how to participate in that energy transition. And we think that participating in the energy transition with the ultimate goal of getting to the most sustainable, and by the way, cheapest cost of power is a sensible investing strategy.

You mentioned Windlab a moment ago. You also have a stake in Sendle, which certainly isn't a generator such as Windlab is. It's Australia's first 100% carbon neutral parcel delivery service. What's the appeal of that business?

You mentioned Windlab a moment ago. You also have a stake in Sendle, which certainly isn't a generator such as Windlab is. It's Australia's first 100% carbon neutral parcel delivery service. What's the appeal of that business?

Sendle is an e- commerce logistics business. It moves things from A to B without human interaction, using computers to find the marginal capacity in the logistics network at its marginal cost. And what that means is it's cheap and it's fast and it's passing those savings through to consumers. Therefore, it's growing really quickly. Federation invested in that business in December 2018. And every month since we've invested, volumes and revenue have been up more than 50% on the prior comparable period and in many months, more than a hundred percent. And even in some months through COVID, more than 200%. It's a real Australian success story. And when Federation invested into that business, the company was looking for expansion capital to grow its horizons into the United States, with the benefit of eBay and Shopify as two key customers. So, it's a wonderful, fast growing business. We're aligned to the principles of the company on many bases, but including their approach to the environment. They are a B Corp, which is a very high standard of an ESG friendly company in the United States. And we're excited about what they're doing both in a business sense and what they're doing for the planet as well.

Sendle is an e- commerce logistics business. It moves things from A to B without human interaction, using computers to find the marginal capacity in the logistics network at its marginal cost. And what that means is it's cheap and it's fast and it's passing those savings through to consumers. Therefore, it's growing really quickly. Federation invested in that business in December 2018. And every month since we've invested, volumes and revenue have been up more than 50% on the prior comparable period and in many months, more than a hundred percent. And even in some months through COVID, more than 200%. It's a real Australian success story. And when Federation invested into that business, the company was looking for expansion capital to grow its horizons into the United States, with the benefit of eBay and Shopify as two key customers. So, it's a wonderful, fast growing business. We're aligned to the principles of the company on many bases, but including their approach to the environment. They are a B Corp, which is a very high standard of an ESG friendly company in the United States. And we're excited about what they're doing both in a business sense and what they're doing for the planet as well.

Stay with me Cameron. We'll be back in a minute. I'm speaking to Cameron Brownjohn, CEO of Federation Asset Management. Okay. So let's move off the E part of ESG. Another area of expertise for Federation Asset Management is social real estate. And one of your funds focuses on housing for people with a disability, which has the indirect support of the government National Disability Insurance Scheme. Take me through this one. How did this one come about?

Stay with me Cameron. We'll be back in a minute. I'm speaking to Cameron Brownjohn, CEO of Federation Asset Management. Okay. So let's move off the E part of ESG. Another area of expertise for Federation Asset Management is social real estate. And one of your funds focuses on housing for people with a disability, which has the indirect support of the government National Disability Insurance Scheme. Take me through this one. How did this one come about?

That's called Synergis, that business. And we manage Synergis in a joint venture with Social Ventures Australia, which is a leading industry player, which basically does what it says on the tin. You are right, that real estate investment trust buys and builds homes for people living with disability. And the rent is indirectly paid for by the Commonwealth government's National Disability Insurance Scheme. We are pleased to be one of the leading participants in that broad and growing industry. And it's a large total addressable market in the needs of 20,000 people or $ 10 billion worth of investment that needs to go into that space. So it's a large and growing space and we're excited to be doing the right thing by the world, but expressed purely financially, which is I think your question as to why a fund manager would be doing those thing. Think of us doing the right thing by the world, but at the same time buying and building Australian residential real estate at a 7 to 8% cap rate. In the suburb that I live in Sydney, maybe rental yields are 2%, so it's good business to be doing this. And my income is 100% government backed. So, I spoke earlier of not needing to choose between making good financial decisions and doing the right thing by the world. Synergis is a wonderful example of making good financial decisions for our investors capital and also doing the right thing by the world at the same time.

That's called Synergis, that business. And we manage Synergis in a joint venture with Social Ventures Australia, which is a leading industry player, which basically does what it says on the tin. You are right, that real estate investment trust buys and builds homes for people living with disability. And the rent is indirectly paid for by the Commonwealth government's National Disability Insurance Scheme. We are pleased to be one of the leading participants in that broad and growing industry. And it's a large total addressable market in the needs of 20,000 people or $ 10 billion worth of investment that needs to go into that space. So it's a large and growing space and we're excited to be doing the right thing by the world, but expressed purely financially, which is I think your question as to why a fund manager would be doing those thing. Think of us doing the right thing by the world, but at the same time buying and building Australian residential real estate at a 7 to 8% cap rate. In the suburb that I live in Sydney, maybe rental yields are 2%, so it's good business to be doing this. And my income is 100% government backed. So, I spoke earlier of not needing to choose between making good financial decisions and doing the right thing by the world. Synergis is a wonderful example of making good financial decisions for our investors capital and also doing the right thing by the world at the same time.

So there's no compromising on returns anymore when it comes to ESG?

So there's no compromising on returns anymore when it comes to ESG?

You don't need to, no.

You don't need to, no.

Okay. When you're looking at an investment, how do you put the ESG lens over it to see whether it's going to... I'm sure, at the top of the funnel, there's lots of opportunities for an organisation like yours, but you put the ESG lens over it. How do you filter through it?

Okay. When you're looking at an investment, how do you put the ESG lens over it to see whether it's going to... I'm sure, at the top of the funnel, there's lots of opportunities for an organisation like yours, but you put the ESG lens over it. How do you filter through it?

There is many factors that the world is learning to filter through from an ESG perspective. There's five broad buckets that the Federation team looks through. And maybe to give a couple of examples, one of those buckets is things that drive revenue. Another one of those buckets is things that drive cost. So on revenue, you might be focusing on the stickiness of customers depending on the business model, but using stickiness of customers as an example, do customers buy from this company because of price or some other factor? Is the cost base of the company sustainable? And we don't ask that from a perspective of, are they doing the right thing by the world, but do they, for example, have a large polarity towards renewable energy? Not because it's necessarily the right thing by the world, but because it will become cheaper than competing technologies over time. And so through these sorts of lenses, you get a feel for what is the outlook of this business from the immediate term into the longer term.

There is many factors that the world is learning to filter through from an ESG perspective. There's five broad buckets that the Federation team looks through. And maybe to give a couple of examples, one of those buckets is things that drive revenue. Another one of those buckets is things that drive cost. So on revenue, you might be focusing on the stickiness of customers depending on the business model, but using stickiness of customers as an example, do customers buy from this company because of price or some other factor? Is the cost base of the company sustainable? And we don't ask that from a perspective of, are they doing the right thing by the world, but do they, for example, have a large polarity towards renewable energy? Not because it's necessarily the right thing by the world, but because it will become cheaper than competing technologies over time. And so through these sorts of lenses, you get a feel for what is the outlook of this business from the immediate term into the longer term.

You're just making a normal investment. I mean, everything you've said today, Cameron, is you are just being an investor, looking at a set of products which has an ESG lens. But at the end of the day, it's about making a return and you're doing good as well.

You're just making a normal investment. I mean, everything you've said today, Cameron, is you are just being an investor, looking at a set of products which has an ESG lens. But at the end of the day, it's about making a return and you're doing good as well.

We think it's the most sensible way to invest, is to invest with your eyes open to ESG factors.

We think it's the most sensible way to invest, is to invest with your eyes open to ESG factors.

Cameron, thank you for talking to Fear and Greed.

Cameron, thank you for talking to Fear and Greed.

Thank you very much.

Thank you very much.

That was Cameron Brownjohn. CEO of Federation 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.

That was Cameron Brownjohn. CEO of Federation 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.